From IMF with mixed economic solutions

IMF Managing Director, Lagarde
IMF Managing Director, Lagarde

FOR most Nigerians, the last four-day visit of the International Monetary Fund (IMF) Managing Director, Ms Christine Lagarde to the country remains an economic voyage with somewhat cynical connotations and at the same time with perspectives that could help manage economic vulnerabilities especially at a time Nigeria is battling with varied economic challenges.

This is not Lagarde’s first visit to the country. In fact, her first visit to Africa as IMF’s managing director was in Nigeria in the late 2011. Lagarde seems to be visiting when there are serious economic difficulties. On her first visit, Nigeria was emerging from the 2008-2009 commodity price collapse and the banking crisis that followed.

Ms Lagarde met with President Muhammadu Buhari, members of the National Assembly and some bank executives. Understandably she was on a mission to help Nigeria get back to the ‘Giant of Africa’ position. But most Nigerians’ worry stems from the notion that IMF has been unfriendly to developing nations. The world’s financial institution has been largely famous in the past for experimenting in developing countries economic models and policies that fit mainly to developed nations. Nigerians are wont to be in a hurry to forget the Ibrahim Babangida’s years when IMF convinced Nigeria to adopt certain economic policies.

Even when some Nigerians raised alarm of unconvincing and suspicious implications at that time, IMF was able to influence the introduction and subsequent implementation of the Structural Adjustment Plan (SAP) programme. Even though there has been varied analysis on the programme, reviews and notes from the economic trajectory of the country suggest that SAP was more like a ‘white man’s’ imposed economic flip flop that didn’t deliver the anticipated gains. Many believe that Nigeria took a wrong step in accepting the IMF conditionality of the programme, which was aimed at unleashing market forces and total decontrol but without the loan in deference to dominant views.

On the present preoccupation of the IMF in Nigeria, Lagarde did raise salient points and offered advice that could help the country maximise her immense potentials and manage what she described as ‘near-term vulnerabilities.’ Truth is that Lagarde stated the obvious: Nigeria is under economic stress. She made useful suggestions but at the same time made suspicious and unconvincing solutions. Lagarde first identified the global economic transitions and implications for Nigeria.

According to her, Nigeria, as well as other countries in the West African region is in a phase now where commodity prices and capital flows are far less supportive unlike in the past. She said vulnerabilities have increased; the ability to manage shocks is restricted by low fiscal savings and reserve. For the records too, she further gave a damning verdict by saying that for a country with a rapidly increasing population, there is almost no real economic growth in per capita terms.

Madam Lagarde was done rehashing the obvious economic realities, she however sees an immediate priority- a fundamental change in the way government operates. She said that this means hard decisions will need to be taken on revenue, expenditure, debt and investment going forward. She urged the country to act with resolve by stepping up revenue mobilisation.

With Nigeria’s debt relatively low at about 12 per cent of GDP, Nigeria needs to make careful decisions on borrowing which weighs heavily on public purse. According to her, about 35 kobo of every naira collected by the Federal Government is used to service outstanding public debt.

As observed previously, I do not see the sense in government resorting to borrowing to service debts and also fund recurrent and capital expenditure. She also harped on the need for the government to exercise restraint by focusing on the quality and efficiency of every naira spent while urging that efforts should be made to streamline the cost of government and improve efficiency of public service delivery across the federal and sub-national governments.

No doubt, these are useful admonitions. They bother on the need to for the country to ensure fiscal discipline, fight corruption, shun borrowings, and improve efficiency in public spending. At a time oil prices are even likely to remain much lower because of the boom of the United States’ shale oil and the coming back to the international market of the historically large producers of oil such as Iraq and Iran, Nigeria needs to be cautious and show tactfulness in implementing economic policies.

More so, there is growing apprehension especially on the strategic behaviour of the Organisation of Petroleum Exporting Country (OPEC) and the clear drop in global demand for oil, especially in emerging economies.

Asides the convincing policy recommendations the IMF boss put forward, some issues she raised should be carefully scrutinized before acting further. Even before the arrival of Lagarde, most Nigerians knew that the push for the removal of fuel subsidy will be among her agenda.

The oil subsidy has been a big bogey. No doubt there have been growing concerns on the fuel subsidy regime; the issue should be carefully treated. The IMF boss reiterated the earlier stance of the world body on the need to quickly remove the fuel subsidy.

In her submission, fuel subsidies are hard to defend, not only do they harm the planet, but they rarely help the poor. Granted that the fuel subsidy regime is laced with accusations of widespread corruption, deceits and backhand deals, methinks the focus of the present government should be more of how to ensure adequate local presence of refined products, fight the corruption in the processes and ensure that Nigerians do not suffer while there is abundance of oil.

Without proffering solutions, Lagarde wants further hardship on the average Nigerian. The fuel subsidy cannot be totally removed for now without ensuring that we have local refining capacity to cater for the needs of the people and at competitive but reasonable prices. I hope IMF is aware that the prices of petroleum products virtually dictate the stability or otherwise of virtually other areas of activities in Nigeria. Has she considered the cost of transportation and costs of living generally?

The government needs to fight the corruption in the system and ensure that the monies for the subsidy are paid to only those that should get them. The target should be to block all leakages while working towards ensuring that the subsidies are totally removed in the near future.

The IMF boss also spoke on the imperative for the government to increase the Value Added Tax (VAT), which is 5 per cent now. I understand that the country seriously needs to boost her revenue because of the need to use funds for developmental purposes. However, any increment must be justified and debated on.

A comprehensive review of the VAT system should be carried out. More so, there must be sufficient reasons to increase same. Before Nigeria heeds this call, a careful consideration must be taken. How about the implications of such increase on the incomes and wages of Nigerians? How do we treat the inflationary implications, too? As some Nigerians have suggested in the past, the government may well increase VAT for such elite and luxury products as yachts, private jet, high-end automobiles, hotel facilities and the like.

The IMF also wants Nigeria to adopt some monetary policies. Clearly IMF wants further devaluation of naira. Thankfully, President Buhari during his first media chat said that he would need to be convinced before the naira can be devalued again. (He remains resolute). One does not need to be an economist to know that the further devaluation of the naira is not the best at this time.

Besides, any further depreciation in the naira exchange will trigger higher pump prices since the exchange rate is a major determinant of fuel pricing.

Besides the issues that are in the public, the government must also let the people know of any other policy recommendations IMF may have tabled. There must not be any hidden agenda. The people must know of any other economic recommendations before the government acts. We cannot afford to make some economic miscalculations at this time. Nigeria should be able to study and critically appraise any solution from IMF.

The IMF ordinarily should be an interventionist institution, proffering better and alternative economic policy recommendations, but with the apprehension and obvious distrust, Nigeria should be able to act wisely. Let us not be too excited in considering all the recommendations. We must use home-grown solutions mainly and incorporate foreign policies where necessary.
Ibeku is a researcher and programme officer at Ibadan Business School (08064884866)

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