Review… IMF: What benefit in a poisoned chalice?

In from Ali Smart . . .

August visitors hardly visit in August and so it was with Ms. Christine Largarde, the Managing Director of the International Monetary Fund (IMF). She came to Nigeria in January, last Monday to be precise, on a four-day official visit, her first under President Muhammadu Buhari.

Public perception of IMF

The IMF which is an organisation of over 188 countries prides itself as a group working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

But the received wisdom out there is that the Breton wood institution is a body peopled by shylocks and mean capitalists, basically interested in feathering their own nests and reaping where they did not sow.

This perhaps explains why a lot of people out there have never hidden their disdain for the institution, especially the IMF and the World Bank because of public perception of what these two organisations stand for.

If you ask any adult Nigerian who was around in the early 80s, he or she cannot easily forget how these two bodies rendered the economy completely prostate with anti-people policies like the Structural Adjustment Programmes (SAP).

Give it to these bodies; they surely know how to make the most toxic ware look so fantastic and enticing.

But of course, the IMF has since realised its days of influence are over and like the practiced trickster has rather become ingenious in the way and manner it goes after its prey.

It was therefore not surprising that when Largarde came calling last Monday, some discerning Nigerians had raised the alarm that the IMF was probably here to as usual, negotiate loans for the current administration knowing full well the country was in dire financial straits and could easily fall for such bait.

Apparently worried by this development, her media minders made her address a press conference where she quickly dispelled the rumours.

Real reason why IMF came calling

Although the visiting IMF boss was noncommittal when initially accosted by journalists few days ago on the import of her visit at this time, it was not difficult to know her real motives to Aso Rock.

Top on her agenda, of course, was how to make the federal government tweak some of the policies already having rippled effect on some of the interests the IMF represents: specifically monetary and fiscal policies and such policies that border on structural reforms and all of that.

Addressing members of the Senate  in Abuja, the IMF chief stated that “the goal of achieving external competitiveness requires a package of policies including business-friendly monetary, flexible exchange rate and disciplined fiscal policies, as well as implementing structural reforms.”

Additional exchange rate flexibility—both up or down— she said can help soften the impact of external shocks, make output and employment less volatile, and help build external reserves. It can also help avoid the need for costly foreign exchange restrictions – which should, in any case, remain temporary.”

The leader of the IMF delegation also urged the government to consider increasing what Nigerians pay in Value Added Tax (VAT). “the first step is to broaden the tax base and reduce leakages by improving compliance and enhancing collection efficiency. At the same time, public finances can be bolstered further to meet the huge expenditure needs. For example, 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.”

Largarde noted that “as more people pay taxes there will, rightly, be increasing pressure to demonstrate that those tax payments are producing improvements in public service delivery.”

The IMF Chief, commended the federal government for commencing the process of eliminating fuel subsidy in the 2016 budget.

She lamented that “fuel subsidies are hard to defend. Not only do they harm the planet, but they rarely help the poor. IMF research shows that more than 40 per cent of fuel price subsidies in developing countries accrue to the richest 20 per cent of households, while only 7 per cent of the benefits go to the poorest 20 per cent.”

Read also: Economy: Nigeria’s future bleak, IMF boss says

Nigeria’s experience of administering fuel subsidies she said, “suggests that it is time for a change—think of the regular accusations of corruption, and think of the many Nigerians who spend hours in queues trying to get gas so that they can go about their everyday business.”

Largarde urged Nigerians not to “forget the huge challenges facing Nigeria’s state and local governments. These sub-national governments—which account for the bulk of social spending—have only limited tools to manage the impact of declining oil revenues. My message here is to manage better the smaller purse, while building capacity to increase internally generated revenue.”

The IMF she offered can help “by providing technical assistance on public financial management. We can explore how to support states’ efforts to undertake budget reform.”

For Nigeria’s banking system, Largarde suggested that the country should build resilience by fostering a sound banking system which will help channel more savings into productive investments, especially in quality infrastructure.

Ms Largarde, whose tenure is expected to come to an end in July, also urged the federal government to identify ways to broaden the revenue base, particularly to create additional fiscal space to offset the impact of lower oil prices.

Specifically, Largarde advised the government on the “need for careful decisions on borrowing, public spending, and managing the cost of fuel subsidies – with a view to safeguarding priority social sectors and the most vulnerable groups.”

This she said “will require a package of measures involving business-friendly monetary policy, flexible exchange rate policy, and disciplined fiscal policy, and the implementation of structural reforms.”

To some analysts however, the suggestions though well-intentioned shouldn’t be taken for the gospel truth because some strings may be attached to them. Talk of a poisoned chalice.

“Experience has shown that countries that moved from poverty to riches hardly ever swallowed hook line and sinker the antidote offered by the IMF or World Bank of this world,” Frederick  Adegboye, a public affairs analyst said.

Going down memory lane, he recalled that: “Back in the 80s when most of the third world countries were experiencing tough times, they were forced by the IMF at the time to introduce some policies which were forced down their throats literally.

“Only Malaysia, one of the Asian Tigers refused to heed or had the courage to refuse them and they’re the better for it today.”

Expatiating, he said, “From Russia to Saudi Arabia to Nigeria many countries have had to devalue their currencies to be able to foot their bills. Nigeria had better be careful this time to avoid the mistakes of the past.”

 

 

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