•The economy is worse than the IMF reports portrays –Dr. Idika Kalu
•SWF has turned to another government ATM – Dr. Boniface Chizea


Alarmed by the enormity of the poor state of health of the Nigerian economy, international financial agencies have again raised the alarm, warning that further delay in formulating well thought out economic policies will have dire consequences on the country.

According to them, Nigeria’s economy faces the risk of imminent collapse under the weight of ballooning debts, insecurity, unsustainable level of fuel subsidy, poor political governance, bad economic policies, among others.

They advised the President Muhammadu Buhari-led government to as a matter of urgency formulate economic policies that will promote investors’ confidence and see a rebound in the tempo of economic activities.

According to the International Monetary Fund (IMF), Nigeria lacked the ability to repay its foreign debt which had continued to rise and the rising level of subsidy on fuel is depleting its ability to repay and undertake capital projects implementation. Though it said conditions were favourable for the country to continue to borrow, the IMF equally expressed worry over the capacity to repay.

Figures released by the Debt Management Office, DMO, last week showed that the nation’s debt rose from N11 trillion in 2015 when the government came to power to N24.4 trillion by the end of January 2019. Although the debt to GDP is about 18 percent, which makes it relatively safe, however, debt to revenue or budget is almost 68 percent leaving the nation with just 38 percent for both recurrent and capital expenditure.

The Financial Counsellor and Director, Monetary and Capital Markets Department, IMF, Tobias Adrian, while presenting the Global Financial Stability Report at the ongoing joint annual spring meetings with the World Bank in Washington DC, said, “Nigeria has been borrowing in international markets but we worry. So, on the one hand, that is very good because it allows Nigeria to invest more; but on the other hand, we do worry about rollover risks going forward.

“At the moment, funding conditions in economies such as Nigeria and other sub-Saharan African countries are very favourable but that might change at some point. And there is a risk of rollovers and there is the risk of whether these needs for refinancing can be met in the future.”

It would be recalled that Nigeria’s total debt profile as of December 31, 2018, stood at N24.387tn. The figure swelled by 12.25 per cent from N21.725tn in 2017 to N24.39tn in 2018.

The Debt Management Office said the debt rose by N2.66tn from December 31, 2017 to December 31, 2018. Statistics provided by the DMO showed that the country’s public debt rose from N21.73tn in 2017 to N24.39tn within the one-year period.

According to the DMO, the year-on-year growth of public debt show 12.25 per cent within the one-year period.

The report also expressed serious concern over the country’s exploding fuel subsidy payment which in the last four has grown from about N400 billion per annum to over a trillion. It stated that in the past four years Nigeria has recorded a subsidy payment of N5.2 trillion, which is enough to address the pressing infrastructure deficit in the economy.

Speaking on the risk of Chinese growing investment in Africa, Adrian said, “Lending — capital flows in general and these include flows from China — are, of course, important for development, on the one hand. On the other hand, what is very important in those lending arrangements are the terms of the loans.”

He urged recipients of Chinese loans in sub-Saharan Africa to ensure that terms were favourable to them.

“We urge countries to make sure that when they borrow from abroad, that the terms are favourable for the borrower. In particular, we tend to recommend that loans to countries should be conforming to Paris Club arrangements. And that is not always the case with loans from China.”

The IMF, in another damning report, ranked Nigeria as the second worst country in the world in the use of sovereign wealth funds. According to the Fiscal Monitor report released by the Fund and seen by BH, Nigeria is only better than Qatar, rated as the worse country on the index. Of the 10 African countries considered, Ghana was ranked the highest.

The index, according to the Bretton Wood institution, was compiled using the corporate governance and transparency scores of the sovereign wealth funds and the size of assets as a percentage of 2016 GDP of the countries considered. The Fund said it used data compiled by the Natural Resource Governance Institute and Worldwide Governance Indicators.

“It is critical to develop a strong institutional framework to manage these resources—including good management of the financial assets kept in sovereign wealth funds—and to ensure that proceeds are appropriately spent,” the report read.

“This remains a significant challenge in many resource-rich countries that, on average, have weaker institutions and higher corruption

“The governance challenges of commodity-rich countries— that is, the management of public assets— call for ensuring a high degree of transparency and accountability in the exploration of such resources.

“Countries should develop frameworks that limit discretion, given the high risk of abuse, and allow for heavy scrutiny.”

Explaining that sovereign wealth funds have to be transparent, the IMF advised that countries should ensure that the natural resources of countries should be channelled properly to the people that need them. It expressed regret that the Nigerian Excess Crude Account, ECA, has been mismanaged and at present virtually empty thus defeating the purpose fopr which it was set up.

Not done yet, the IMF advised the Federal Government to remove fuel subsidy, insisting that with the low revenue mobilisation that existed in Nigeria in terms of tax to Gross Domestic Product, it was important for the country to remove subsidy.

The blow was delivered by no other person than the Managing Director of the Fund, Christine Lagarde, who opined that doing so will enable Nigeria move funds into improving health, education, and infrastructure. The IMF had in its 2019 Article IV Consultation on Nigeria noted that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space in the country.

When reminded that the removal of subsidy was a sensitive issue to Nigerians, many of who live below the poverty line, Lagarde insisted that the right thing to do was for Nigeria to embark on total fuel subsidy removal.

“I will give you the general principle. For various reasons and as a general principle, we believe that removing fossil fuel subsidies is the right way to go. If you look at our numbers from 2015, it is not less than about N5.2trillion that is spent on fuel subsidies and the consequences thereof. And the Fiscal Affairs Department has actually identified how much would have been saved fiscally but also in terms of human lives, if there had been the right price on carbon emission as of 2015. The numbers are quite staggering.

“I would add as a footnote as far as Nigeria is concerned that, with the low revenue mobilisation that exists in the country in terms of tax to GDP, Nigeria is amongst the lowest. A real effort has to be done in order to maintain a good public finance situation for the country, and in order to direct investment towards health, education, and infrastructure.”

The IMF boss added, “If that was to happen, then there would be more public spending available to build hospitals, to build roads, to build schools, and to support education and health for the people.

“Now, how this is done is the more complicated path because there has to be a social protection safety net that is in place, so that the most exposed in the population do not take the brunt of the removal of subsidies principle. So that is the position we take.”

Also responding to the management of the ECA Dr. Boniface Chizea CEO of BIC Consultants ltd said the ECA and sovereign wealth fund has become another ATM for the government and a victim of public corruption.

Meanwhile, renowned economist and former minister of finance, Dr. Idika Kalu, has faulted a recent report by the IMF that the nation’s economy is recovering. He said that contrary to what the report suggests, it does not fully reflect the true situation of the economy and could be seen as patronising to the government. “It is unfortunate how, after so many years, we still don’t seem to understand better how to relate to all these international financial institutions. They try to be very mild in assessing us. They expect us to be much more stringent in assessing our performance. Their report was being very nice and patronising; it does not reflect the situation on ground”, he said.

According to him – a former staffer of the agency – the reality is that we are still technically in recession because even though they say we grew by 1.9 percent, it is still much less than the rate of population growth. You cannot say that your economy is growing when the rate of population growth is higher than the rate of economic growth.

“That is why poverty is growing and there is hunger all over the place. We have too many people in poverty; we really have a lot of work to do”.

The International Monetary Fund, it would be recalled, had expressed deep concerns over the state of the economy in spite of the modest growth of 1.9 percent recorded in 2018. The report said that this miserly growth for the largest economy in Africa in 2018 does not discount the present and persisting danger to the economy given the worsening challenges it faces.

According the report the general outlook of the economy remains uncertain and challenging, demanding strong fiscal interventions and clear policy direction to overcome the immediate difficulties, and accelerate the rate of growth. The report predicts that the economy will not grow above two percent in the next few years.

“Under current policies, the outlook remains therefore muted. Over the medium term, absenceof strong reforms, growth would hover around 2½ per cent, implying no per capita growth as the economy faces limited increases in oil production and insufficient adjustment four years after the oil price shock”..

The IMF said that a 2.5 percent GDP growth for the economy is in absolute terms no growth at all,as the mere rise in oil price which has been the case since 2017 could produce or add that margin to the GDP without any economic activity. The agency therefore warns that policy makers in the country should take concrete steps to produce effective measures to implement necessary reforms to set the economy on a path of growth.

IMF said “persisting structural and policy challenges continue to constrain growth to levels below those needed to reduce vulnerabilities, lessen poverty and improve weak human development outcomes, such as in health and education”.

This conclusion also agrees with the view of other global agencies such the HSBC and the Economist Intelligent Unit reports on the economy in the past year. In June and August 2018, the agencies released reports suggesting that the economy was not really out of the woods and growth remained fragile and challenges, such as infrastructure deficit, political risk, rising debt, unstable oil price etc. strong and consolidating.

In August 2018, Nigeria became the world’s capital of poverty after overtaking India with 78 million people living below poverty line, which is living on less than $2 per day; the number rose in February to 81 million and is increasing by the day.

The Executive Board of the IMF said at the conclusion of its consultation with Nigeria, according to a statement issued in Washington, DC by a spokesperson for the Fund, LucieFouda, that although the Nigerian economy is recovering with GDPand falling inflation at the end of 2018, there are challenges of a large infrastructure gap, low revenue mobilisation, governance and institutional weaknesses, continued foreign exchange restrictions, and banking sector vulnerabilities were dampening long-term foreign and domestic investment and keeping the economy reliant on volatile oil prices and production.

Monetary policy focus on exchange rate stability would help contain inflation but worsen competitiveness if greater flexibility is not accommodated when needed. High financing costs, on the back of little fiscal adjustment, would continue to constrain private sector credit, and the interest-to-revenue ratio would remain high, the report said.

“Risks are moderately tilted downwards. On the upside, oil prices could rise, prompted by global political disruptions or supply bottlenecks. Bold reform efforts, following the election cycle, could boost confidence and investments, especially given relatively conservative baseline projections.

“On the downside, additional delays in reform implementation, a persistent fall in oil prices, reduced oil production, increased security tensions, or tighter global financial market conditions could undermine growth, provoke a market sell-off, and put additional pressure on reserves and/or the exchange rate,” the Fund said.

However, they welcomed, in this context, the significant increase in public investment but underlined the need for greater investment efficiency, while also recommending increasing funding for health and education.They noted that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space.

“Real GDP increased by 1.9 per cent in 2018, up from 0.8 per cent in 2017, on the back of improvements in manufacturing and services, supported by spill-overs from higher oil prices, on-going convergence in exchange rates and strides to improve the business environment.

“Headline inflation fell to 11.4 per cent at end-2018, reflecting declining food price inflation, weak consumer demand, a relatively stable exchange rate and tight monetary policy during most of 2018, but remains outside of the central bank’s target range of 6-9 per cent.

“Record holdings of mostly short-term local debt and equity and a current account surplus lifted gross international reserves to a peak in April 2018, while the three-times oversubscribed November 2018 Eurobond helped cushion the impact of outflows later in the year”.

With inflation still above theCentral Bank target, Directors generally considered that a tight monetary policy stance is appropriate, and also urged ending direct Central Bank intervention in the economy to allow focus on the central bank’s price stability mandate. They commended the authorities’ commitment to unify the exchange rate and welcomed the increasing convergence of foreign exchange windows.

They noted that a unified market based exchange rate and a more flexible exchange rate regime would support inflation targeting,and stressed that elimination of exchange restrictions and multiple currency practices would remove distortions and facilitate economic diversification.

They welcomed the decline in nonperforming loans and the improved prudential banking ratios but noted that restructured loans and undercapitalised banks continue to weigh on financial sector performance.

IMF also recommended establishing a credible time bound recapitalisation plan for weak banks and a timeline for phasing out the state backed asset management company AMCON, urging the authorities to reinvigorate implementation of structural reforms to diversify the economy and achieve the Sustainable Development Goals.

They pointed to the importance of improving the business environment, implementing the power sector recovery programme, deepening financial inclusion, reforming the health and education sectors, and implementing policies to reduce gender inequities, and welcomed improvements in the quality and availability of economic statistics and encouraged continued efforts to address remaining gaps, including through regular funding.

Also speaking to BH, an economist and Faculty Member of the Lagos Business School, Dr. Adi Bongo, lauded IMF’s position on the management of Nigeria’s sovereign wealth funds. He said information about the management of the country’s sovereign wealth funds has been shrouded in secrecy. He claimed he knows nothing about the fund even as a financial expert.

An economist and Managing Consultant, BIC Consultancy Services, Dr. Boniface Chizea, also told Business Hallmark via WhatsApp “It has been abused! I think we almost turned to another government ATM subverting the terms and conditions of the Act.”

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