Petroleum Subsidies and FX Distortions Cost Nigeria 6% of GDP – CBN Reveals Economic Recovery
Nigeria’s economy narrowly avoided a collapse as years of mismanaged petroleum subsidies and foreign exchange distortions drained resources equivalent to six percent of GDP, the Central Bank of Nigeria (CBN) has revealed. Deputy Governor for Economic Policy, Muhammad Abdullahi, described the situation as a “breaking point” for a nation of over 200 million people.
Speaking at a policy forum organized by Agora Policy, Abdullahi said net foreign reserves had plunged to just $800 million before reforms began, with a $7 billion backlog owed to businesses and investors threatening government operations at all levels. He emphasized that declining foreign exchange flows and economic distortions had severely undermined investor confidence.
However, Abdullahi noted that aggressive macroeconomic reforms since October 2023 have stabilized Nigeria’s financial system. The measures have increased net foreign reserves to over $32 billion, encouraged foreign investment, and restored faith in the economy. Non-oil exports, which earned $6 billion last year, are now projected to double in the near term, while inflation has been steadily declining for 19 months.
The CBN official highlighted that multiple exchange rates and petroleum subsidies had previously fueled rent-seeking, reduced investment, and eroded public revenues. “These distortions, alongside petroleum subsidies, were costing the economy about six percent of GDP,” he said, stressing that reforms have now placed the country on a “strong footing toward a positive economic trajectory,” even as social challenges remain.
Abdullahi concluded by noting the broader turnaround in investor sentiment. “Portfolio investors now rank Nigeria first among emerging markets. Today we are an economy that is inspiring confidence everywhere we go. We have turned away from the imbalances we met and are on a strong footing toward a positive economic trajectory,” he said, signaling optimism for sustained growth.
source: The Sun