Reactions, as usual, have followed the report issued by the IMF after its regular annual visit to Nigeria. The IMF conducts these visits as part of its obligation to member countries to assess their economic health and provide policy advice in the form of a report.
This time around, there has been sharp disagreement with the content of the report, to the extent that the Presidency has lent its voice to this dissent.
Though, as should be expected, the IMF gave a thumbs-up for the courage in implementing the reforms, it noted that this development has enhanced the country’s attractiveness to foreign investors. It has positively impacted the inflow of portfolio investments, and as a result, Nigeria was able to return to the international capital markets, encouraging reputable international credit rating agencies to upgrade Nigeria’s credit rating.
The government disagreed with the report, particularly on account of its observations regarding the current unsustainable high level of inflation and the ravaging poverty situation. “We are being bombarded weekly with fatalistic reports, which leave everyone confused and present an overall unacceptable assessment of ongoing reforms,” claims the Presidency.
An aspect of the recommendations that grabbed headlines is the advice that the country should expand the social safety net by extending unconditional cash transfers to the poor to mitigate the ongoing pain and suffering in the land.
I was on Channels Television’s Business Morning programme, where I raised umbrage about this particular recommendation, as I pointedly raised issues with its feasibility.
We have a revenue flow challenge, which the Fund recognised in its report, and we are talking about a large population of Nigerians who are caught in what has been described as multi-dimensional poverty. It has been expertly estimated that about 42 per cent of Nigerians could be so categorised. We are therefore talking about numbers exceeding fifty million people.
In the past, we were able to undertake some of these cash-intensive schemes because we resorted to Ways and Means: the direct printing of currency, which, on the other hand, resulted in spiralling inflationary pressures at an unsustainable level of above 30 per cent.
“An aspect of the recommendations that grabbed headlines is the advice that the country should expand the social safety net by extending unconditional cash transfers to the poor to mitigate the ongoing pain and suffering in the land.”
My take is that we should instead embrace pro-poor policies. It is on record that the recent tax reform policy in Nigeria, which was recently signed into law by the president, takes us some good distance down that desired path. The reforms, expected to come into effect from the beginning of next year, exempt the poor and small businesses from the payment of taxes, streamline the number of taxes citizens pay, and reduce the tax payment threshold across the board from 30 percent to 25 percent.
One little concern I share is the fear over whether due diligence has been observed to ensure that the overall inflow from taxation is not inadvertently reduced. Our existing problem with taxation hitherto has been the fact that the ratio of tax revenue to GDP, at 13 percent, remained inadequate and uncompetitive.
I also argued that a preferred approach would be to prioritise sectors of the economy with the potential to impact the fortunes of the poor through adequate budgetary funding. Such sectors would include, but are not limited to, health, education, housing, and the provision of essential infrastructure such as a regular and steady power supply. Such developments would go a long way in making life bearable for the downtrodden population and alleviating poverty.
There are also other problems with the implementation of cash transfers that can be gleaned from our recent experience. We were severely challenged with issues regarding transparency. Where are the poor domiciled, and what records do we have about them? In other words, do we have a comprehensive and authentic register for that purpose?
Instead, implementation was riddled with the diversion of such funds and was thoroughly politicised. The Ministry of Humanitarian Affairs did not come off looking good on this account. Therefore, the recommendation to increase cash transfers by the government is clearly a hard road to travel.
The Fund applauded Nigeria for the recent growth in Gross Domestic Product (GDP), estimated at 3.4 per cent by the Fund and at a lower rate of 2.9 per cent, projected by the Nigerian Bureau of Statistics. For the record, the growth rates were almost negative in the period from 2017 leading up to 2023.
Recently, there was a not-so-healthy debate in this regard when Dr. Femi Adesina, the outgoing president of the African Development Bank, asked during a paper presentation whether Nigerians’ quality of life is better now compared to what it was at independence.
I believe that the GDP does not tell the complete story in our situation, due to the existence of a large informal market, second only to that of Italy. And therefore, much of our production, since it is not mainstreamed, cannot be captured in official data. However, the same argument would relatively apply to most other countries. And more importantly, warts and all, GDP remains the only known and available statistic for measuring the totality of goods and services produced by a nation over a given period.
Also, speaking of poverty alleviation, it is impactful if growth is realised from the real sectors: manufacturing, industry, agriculture, mining, and construction. When this is the case, there is a quantum leap in employment opportunities, which directly impacts poverty levels.
The current experience in Nigeria is that GDP is grossly dependent on the services sector—where Nigeria is one of the world leaders—and the extractive sector, which functions as an enclave economy with little linkage to the rest of the economy.
The Fund recommends the long-standing advice for the urgent diversification of the economy to enable balanced, more reliable, and resilient growth. In this respect, the Fund highlights worsening security situations resulting in massive food insecurity, high and unsustainable inflation rates, weak currency, and poor infrastructure as some of the drawbacks.
The Fund concludes with upbeat expectations that the coming on stream of the Dangote Refinery will give a considerable boost to GDP in the not-too-distant future. This underscores the need for a stable macroeconomic environment necessary to boost private sector participation, which really should constitute the engine room of the economy.
On budget preparation and implementation, which should serve as the blueprint for running the economy, the Fund recommends revisiting the budget structure or framework, adopting a culture of realistic assumptions in budget preparation, ensuring transparency in expenditure management, and enhancing fidelity in budget implementation.
We are not in a good place today as far as budget preparation is concerned. The BudgIt group, for instance, estimates that a whopping 11,000 project insertions were made by the National Assembly, leading to the padding of the 2025 budget by up to ₦6.9 trillion. It is difficult to wrap one’s head around these figures.
Regarding monetary policy, the Fund recommends the need to pursue macroeconomic stability vigorously. An inflation rate of over 30 percent, which was recently reported to be about 24 percent as a result of rebasing the economy, is clearly unsustainable.
It must be noted here that the reported reduced level of inflation as a result of rebasing does not in any way reduce the impact of inflationary pressures on the population. Essentially, such rebasing exercises only embrace reality and aid compatibility.
With an inflation rate that is double-digit and a minimum rediscount rate of 27.5 percent, the tale of a harsh economic environment needs no further qualification. The Central Bank was commended for its avoidance of Ways and Means financing. But it must be clear to all and sundry that the race for the attainment of macroeconomic stability has barely begun. The Central Bank was given a thumbs-up that official foreign exchange is now accessible to a majority of the population.
We recommend to the authorities a positive attitude in relating to the IMF as partners in progress, as the Fund discharges its responsibility of promoting global prosperity. The Fund has no reason to be unjustifiably critical of policies, as it gains nothing from doing so. When disagreements inevitably arise, all parties must come to the table with a positive mindset and the best of intentions.
SOURCE: businessday.ng
