Opinion: Parallel universe of the IMF and Nigerian government – By TAYO OKE
The report of the 2018 “Article IV” mission to Nigeria conducted by the International Monetary Fund in December 2017 came to light a couple of weeks ago, and it makes grim reading for the government almost on all fronts. It pours scorns on the government’s claim that the economy has finally turned the corner; that the green shoots of recovery are now upon us. Not so quickly, says the IMF. It says that although the country may have tiptoed its way out of recession, the economy remains “vulnerable”, and it will only “muddle through” in the medium term. Growth in non-oil, non-agriculture, sector constitutes 65 per cent of the overall economy and it actually shrank in 2017 relative to the same period in 2016.
They, however, “welcome” actions to improve power sector and business environment under the Economic Recovery and Growth Plan. This is an ongoing initiative of the current administration to map out a medium-term plan for economic growth for 2017-2020. Unlike previous such initiatives, it has a “delivery unit at the Presidency” to drive implementation of its key priorities. It also aims, among other things, to “ramp up” oil production to 2.5mbpd by 2020. Let us be totally honest, such a plan would have been run through the key personnel attached to Nigeria inside the IMF. It is not even worth debating the handiwork of the organisation on the plan. It is simply what happens; nothing happens to economic planning in this country without the blessing of the IMF. Their recommendation of certain policy measures (fiscal and monetary for example) carries so much weight that no serious planning or finance minister would dare go against. Given this, how come, then, that the IMF’s prognosis for Nigeria’s economic outlook seems so at variance with that of the government? What explains the basis for this parallel universe?
First of all, let us clear up a couple of assumptions about the nature of the IMF and government. The former is a lending institution, while the latter pre-occupies itself, most times, with spending. Their worldview is bound to differ somewhat. While one tends to be conservative, austere and amoral, the other tends to be expansive, lavish in parts and all-embracing in whole. Furthermore, while one is accountable to the global finance of the West that created it, the other is (or ought to be) accountable to the teeming masses of the people that gives it power. Although the IMF lends money to a struggling government, it does not enjoy doing so. In fact, it does not wish to do so if it could be avoided. It sees itself as a lender of last resort, which means, when all a country has left to go on is looking up to the heavens for a miracle. That being so, the institution has grown since it was set up as part of the post-World War II international economic order led by the USA. By the way, even the USA runs a budget deficit. A budget deficit occurs in any economy when the amount it takes in from taxation is less than its expenditure. Solution? Borrow, of course. Like all other developing nations, Nigeria scampers around looking for someone to borrow from all the time. How about borrowing from Messrs Aliko Dangote or Mike Adenuga and their ilk, for instance? They have billions of unused dollars in assets after all. They could lend to the government and reap high interest dividends and become even richer, you might think? No, not a chance. Individuals do not lend to government because the risk is simply too great. In that case, is it not possible for a government to approach commercial banks? Yes, they often do, but bank interest rates can be killing for anyone, not least a government with scant resources. Why not simply impose higher income and corporation taxes? Well, that is not as easy as it sounds either. Higher taxes discourage investment; they put people off coming into a high taxing country in preference for a low taxing one. Countries after countries are busy chasing private investors and wooing them with juicy tax rates and concessions that it would be economic suicide to wantonly raise taxes and hope for the best.
The above is precisely what drives governments towards the IMF. Nowadays though, the institution does a lot more than throwing money around; it basically takes over the running of the finance ministry of the borrower with their crack team of financial experts from Washington, USA, where it has its headquarters. What is the IMF assessment of the Nigerian economy overall? It is that growth is expected to pick up slightly in 2018 to 2.1 per cent, but it will “stay flat in the medium term”. This is rather grim indeed, given that we need growth to be five per cent and above over a sustained period of time to have any realistic hope of stemming the tide of unemployment and mass starvation in this country. Consequently, following the precepts of the IMF, “fiscal consolidation should be accompanied by a monetary policy stance that remains tight to further reduce inflation and anchor inflation expectations…” Now, what does this gobbledegook mean in a lay man’s language? “Staying flat” means we remain in a recession-like economic environment for the foreseeable future. The IMF’s prescription for that is “fiscal consolidation”. It simply means, the government should cut back on its expenditure, hitting the poorest even harder, since it cannot impose higher taxes to meet its growing expenditure on essential services. This is happening at the same time as we have an urgent need for a massive investment in our road network and transport infrastructure. A “monetary policy stance that remains tight”? Oh yes, this explains the high interest rate policy of the CBN. But how can the manufacturing sector thrive under a high interest rate policy of the IMF? Their main priority is curbing inflation; not boosting employment.
Lest we forget, there was a reference to the USA itself having a massive budget deficit. It runs close to $20 trillion in fact. It is the highest of such deficits in the history of the modern world. It makes the country the largest debtor on earth, in fact. What is the IMF going to do about that, you might be wondering? The answer is nothing; nada! The IMF does not and cannot lend to the USA, nor any Western economy for that matter. It could, in theory, lend to a Western economy in dire straits, but the organisation is not structured for that purpose. Instead, the USA and other Western capitalist nations borrow largely from private investors operating in capital markets and other financial outlets. Why? Because they have financial “credibility” to do so, and we, in Africa, do not. This state of affairs gives the IMF an inordinate power over our economic destiny. When they give “advice”, (diktat, if you prefer), they do so often in double breath. They want us to promote an “inclusive growth strategy” that focuses on employing labour and increasing social welfare for citizens. At the same time, they advise against government spending, and advocates tight monetary control and tax incentives for the rich as the only route towards prosperity. We dance to their tune at will; they say jump, we say how high. They ask us to run a mile towards them, and as soon as we get there, they immediately insist we prove we can walk on water too. This is euphemistically referred to as the IMF “conditionalities”.
Well then, readers, I say that we are in an economic straightjacket largely of our own making, by our continuing inability to take our destiny into our own hands. President Donald Trump in the USA has just done that last Thursday, by imposing higher tariffs on importation of steel into America to “protect American jobs”. It is a “national security issue” for America, he insists. Imagine this coming from the motherland of capitalism and free trade? The same people preaching the virtues of deregulation to us? What an irony!
So, instead of fixing, tilting and indeed stealing the vote in 2019, let the next election be a choice between alternative visions for the liberation of our economy from the palsied grip of international capital. Punch