16 March 2018

Nigeria: IMF's Prescriptions for Nigeria


In its 2018 Article IV Consultation Report which was released last week, the International Monetary Fund (IMF) launched an advisory on Nigeria which it based on its evaluation of the recent status of the country's economy. Perhaps the most significant take of the report on the Nigerian economy is the submission that whatever reforms that the government had launched and could have returned the economy from the last recession failed to impact on the non-oil real sectors of the economy such as agriculture and industry.

IMF's evaluation was based on statistical data provided by the Nigeria Bureau of Statistics, NBS. According to NBS data, Nigeria's economy contracted for five quarters from January 2016 to the first quarter of 2017. NBS data also reported that the economy entered into a recovery of 0.05% from second quarter of last year which progressed to the reported exit from recession in the first quarter of 2018. IMF said the recovery came on the back of a cocktail of new foreign exchange measures by the government, rising global crude oil prices, attractive yields on government securities, a tighter monetary policy and increased foreign exchange reserves to a new four year high of $43 billion. Other factors which the IMF credited for the turn-around of our economy include inflation containment policies, which helped to boost economic growth to 0.8% in later part of 2017, and was driven largely by the increase in oil production capacity.

With respect to the government's much vaunted Economic Recovery and Growth Plan [ERGP] which was launched in the wake of the 2016 onset of recession, IMF commended the initiative even as it picked holes in its implementation, noting the plans' serial vulnerabilities arising from lack of coherence and comprehensiveness. IMF therefore advised government to adopt more urgency in curbing ERGP's vulnerabilities. Other areas of the report include the advice to government to increase investment in social welfare and infrastructure, reform the country's taxation regime and adopt an automatic fuel price adjustment mechanism. In other words, IMF wants deregulation of fuel pump prices, and allowing such to be determined by market forces. This particular recommendation flies in the face of the disposition of the government with respect to fuel price regime in the country as the Buhari government is determined to fix fuel pump prices.

Seen in context the IMF evaluation is a thoughtful picture of the economy even as some of the recommendations may not be helpful to the economy. Government should therefore treat the package with a pinch of salt. The best approach to the report is to resort to caution over implementing the recommendations. In this respect history provides a valuable guide to the government with respect to the experiences of several countries including Nigeria in implementing IMF recommendations. Implementing the recommendations hook, line and sinker has often proved suicidal for governments around the world, leading to much misery, riots and general political instability.

While the government may be considering IMF's report it needs to appreciate the damage already inflicted on the economy by the tight monetary policy which the Central Bank of Nigeria (CBN) has been pursuing in a cash driven Nigerian economy and in the face of the widely acknowledged failure of government's interventionist measures. As even the IMF has pointed out, the salutary recovery from the recession which the government claims to high heavens as a sign of its dexterity, came to be courtesy of factors largely outside of its control.

Therefore to prove itself as a true mover of the Nigerian economy to the next higher level, the government must refocus on promoting growth through a fresh emphasis on promoting investments in the non-oil real real-sectors of the economy such as agriculture and manufacturing especially with the informal sector as the target.


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