Nigeria's Economic Reforms: Structural Fixes Needed to Prevent Financial Leakage
President Bola Tinubu's economic reforms since May 2023 have garnered significant recognition for their bold structural adjustments. Key measures include unifying the exchange rate, eliminating the fuel subsidy, and rebuilding gross reserves to over $40 billion, marking Nigeria's most serious economic overhaul in decades. Federation revenues have seen substantial increases, with some months showing nearly double year-on-year growth. However, the International Monetary Fund projects real output per capita growth at a modest 0.6 percent for 2025, highlighting persistent challenges.
Debt service obligations now rival combined allocations for critical sectors like health, education, and infrastructure. This situation underscores a critical issue: increased financial flows through inefficient systems often lead to larger leakages rather than improved services. To address this, experts advocate for three structural changes that do not require constitutional amendments, focusing on enhancing public financial management (PFM) and accountability.
Three Essential Structural Reforms
First, the establishment of a PFM Monitoring and Tracking Office within the Presidency is proposed. This office would be mandated to publish quarterly implementation scorecards for every federal PFM reform commitment. Its primary role is not implementation—which remains with the Ministry of Finance, the Budget Office, and the Office of the Accountant-General of the Federation—but political accountability. By making reform slippage visible at the highest levels, it aims to ensure transparency and adherence to commitments.
Second, Nigeria should pass legislation to create an independent Office of Budget Responsibility, modeled on the United Kingdom's OBR. This independent body would scrutinize budget assumptions and publish findings without requiring executive clearance. This measure would prevent governments from presenting budgets based on unrealistic projections, such as overly optimistic oil revenue estimates, by providing an independent, public assessment.
Third, leveraging federal fiscal levers to promote expenditure accountability at the state level is crucial. Despite states' constitutional autonomy, the Federal Government can use three instruments to address issues like the perennial failure of states to release funds to local governments:
- Fiscal performance weighting in the revenue sharing formula: The Revenue Mobilisation Allocation and Fiscal Commission periodically reviews the Federation Account sharing formula. Currently based on population, land mass, and equality of states, it should incorporate a fiscal performance score. States that publish audited accounts, show internally generated revenue growth, and comply with local government remittance obligations would receive a marginally larger share, while those failing these benchmarks would receive less.
- PFM conditionality on state borrowing approvals: The Debt Management Office, which approves state borrowing based on debt service capacity, should add fiscal governance conditions. States must demonstrate that their last two years of accounts have been audited and published, they have not withheld local government allocations, they have adopted International Public Sector Accounting Standards, and their debt-to-revenue ratio is sustainable before receiving approval.
- Public fiscal performance scorecard at NEC: The Federal Government should restructure National Economic Council meetings to include a Public Fiscal Performance Scorecard—a league table covering each state across revenue generation, audit compliance, expenditure quality, and local government allocation remittance and debt sustainability. A proposed Financial Management Office in the Presidency would serve as secretariat, compiling, validating, and publishing the scorecard after each meeting for public and international scrutiny.
Path Forward for Governance
President Tinubu should leverage the current legislative majority to pass the necessary laws, building on the momentum of recent tax reform bills. With comparable political will, legislating sound financial management architecture can lay the foundation for Nigeria to realize its potential as a leading nation. The gap between Nigeria's governance indicators and those of countries like Rwanda reflects not just data points but the distance between revenues collected and services delivered.
While Tinubu has taken steps his predecessors avoided, stabilizing the macroeconomy is a precondition for PFM reform, not a substitute. As noted by Justice Louis Brandeis, sunlight is the greatest disinfectant. By bringing visibility to institutional failures and building best-practice financial management systems, Tinubu can ensure effective utilization of Nigeria's resources, demonstrating that governance, alongside growth, is key to national greatness.
