April 29, 2015/huhuonline

Given the parlous state of the nation’s economy, the new administration of President Muhammadu Buhari certainly needs to manage things not just better, but very differently, considering the blatant absence of accountability in the management of public funds. But the International Monetary Fund (IMF) has called on Buhari to continue the economic policies of his predecessor, despite the fact that such policies have criminalized the Nigerian economy and pauperized the overwhelming majority of Nigerians. In virtually all economic aspects; investments, public lending and borrowing; tax regimes, to sales of public assets, public procurement and contracts, abuse of power has been on display. The consequence: Nigeria is severely short-changed while a few corrupt and unpatriotic colluders reap stupendous benefit. This must change!

Speaking on the sidelines of the recent World Bank-IMF Spring Meetings in Washington DC, IMF Managing Director, Christine Lagarde, cautioned against policy somersault from regime change, charging the new regime to continue reducing public spending and end the fuel subsidy regime, arguing that Nigerians must endure the unavoidable hardships. According to her, “What we have observed, the last one year in particular, is that a good fiscal policy, with some tightening no doubt, a good exchange rate in order to adapt to the external shocks and some use of reserves buffer, has been fairly exceptional. In a nutshell, policies that have been adopted by the Nigerian authority have been positive. Our sense is that some of these policies need to be continued …We will still recommend that any subsidy that is being paid out on physical resources be phased out to the possible maximum extent.”

The IMF boss argued that the Nigerian economy has actually benefitted from falling oil prices as a result of dollar appreciation in value, because dollar pricing for oil exports cushion the fall in prices. Because the glass is either half-full or half-empty, a little detailed explanation will help the public understand how this argument stands logic on its head. To be sure, a stable currency floats in response to supply and demand forces within a compact band that has the set (managed) rate as its mid-value. A strong currency tends to appreciate with the economy accumulating external reserves. The converse denotes a weak currency. Nigerian loans are dollar denominated; and this has kept the naira perennially weak, forcing the Central Bank of Nigeria to squander all the hard earned foreign exchange from dollar pricing of oil exports to unsuccessfully defend the naira. The new administration must, as a matter of urgency, end the dollarization of the Nigerian economy.

Far from being the result of expansionary government spending, the dollar pricing of oil exports creates excess liquidity when the CBN withholds shared Federation Account (FA) dollar accruals to form the bank’s spurious external reserves while the FA beneficiaries collect substituted freshly printed purported naira equivalent for budget expenditure. The tiers of government therefore collectively annually incur CBN deficit financing of their budgets that is proportional to the withheld dollar allocations in their total budget. Thus the economy grossly under-performs because it is victim to unending excessive fiscal deficits. Allegorically, the substitution of CBN deficit financing for withheld FA forex engulfs the economy in a big fire of excess liquidity which the CBN turns round to combat futilely using external reserves, the selfsame withheld FA dollars, as the fire extinguisher. End result: a charred economy.

The IMF should instead pressure the Buhari government to correct the CBN’s warped idea of a unified forex market rate because public sector foreign exchange earnings are not directly traded in the interbank market. For that reason, the interbank forex market rate is incomprehensive, distorted and defective as this provides an avenue for speculative activities in the market. The IMF should note that the mismanagement of the naira together with the numerous plagues afflicting the economy springs from an initial wholesale currency substitution which gave rise to high inflation, constant depreciation and periodic devaluation, thereby eroding the quality of the naira as a dependable store of wealth (a critical function of money). This is unacceptable. Therefore, what is required is a fundamental solution to dollarization among many other negative cumulative effects of IMF’s past tinkering relating to the Nigerian economy.

There is no better way to drive home the point than the inherent fact that the Nigerian economy does not exhibit the economic-boom features of an oil-dependent country. Yet, oil receipts on paper have accounted for over 50% cent of the annual budgets since 1974. It bears repeating for the sake of emphasis that in place of oil boom features, the economy wears the hostile conditions and hallmarks of an economy steeped in unbroken excessive fiscal deficits. To end the economic hemorrhage, the CBN must activate the managed float naira exchange rate system (MFS) and the excess liquidity in its present form will be no more. Conducive economic conditions will berth. Commercial banks will have no other avenue than the productive sector to invest their funds. Diversification-engendering cheap bank credit to the private sector will soar. And the era of largely Nigeria-financed inclusive growth and rapid development at long last will have begun.

The fact of the matter is that Nigeria’s oil industry is bedeviled by numerous challenges which the incoming Buhari administration must tackle head-on if oil is to serve Nigerians and enable the nation offset its bills and still have savings. Some of the challenges – gas flaring, oil bunkering and pipeline vandalism, divestment by international oil companies (IOCs), poor or inadequate local content and human capital deficit are self-imposed, but while falling oil prices may seem a major concern at the moment, because of the dwindling revenue base, the endemic problems of corruption in the oil sector requires strong political will and genuine desire to improve the lot of Nigerians using the country’s main revenue earner. Afterall, oil has become something of a curse to the country in many aspects and the immediate task is to ennoble the resource, especially the judicious deployment of its proceeds.

Between 1970 and 2008, Nigeria reportedly lost in the form of illicit financial flows (IFFs) a mindboggling $217.7 billion. This sum, conserved and judiciously invested in the economy, would have transformed the country beyond recognition.  The IMF is of the opinion that Nigeria’s dependence on oil makes the country vulnerable to external shocks. This is not true, just as the despairing claim that Nigeria’s oil is a curse, is unacceptable. The extractive industry thrives in many other nations and yield immense benefits where and when governments think and act in the best interest of the people. In this connection, whereas the IMF recommends policy continuation, corruption in government is central to Nigeria’s economic problems. In every aspect, the fervent desire and uncompromising will of government to act strictly in the best public interest – be it in negotiation deals or in regulation – can make all the difference in the fortunes of a nation.

Sensing the discomfort of many Nigerians with IMF prognosis to economic issues in the country, the IMF first deputy managing director, Mr. David Lipton, likened the criticisms of the IMF intervention to a patient and doctor relationship. According to him, “The situation is like a patient being angry at the doctor because he or she does not like the prescribed drug. But the truth is that the prognoses are a lot less severe than what would eventually happen if we had not intervened.” This is an insult to Nigerians. If anything, Nigerians as the patient have every reason to be angry with the doctor, not because they hate the prescribed drug; but because the doctor is insane; and keeps prescribing the same drug, even when the patient prognosis shows worsening symptoms and other co-morbidities. It is granted that IMF policies have ended up promoting poverty rather than alleviating it. IMF stringent lending conditions tend to focus on policies that would build up macroeconomic stability, but reduce the social safety net and worsen labor and environmental standards.

This belated attempt by the IMF to reposition itself as an economic adviser organization to the new government; while protecting the image of its Nigerian friends in the Jonathan administration, within international financial circles should be resisted. The Buhari administration should decline such unsolicited policy prescriptions and set its priorities towards achieving a balance between fiscal discipline and maintaining a level of government investment to meet the pressing social demands of the people. Nigeria has an expected level it desires to attain but the real sector; the bedrock of industrialization of any country, has totally collapsed because of obnoxious policies and prebendal privileges fostered by corruption, which have turned essential government activities into strenuous tasks, as the nation wallows as a typically consumerist economy.

There must be a clear vision both at the microscopic level and at the level of futuristic plans; or else Nigeria cannot compete in the globalization race. Maintaining the economic policies of the outgoing administration, especially efforts to diversify the economy are good, yet not enough. These policies have not targeted the problem in the Nigerian economy; it is rather a relief; an ad hoc measure that is merely reactionary. Nigeria needs a pro-active, national development agenda; one that integrates all sectors and percolates all areas of national life. The new administration must also focus on rebuilding buffers and blocking leakages. Nevertheless, the time for change has come. The Buhari government would be signaling a new direction for Nigeria by making a clean break with the voodoo economic policies of the outgoing administration. Nigerians cannot wait to see their leader walk his talk.