Lagarde’s visit to Nigeria

Christine Lagarde, managing director of the International Monetary Fund (IMF), was in Nigeria last week on a four-day working visit to Africa. During her stay, she held talks with President Muhammadu Buhari, the Central Bank of Nigeria (CBN) officials, the finance minister, the National Assembly, bank MDs/CEOs, captains of industry and non-governmental organisations (NGOs), where several issues were discussed. These included domestic economic issues such as the propriety or otherwise of continued subsidy on petrol, diversification of Nigeria’s economy and its earnings to non-oil sectors, devaluation of the naira, state of the nation’s infrastructure, the workability of the 2016 national budget, among others.

Expectedly, Lagarde’s visit generated huge interest and apprehensions among Nigerians. And the reason is not farfetched. Historically, the IMF usually comes calling or is invited when a country is in deep financial crisis, and most often the aftermath leaves much to be desired. The country’s experience with the Structural Adjustment Programme (SAP) of the mid-1980s is still fresh in the minds of Nigerians. Rightly or wrongly, many people still blame the Bretton Woods institution for the economic crises and woes the country suffered after accepting the IMF conditionalities to devalue the naira, deregulate and liberalise most sectors of the economy and privatise most state-owned enterprises.

And so, to allay fears over what her visit might portend at this material time, Lagarde, after a meeting with the president and the vice president, quickly declared that given the determination and resilience so far exhibited by the president and his team in turning Nigeria around, the country does not need any loan from the IMF and that she was not in the country to negotiate loans with conditionalities. She, however, insisted that Nigeria needs fiscal discipline to survive the harsh economic times and for its sustainability.

Furthermore, and this was not unexpected, the IMF boss urged Nigeria to do away with the fuel subsidy regime and reform and strengthen its tax system to capture more people and businesses. On the question of subsidy, she was unequivocal in her conviction that if the government ever hopes to survive the current crash in oil prices, the subsidy regime must go so that the government could use the saved money to fund infrastructure, housing, education, health, among others. And on tax reform, she specifically called for an increase in Nigeria’s Value Added Tax (VAT), noting that “the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members – so some increase should be considered”.

Although Lagarde seemed very careful not to be seen to be ordering the government to devalue the naira against the major international currencies, she, however, urged the federal government to adopt a flexible monetary policy that would better serve the interest of the country.

We agree with the IMF boss on all the points raised above. No doubt, Nigeria is facing difficult times as a result of the sharp fall in oil prices at a time when it has no savings and no buffers to protect it against such situations. The situation is further compounded by the tightening of global financial conditions and the slowdown of growth in emerging and developing economies. Yet, at no time is the challenge to address massive infrastructure deficit and high levels of poverty and inequality greater. These times certainly call for fiscal discipline, and so the government must do all within its powers to urgently eliminate all unnecessary costs, such as the petrol subsidy, and improve revenue generation through widening of the tax net.

However, we urge caution on the part of the Nigerian government, especially in light of a statement credited to Lagarde that “a team of economists from the IMF would be engaging the financial authority in Nigeria to review the [country’s] economic policies”. We know from history that IMF policy prescriptions to emerging and developing economies have hardly worked and have rather created more problems than solutions. Although the country may be in a dire situation, it does not yet call for surrendering to the IMF.

It is our considered view that if the government of the day possesses the will, it could still weather the storm and turn around the fortunes of the country by adopting sound economic management principles, reining in the cost of governance, prioritising spending, and putting policies in place to encourage businesses and local production. We must look for solutions to our problems ourselves and not put our hope in a global institution that does not have our best interest at heart.