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Tough Times Ahead as Lagarde’s Visit Shows There’s No Silver Bullet to Solving Nigeria’s Economic Crisis

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By Samuel Ogundipe

 

The Managing Director of the International Monetary Fund, IMF, Ms. Christine Lagarde, could well consider her second visit to Nigeria in a little over four years a significant progress in the right direction. Last week, Ms. Lagarde completed her intensive, 5-day, two-nation (Nigeria and Cameroon) tour of West Africa to offer expert opinion on issues ranging from monetary policy to broadening the tax base in the face of austerity.

…Warm Reception

Rather than become a subject of widespread criticisms that stem from Nigerians’ deep-seated distrust for her organisation, however, Ms. Lagarde found herself enjoying a relatively warm reception upon her arrival in the country. This might not be unconnected with the general mood of the country – a new president was sworn in about 6 months ago and Nigerians are desperate to see him succeed at finding durable solutions to major economic issues. Cooperating with power players in the global economy takes top priority in order to bring these about.

‘Nigeria Does not Need a New IMF program’

Ms. Lagarde’s tour began with a stop at the president’s office on Tuesday, January 5th, after which she briefed the State House Correspondents, where she started off by noting that, “I am not here to negotiate loan with conditionality because Nigeria does not need a new IMF program.”

Other notable personalities she met during the high-profile visit included the Governor of Central Bank, Godwin Emefiele, Minister for Finance, Kemi Adeosun, and other formidable players in the private sector.

Lagarde explained that she was in Nigeria to help the country navigate through the tough economic reality she faces, which is a direct consequence of the falling crude oil revenues. The poor demand for crude across the world has affected almost every sphere of the Nigerian economy. The Naira has continued to fall against major world currencies because the country now earns a fraction of what was accruing to it from crude sales as late as a year ago. The perennial intervention by the CBN to hold the country’s currency stable has earned the organisation more knocks than kudos.

The next day, Lagarde addressed a joint-session of the National Assembly where she delivered a heart-warming speech about Nigeria and her place in not just Africa but also on the global stage. During her speech, she highlighted three important characters that Nigeria must display in order to emerge stronger from the ongoing crisis: resolve, resilience and restraint.

By abiding by these principles, Lagarde said Nigeria would have a larger revenue base, become more prudent in her future financial commitments and have a more efficient political system. She said Nigerians must brace themselves for economic hardship during the incubation period of the austerity.

Ms. Lagarde also recommended that Nigerians must brace themselves for a biting austerity in order to keep the country’s economy from imploding under the weight of the proposed 2016 budget, which stands at a record N6.08T. She said she was particularly worried about the deficit of about N1.8T that the budget contained, because she doesn’t want Nigeria to commit herself to new debts, even though the country’s debt to GDP ratio is still relatively low at 12%.

“Nigeria’s debt is relatively low at about 12 percent of GDP. But it weighs heavily on the public purse. Already, about 35 Kobo of every Naira collected by the federal government is used to service outstanding public debt.”

Lagarde advised that Nigeria, as the economic backbone of West African sub region, must do her best to keep her economy strengthened, adding that failure to do so could portend dire consequences for the entire region. To avoid the situation, Lagarde recommended a devaluation of the Naira as well as the removal of subsidy on petroleum products, which she said “harms the planet” because ““only seven per cent of the benefits go to the poorest 20 per cent.”

Although she made it clear that she was only in Nigeria to offer expert opinion of the 2016 budget and Nigeria’s monetary policies as against the expectation of her critics that she was visiting to force another loan on Nigeria, several economic analysts, nonetheless, pointed wholes in some of Lagarde’s positions.

…Nigerians Apprehensive

Nigerians are particularly apprehensive about the prospect of another IMF-facilitated rescue due largely to the past experience the country, and many other distressed nations, have continued to have with Bretton Woods institutions.

Concerns raised by Nigerians included an increased Value Added Tax rates that they said would leave the poor worse off. Ms. Lagarde recommended tax increments in order to expand the country’s revenues.

Renowned economic analyst, Henry Boyo, said Lagarde failed to warn the CBN against what he described as the organisation’s “stranglehold monopoly on dollar supply.”

“Regrettably, however, the IMF is obviously in denial that the Naira exchange rate and CBN’s stranglehold monopoly on dollar supply are infact the major causative factors in fuel pricing.”

Writing in his syndicated column this week, Mr. Boyo wondered if Ms. Lagarde is truly in Nigeria to help the poor or to offer IMF induced prescriptions to the government.

“It is inconceivable that the above counter-productive results of monetary strategy would escape the attention of Lagarde and her formidable array of IMF experts, unless of course, they are all knowingly looking the other way, so that the predictable failure of our economy will sustain the historical template for trade between colonies and their imperial masters.”

Mr. Boyo, however, observed a bright spot in Ms. Lagarde’s visit.

“Instructively, however, the IMF team will successfully resolve the above dilemma with a careful consideration of the market dynamics between systemic excess Naira supply and CBN’s weekly auctions of dollar rations, which predictably promote weaker Naira exchange rates that distort resource allocation and also destabilise those economic fundamentals, which promote poverty by instigating higher inflation rates and prohibitive cost of funds to the real sector.”

While debates about the benefits recorded during Ms. Lagarde’s visit are expected to linger for the foreseeable future, it’s very clear that her coming to the country is intended to help Nigerians understand that their country is a force to be reckoned with as far as the world’s monetary regime is concerned.

Some political analysts also said Ms. Lagarde’s apparent reservation about the 2016 budget as proposed by President Muhammadu Buhari might not be unconnected with the ongoing alleged attempt by the administration to withdraw the entire budget for proper redaction that would ultimately reflect the recommendations of the IMF.

The conspiracy, which first began as a preposterous rumour, was given a palpable boost on Tuesday when National Assembly sources confirmed that both hard and soft copies of the document handed to the legislators amidst fanfare on December 22 had gone missing. The senators said they resumed on Tuesday to begin deliberation over the budget only to discover that the document which could’ve formed the basis of their sitting was nowhere to be found.

The presidency swiftly released a statement to rebuff culpability, placing all budgetary issues on the table of the National Assembly, for now.

An emergency, closed door meeting between the president and Senate President Bukola Saraki was officially billed as part of an ongoing effort by the Senate leadership to assure the Mr. Buhari of utmost support in passing the 2016 appropriation bill. Very few political commentators buy this explanation, however.

Top IMF economists are due in the country in the coming weeks, according to Lagarde. The experts, she said, will thoroughly peruse the 2016 budget and offer their informed recommendations to the federal government thereafter.

Perhaps the most important highlight of her speech to the National Assembly is where she sounded off what sounded like a warning note to President Buhari.

“Credibility, commitment and independence of the CBN are very important.” Nigerians will get the first clue about the kind of respect the president has for the IMF chief when next he answers a question about who’s in charge of the monetary policies at the Central Bank.

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