The International Monetary Fund at its latest spring meetings presented its World Economic Outlook that included country-specific-evaluations and recommendations.
In the case of Nigeria, the IMF identified the 1.9 percent GDP growth, decelerating price increase and the gradual convergence in the foreign exchange market as major positive trends of 2018.
It also recommended a few policy changes.
- That Nigeria needs to move towards a market-driven foreign exchange regime, and,
- Nigeria needs to remove fuel subsidy removal.
On the first recommendation: The federal government is completely uninterested in adopting IMF’s recommendation on its foreign exchange policy.
On the second recommendation: The FG has been more reticent and unwilling to state its conclusive policy position on fuel subsidy. In fact, the finance minister reportedly said the government is yet to identify the appropriate formula for fuel subsidy removal.
But this is familiar ambivalence.
Historically, attempts by the government to ensure market-reflective fuel prices always elicited strong public disapproval. Nigerians love their fuel subsidized and are deeply suspicious of multilateral institutions especially the IMF.
This toxic mix, partly explains why the government has struggled to provide any meaningful response to the IMF’s recommendation.
Misguided suspicion of the IMF:Nigerians point to the Structural Adjustments Programs (SAP) proposed by the IMF in response to the deterioration of the Nigerian economy in the 1980s as proof of the IMF’s cruelty. But this is incorrect.
While it’s true that the IMF proposed a set of free-market reforms as a condition to approving a $2.3 billion loan application from the Shagari administration, neither the loan nor the money was accepted. In fact, negotiations dragged from Buhari’s regime, as a military leader, to the Babaginda regime when the proposals were rejected through public debate in 1985.
According to a World Bank report, while negotiations dragged, economic conditions deteriorated: oil revenues fell to $6 billion from $26 billion in 1980, growth was in the negative, current and fiscal deficits widened to 6 and 12 percent of GDP, borrowing increased, inflation went over the roof, large scale external trade arrears were accumulated and the naira lost about 70 percent of its value during that era (1986-1992).
In summary, instead of SAP, it was the ill-informed resistance to the economic logic of SAP that worsened the deep-rooted challenges SAP was intended to address.
Our misplaced priorities will kill us: Just as in the 1980s, public finances are severely pressured, and our public expenditure priorities are questionable. For example, we subsidized fuel consumption with N731 billion in 2018, while N682 billion was budgeted for the Ministry of Works, Power, and Housing within the same period. When faced with a choice, conventional economic logic gives preference to subsidizing production over consumption; but in Nigeria we cherish the reverse. This is an unsustainable path.
Nigeria’s future competitiveness and productivity is completely dependent on targeted investments in health, education, and infrastructure. Therefore fuel subsidy is too ephemeral in concept, too fleeting in impact and should consequently not gulp the largest portion of public expenditure.
If history is any guide, continued rejection of base-level economic recommendation will lead us to create a country we all won’t want to live in; that’s if we have not strayed into that condition already. This misguided suspicion of compelling economic logic passively nurtured by decades of government responsiveness will lead to no comforting end.
The Nigerian government has a documented history of ambivalence, border-line-hypocrisy when it comes to making difficult decisions. But for a country that requires several structural remedies to its structural challenges, policymakers need to abandon this culture, lift their heads above the parapet, inform the public on the policy choices we face and the sacrifice inherent in every choice.
Fuel subsidy needs to go.