WARY of their sordid, rough history with Bretton Woods institutions in the past, Nigerians held their breath in anticipation of the outcome of the four-day visit of the Managing Director (MD) of the International Monetary Fund (IMF), Christine Lagarde, to the country.
Their anxiety was not unconnected with episodes of extreme hardship that engulfed countries, including Nigeria that embraced advice and loans from the IMF in the face of harsh economic conditions.
So, discomfited by the prospects of low oil prices in 2016, shrinking economic indicators and the talk of a looming depression, the coming of the IMF boss caused many nightmares. A rehash of a fresh austerity measure or Structural Adjustment Programme (SAP) is the last thing on the mind of any Nigerian in the face of heated debates for subsidy removal. The IMF is surely in the bad books of many.
Moreso, President Muhammadu Buhari, who recently presented the 2016 budget, hinted on the need for borrowing, even as the Minister of Finance, Mrs. Kemi Adeosun, talks about imminent harsh economy.
But, as if reading the mind of Nigerians, Largarde was quick to, on the first day of touching down in Abuja, announce that the IMF was not working on any programme for Nigeria, reassuring that the Fund was rather committed to helping the country recover looted funds overseas.
Analysts, however, caution that government should be wary of advice from the IMF, and pick only those that are beneficial to majority of Nigerians. They argue vehemently against any move to increase VAT rates, as suggested by Largarde, opining that though she may have rightly observed that the rate in the country was abysmally low, the prevailing reality only calls for expansion of the tax bracket and not a raise.
In her address to the National Assembly on the last day of the visit, Largarde asked Nigerians to brace up for harder times in the wake of falling oil prices, as the country is currently experiencing its worst growth figures since inception.
According to her, “For more than a decade, growth in Sub-Saharan Africa was driven by an extraordinary combination of improved policies, stronger institutions, high commodity prices, and high capital inflows. The region has now entered a different phase, where commodity prices and capital flows are far less supportive. We are in the process of updating our forecasts, but broadly, the IMF staff estimates that regional economic growth dropped from five percent in 2014 to about 3.8 percent last year, with only a modest recovery expected in 2016.
“Already, lower oil prices have sharply reduced Nigeria’s export earnings and government revenues. Both are likely to remain at depressed levels, reducing the space for policy interventions to address Nigeria’s social and infrastructure needs. Private sector investment will also be affected. Investor confidence about the outlook has remained weak, and financing is likely to become more difficult and more costly for everyone. With U.S. interest rates expected to continue to rise, albeit slowly, the likelihood of capital outflows will increase, and exchange rate pressures could mount as investors re-assess their appetite for risk.”
She acknowledged that Nigeria has created a large and diversified economy that has grown by about seven per cent a year over the last decade, which is a testament to Nigeria’s immense potential, noting that the outlook has weakened, “as growth in 2015 is estimated at about 3.2 percent—its slowest pace since 1999—and only a modest recovery is expected in 2016.
“For a country with a rapidly increasing population, this means almost no real economic growth in per capita terms. On top of the slowdown, vulnerabilities have increased. The ability to manage shocks is restricted by low fiscal savings and reserves. And the weakening oil sector could stress balance sheets and put pressure on the banking system. Reduced confidence and lower capital spending also impact the non-oil corporate sector. Unfortunately, this sector looks less resilient today than during the downturn of 2008-09.”
On on how to retool policies to record better growth, she charged government to act with resolve, build resilience and exercise restraint.
She urged government to step up revenue mobilisation, adding, “The first step is to broaden the tax base and reduce leakages by improving compliance and enhancing collection efficiency. At the same time, public finances can be bolstered further to meet the huge expenditure needs. For example, the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members—so some increase should be considered.”
She admonished on the need to make careful decisions on borrowing, as Nigeria’s debt is relatively low at about 12 percent of GDP, but that it weighs heavily on the public purse, stressing, “Already, about 35 kobo of every naira collected by the federal government is used to service outstanding public debt.”
She also asked government to “focus on the quality and efficiency of every naira spent. This is critically important. As more people pay taxes there will, rightly, be increasing pressure to demonstrate that those tax payments are producing improvements in public service delivery.”
Asked about the 2016 budget, she said: “A team of economists is going to come here (Nigeria) next week to review and audit (the bill) and have a good discussion with the government authorities to really assess whether the financing is in place, whether the debt is sustainable, whether the borrowing costs are sensible and what strategy must be put in place in order to address challenges going forward.”
Head, Department of Economics at the University of Lagos (UNILAG), Prof. Ndubisi Nwokoma, said that Nigeria needs all the advice it can get, but that the decision to have a change of policy would depend on Buhari, who he advised to be careful in considering advice that would be inimical to Nigerians and economic liberalisation.
Said he: “There is the perception that IMF, the World Bank and other Bretton Woods institutions want to kill us, which could make him resist even when people are giving him good advice. This is because we have a mindset that this people are evil. If we have a problem tomorrow, they would say, ‘Oh! Why did you listen to IMF?’ He may also not want to be labeled an IMF agent, even if they are telling you what is obvious. So, it is up to the President to listen. But I think some of the things said— not all — should be considered.”
He said the assurance that the IMF has no programme for Nigeria is not an endorsement, nor a condemnation, but being the largest economy in Africa, Nigeria is ripe to draw the interest of the IMF. He added that the Nigerian economy is very important in the West coast and if the country does not get it right, it would have ripple effects on the African continent.
“The only area I don’t agree with is in that of VAT. The country is already going through a lot and there is no room for increasing the tax burden. We need to increase the tax bracket to accommodate those who are not paying tax at all. That is the easier way to generate more money. I think government should listen to some of the advice because we need a policy change. From the present policy framework, we may be running a command economy, which has failed all over the world. A command-and-control (CAC) economy makes use of ration and force. The best thing to do is to have the right policies and let people operate based on the laid down policies.
“Price control has not really succeeded in many economies; government may just need to keep an eye on things. For price of petrol, for instance, they could do a guided deregulation. I think that makes sense. Government might still need to be in the background, but let the market determine the price of commodities.”
For Lecturer and Policy analyst, Femi Saibu, the IMF is coming to work out difficulties that must have arisen from agreements reached with the previous government and to reshape existing partnerships.
He noted that the CBN needed to be firm and steadfast in reforms, otherwise, those saying that the bank is being harsh would come back tomorrow to say that Nigeria has inconsistent policies.
“Credibility, commitment and independence of the CBN are very important. When the bank proposes to do anything, inasmuch as there are credible bases for such actions, they should be allowed to go ahead. They shouldn’t be halted halfway. So, the IMF should be kept at bay in that regard,” he said.
Noting that the IMF may interface with the current government as partners in managing the monetary policy, he said Nigerians should forget about the media façade that the country may not be needing loans from the IMF; that might be a given, but the country may need other things from them.
“They might be scheming on how to bring in partners that would help government work on financial policies that would be in the interest of the Bretton Woods institutions. But I think economically and financially, the visit is good for the government. It is an opportunity for government to handpick from IMF advice that may be beneficial for Nigerians. The IMF would also be assessing the perception of Nigeria, Nigerians and developing countries of their operations, too.
“The thing with the IMF is that their policies are for countries with poorly developed systems and institutions. And some of the statistics reported, sometimes, do not reflect the realities on ground,” he said.
On the advice to increase VAT, Saibu agreed with Prof. Ndubisi that efforts should be deployed to expanding the tax bracket and also building institutions that would ensure that generated revenue are judiciously utilised.
“So many people are not paying VAT. So many people are not remitting VAT. Government should increase enforcement and prevent avoidance. Otherwise, the few people who are paying would be asked to pay more, while others are not even paying anything at all. Government should also expand the instruments for collecting at the prevailing rate. The purpose of tax is to generate revenues and not punish people.
“The CBN is trying to establish a framework to managing the currency. Before now, anything goes; you could get dollars anywhere and come and spend it in Nigeria. It was very easy to launder money. I think government has to continue with the tempo with which they are pursuing monetary reforms. So, anybody who is coming to tell us to backtrack on the policy doesn’t know what the realities are,” he explained.
Dele Oguntebi, a financial and public analyst, argues that the visit in the first working week of 2016 is good for the nation’s image and sends the right signal to the investing community that Nigeria is an attractive prospect, if the environment is right, but he is skeptical about the IMF’s interest in Nigeria, given its history in dealing with the country.
“The IMF is a financial institution and must seek for opportunities, where its financial and human capital investment can be protected. Largarde’s visit is an indication that the enabling environment for business to thrive is gradually unfolding in Nigeria, given government’s strong stance against corruption, among other governance issues. It also underscores Nigeria’s credit worthiness. That Largarde did not come with a prepared programme does not mean the IMF cannot make one available, if the government requests for it.
“This does not translate to confidence in our monetary policies, which the IMF has continued to criticise. She emphasised the need for flexibility in our monetary policies and the need to review the foreign exchange restrictions, which potentially can weaken the dollar against Naira over time,” he said.
He added that Bretton Woods institutions pursue financial interests that favour them and their stakeholders, and often view issues from the perspective of their major interest, calling for tact and consideration for the overarching good of Nigerian citizens in negotiating deals with the Fund.
“Ordinarily, caution need to be applied when entering into any financial relationships. Unfortunately, however, this has not been the case with our past leaders, who more often are interested in getting their hands on international financing for personal enrichment and end up following IMF position, sheepishly, even when same is not suited to our purpose. The IMF’s MD has advised Nigeria to write its own story. What then is our story and does IMF fit into it?”
Advising that Nigeria Government should take full advantage of the IMF approval by Laggard’s visit to formulate more policies that will strengthen the Naira and check our insatiable desire for foreign goods where there are local alternatives, he noted that if in a short while we have more visits from the top management of more financial institutions, “it tells you there is something we are doing right.”
On the feasibility of the CBN devaluating the Naira, he said, “I do not see the CBN devaluing the Naira. When you take a pill to cure a serious ailment, there will surely be side effects. I expect the CBN to take another look at its policies and reduce the inherent side effects, where it is genuinely hurting the economy. The Minister of Budget and National Planning must articulate the Nigeria story and get Nigerians to buy into it, particularly the National Assembly and the states, that way, we would not be working at cross purposes.”
Guardian
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