Is Lagarde a fairy godmother or economic imperialist?


The Managing Director of the International Monetary Fund, Christine Lagarde, held strategic consultations last week with President Muhammadu Buhari and some key legislators and ministers. The Central Bank of Nigeria Governor, Godwin Emefiele, also met with the IMF boss, who quickly dispelled any anxiety that we might be programmed for another oppressive round of the IMF conditionalities. However, Lagarde confirmed that the consultations centred on “the challenges stemming from the oil price reduction, and the need to find different revenue sources”.

Consequently, the discussions related to the evaluation of Nigeria’s short term fiscal situation, and the application of fiscal discipline in the management of available resources so as to effectively redress the pervading social welfare deprivations of the masses and also reduce the widening gap between a very rich, small minority, and over 100 million other impoverished Nigerians.

Buhari’s well-known resolve to wrestle corruption and plug leakages and administrative wastage is certainly in consonance with the IMF’s expectation of fiscal discipline in governance, as Lagarde, reportedly, expressed confidence in the current administration’s “determination and resilience.”

Nonetheless, the IMF boss was clearly hesitant to endorse Nigeria’s N2tn plus, highest ever deficit in the 2016 budget as fiscal discipline, particularly with the severe depletion in revenue from crude oil export, and the dismal prospect of crude prices remaining cheap in the foreseeable future.

Lagarde, unexpectedly, also commended Nigeria’s already diversified economy with a celebrated GDP of over $500bn, with the service sector surprisingly contributing about 50 per cent of output. It was probably convenient for the IMF boss to ignore the reality that naira devaluation wiped off over $100bn from our GDP in 2015, and that the financial services sector, particularly, was growing at the expense of the rest of the economy; surely, this cannot be the type of inclusive growth Nigerians expected.

Thankfully, however, notwithstanding the optically deceptively modest debt/GDP ratio of 12.5 per cent, Lagarde endorsed concerns expressed on this column about government’s “ambitious” plan to dedicate 35 per cent of all generated revenue to servicing existing debt, She therefore cautioned that “it weighs heavily on the public purse when already about 35 kobo of every naira collected by the government is used to service outstanding debts”. Pray, how can anyone compliment a fiscal plan that resorts to borrowing to service debts and fund substantial increases in recurrent and capital expenditure, without considering the oppressive cost of debt service or the capacity of future generations to repay those debts?

Nevertheless, Lagarde’s empathic redemption song for the poor may encourage some Nigerians to pray that “Mama Christiana” should repeat her visit if necessary, to forestall enactment of the “self-destruct” 2016 Budget as proposed. Indeed, if the IMF remains passive on this score, Lagarde’s reported sympathy for the poor may be decried as plain propaganda, just like her media-studded side visit to an Abuja orphanage, to promote a public image of the ‘Supreme financial regulator” as a caring interventionist institution, in a world where the gap between rich and poor nations still continues to ironically pull apart under the Fund’s imperial watch.

Furthermore, the IMF’s recommendation for VAT increase to generate more revenue may not however be welcome news, particularly with the organised labour, that will clearly be wary of the inflationary implications on incomes and wages of Nigerians. Consequently, government may be well-advised to only consider VAT increases, specifically on luxury and elite lifestyle products like air tickets, hotel and restaurant facilities (excluding local “bukas” for now), yachts and automobiles with engine capacity above 2000 cc, spirits and tobacco as well as GSM airtime and personal and corporate turnovers in commercial bank accounts with levies on bank profits inclusive.

Nonetheless, VAT on those imported industrial raw materials which cannot be sourced locally, should remain at five per cent so as to promote competitive pricing of locally manufactured products, while imports of finished consumer goods should conversely also attract a higher VAT rate as recommended by Lagarde to bolster government revenue.

In addition, the Federal Inland Revenue Service should broaden the tax net to increase revenue rather than squeeze “more blood” from or exposing already well-documented tax compliant enterprises which can barely survive to possible extortion from the FIRS staff.

Furthermore, the prevailing low price of crude oil should also allow for a minimum five per cent VAT on the price of AGO (diesel) which now sells profitably, according to the current the Petroleum Products Pricing and Regulatory Agency template without subsidy at about N100/litre.

Evidently, with petrol price presently below the erstwhile subsidised price of N87/litre, government may have finally eliminated subsidy to be in consonance with the strident calls by Lagarde’s IMF and several experts and non-experts, for subsidy removal. Unfortunately, the present “subsidy-free” fuel price will inevitably become dislodged, even if crude prices further slide, if the naira exchange rate suffers another devaluation.

Regrettably, however, the IMF is clearly in denial that the naira exchange rate and the CBN’s stranglehold monopoly on dollar supply are in fact the major determinants in fuel pricing. For example, any further depreciation in the naira exchange rate beyond N200=$1 will immediately trigger higher pump prices proportional to the exchange rate differential. Conversely, fuel price will sink below N60/litre, without subsidy, to allow for over N20/litre sales tax, if the naira appreciates to N100=$1, even if crude prices rise again.

Surely, the above scenario is certainly a more plausible reflection of real time market dynamics, as increasing crude oil prices should normally swell our reserves and engender a stronger naira. Inexplicably, however, the naira exchange rate remained static between N150 and N160, even with over $60bn reserves. Ironically, our bountiful reserves brought no succour to the economy, as the naira exchange rate, unexpectedly, steadily depreciated, notwithstanding prevailing favourable output and crude prices, while fuel prices, conversely spiralled to induce over N1tn as subsidy payments annually.

Nonetheless, the IMF team will successfully resolve the above strategy dilemma with a careful examination of the market dynamics between systemic excess naira supply caused by CBN substitution of naira allocations for dollar denominated revenue and the CBN’s weekly auctions of dollar rations which predictably promote weaker naira exchange rates that distort resource allocation and also destabilise those economic fundamentals which induce poverty by instigating higher inflation rates and prohibitive cost of funds to the real sector.

The patent failure of the instruments of our monetary strategy was again highlighted when the CBN Governor and the IMF boss appealed to the CEOs of Money Deposit Banks, last week, to support the real sector with more single digit loans. Clearly, such appeals are meaningless so long as the CBN’s own monetary policy rates remain above five per cent while government at all levels also happily pays double digit interest rates for the trillions of naira it borrows annually on behalf of the people.

It is inevitable that Lagarde recognised that fiscal indiscipline and wrong choices not only deepen poverty in Nigeria, but also adversely affect the economy of the whole West African sub-region.

It is inconceivable that the counterproductive results of the CBN’s monetary offensive will escape the attention of Lagarde and her formidable array of IMF experts, unless of course, everyone is knowingly looking the other way, so that, ultimately, the predictable failure of our economy will sustain the historical lopsided template of trade between colonies and their imperial masters.

Thus, in the “expected” and unavoidable event of increasing inability to service our national debt (currently in excess of $60bn), Lagarde and the IMF will return once again, this time, as undertakers to rescue us with the same harsh conditionalities that would inevitably further deepen poverty, and extend the gap between the rich and the poor nationwide.