In spite of visceral antipathy to the International Monetary Fund (IMF) in the country, the Fund has only ever advised governments here. Mid-1980s, in the aftermath of the ballyhooed debate over what was essentially a referendum on domestic attitudes to engaging with the IMF, the Babangida government plumped for a home-grown response to the economic crisis then confronting the country.
Although it is often argued that in the design of our local policy response, we opted then for the IMF’s stern economic conditions without the benefit of its loans, truth is that Babangida’s structural adjustment policies (SAP) were reform-lite. That government held on to the “commanding heights of the economy”, while pursuing reforms at the margin. It thus guaranteed that succeeding administrations would have to battle with the heavier burden of an increasingly unproductive state sector, antediluvian practices in the agriculture sector, failing infrastructure, and a stunted private sector.
Put simply, therefore, Nigeria has always ignored the IMF.
And the policies we turn to instead of the Fund’s prescriptions?
These have always invariably led us into cul-de-sacs; out of which we only emerge always because global oil prices (usually the proximate cause of all the economic crisis we have suffered to date) eventually turn up. In our current environment, there is a difficulty with continuing to hope on this particular deus ex machina. The “new normal” global economic conditions seems to think US$40/barrel oil will be with us for a long time yet.
That is problematic.
Our fiscal breakeven point has global oil prices anywhere between US$65 and US$80/barrel. In result, if the fiscal pressure that we have felt from lower oil prices is not to drive us to distraction, then we will need to drive changes in how we have run the economy thus far.
Last week, the IMF weighed in (again) on the possible trajectory for such changes. The Fund’s 2016 Article IV Consultation Report, for those who could ignore the strong sense of déjà vu that accompanies the Fund’s musings on our economy, describes a horizon radically different from the incumbent government’s.
Thankfully, there is agreement on the defining features of the crisis currently confronting the economy. As the Fund puts it, “The collapse in oil prices has decimated government revenues, which fell to just 7.8 percent of GDP and doubled the general government deficit to about 3.7 percent of GDP in 2015. Exports dropped about 40 percent in 2015, pushing the current account from a surplus of 0.2 percent of GDP to a deficit of 2.4 percent of GDP and, with uncertainty about policy direction, foreign portfolio inflows slowed significantly. Foreign exchange shortages, fuel stoppages, and continued security challenges significantly impacted private sector activity and growth slowed sharply to 2.7 percent in 2015 (from 6.3 percent in 2014), likely reversing progress in reducing unemployment (9.9 percent) and poverty (above 50 percent in the northern states)”.
According to the IMF, the immediate difficulties from this scenario include the slow attrition of gross international reserves. Despite the central bank’s bans and restrictions, this closed 2015 at US$28.3bn, “reducing reserve coverage to 100 percent of the standard IMF reserve adequacy metric and increasing the ratio of the sum of short-term external debt liabilities and the current account deficit to reserves from about 50 percent to 100 percent.” Not surprisingly, we did not save much in the Excess Crude Account last year. The IMF estimates the balance on the account at US$2.3bn, and the federal government’s interest payments-to-revenue ratio to have risen from 27% in 2014 to 32% by end-December 2015.
What to do?
The Fund describes this in rich detail under 4 broad headings: “changing the nature of government”, so it is able to deliver better public services; “achieving external adjustment”, through tighter monetary policy and adjustment of the exchange rate; “safeguarding resilience and improving efficiency of the Banking Sector”, including through the central bank promptly addressing any undercapitalised banks, by requiring that current shareholders provide new capital; and “implementing structural reforms”, including better infrastructure, access to credit, job creation, and better governance across the polity.
Not overly contentious, you would say?
Except that the incumbent government seems to understand that a properly functioning economy demands the transition of much economic decision making from the centre to its constituent parts. And as in the political organisation of the state, it would appear loth to do this readily.