IMF’s unflattering verdict on Buharinomics
Earlier in the month, the International Monetary Fund, IMF, released its report on Nigeria: “Consultation with Nigeria” where it welcomed Nigeria’s exit from economic recession but cautioned that delay in implementation of reforms, incoherent policies, security challenges and tensions ahead of the 2019 elections could negatively impact on the Nigerian economy and reverse recent surge in capital inflow into the country.
After noting the few gains recorded in the preceding year including the convergence in foreign exchange windows, tight monetary policy and improvements in tax administration, the Breton Wood institution warned that although the country has exited recession, it still remained fragile and susceptible to shocks especially as growth in the non-oil, non-agricultural sector has remained very sluggish. “Higher oil prices would support a recovery in 2018 but a ‘muddle-through’ outlook is projected for the medium term under current policies, with fiscal dominance and structural constraints leading to continuing falls in real GDP per capita,” the Fund said. It warned that Nigeria must urgently implement “comprehensive and coherent” economic policies which must not be delayed by approaching elections and recovering oil prices.
Crucially, the Fund urged the Central Bank of Nigeria to discontinue its practice of direct intervention in the country’s economics by stopping the injection of funds into the foreign exchange market to artificially maintain the exchange rate.
“CBN should discontinue direct interventions in the economy. The Central Bank of Nigeria (CBN) frequently injects hundreds of millions of dollars into the foreign exchange market to keep its own rates stable…Moving towards a unified exchange rate should be pursued as soon as possible…IMF staff does not support the exchange measures that have given rise to the exchange restrictions and multiple currency practices.”
“A few of the IMF Directors also advised the Federal Government to fast-track the confirmation of the appointments of the central bank’s board of directors and members of the monetary policy committee.”
“The directors emphasised that structural reform implementation should continue to lay the foundation for a diversified private sector led economy.”
This is perhaps the key point in the report. The government appears to be travelling down an elevator that is going up with its insistence on statist development agenda even though officially, it still subscribe to liberal ideology and even launched the Economic Recovery and Growth Plan (ERGP).
We have noted that since the advent of the Buhari administration and despite the president’s pledge to liberalise the economy, his actions and dispositions have all been anti-business and pro state-led economy approach. From the retention of subsidy on petrol, the refusal to approve the privatization of the nation’s dilapidated and perpetually non-functional refineries – even as all experts voiced their doubts on the state’s ability to revamp the refineries and get them to operate at a profit, the mopping up of funds from banks and their concentration in the Central Bank even when the economy needs revamping, to the talk about a national carrier, national shipping line and other such relics of the 1970s and 1980s that are no longer fashionable, the president’s intentions are clear. Last year, when challenged on the decision to exclude members of the private sector from the economic management team, he did not mince words in his response: “We are averse to an economic team with private sector members” because such persons “frequently steer government policy to suit their narrow interests rather than the overall national interest”. Buttressing the president’s position further, the media adviser to the vice president, Laolu Akande further explained that the presidency considers economic management as purely “a government affairs”.
Equally, last year, a member of the Monetary Policy Committee of the Central Bank of Nigeria raised an alarm that the CBN has been acting like a piggy-bank to the government, printing money to fund government expenditure while formulating policies that inevitably crowds out the private sector
According to Salami, CBN’s claims on the government rose twenty-fold to N814 billion ($2.26 billion) from the end of 2016 while its purchases of government’s Treasury bills increased 30 percent to N454 billion. “It is clear that the CBN has provided piggy-bank services to the federal government.” However, the “massive injections of cash” to the government doesn’t reflect in higher inflation and currency weakness because the CBN through “special auctions” raised the cash reserve requirements for banks beyond the stipulated 22.5 percent thus skilfully crowding out the private sector. “We thus find ourselves at a point where government borrowing from the CBN is neutralised by raising the CRR of banks, thereby limiting private-sector access to credit”, said Salami who later lamented that “Monetary policy management is presently about funding the federal government.”
This duality between stated intentions and actions cannot help the country. We respectfully urge the government to faithfully implement the ERGP plan, allow the private sector to drive the economy and cease all interferences with the Central Bank of Nigeria.