When Lagarde came calling

FOR the records, Ms. Christine Lagarde, the Managing Director of International Monetary Fund (IMF) visited with Nigeria for four days commencing from Monday, January 4, 2016 to Thursday January 7, 2016 after which she was scheduled to continue with a visit to Cameroun. What was most surprising was the negative sentiments which this visit generated amongst some critical compatriots. What I gathered as I interfaced with the various media was the clear and palpable sentiments that the IMF in character has come to dictate to Nigeria to embark on austerity measures, undertake trade liberalisation, balance the budget in the context of the massive deficit included in the 2016 Budget, remove price controls and eliminate subsidy payments which most economists including yours truly believe is a veritable misallocation of scarce resources, recommend privatsation or divestments and encourage the enhancement of the profile of overall governance through the encouragement of the fight against corruption in all and every ramifications. The organised labour which is wont to interfere with the responsibility which the populace had given to fiscal authorities to initiate fiscal policy decisions often thoughtlessly warning against eminently critical needful decisions not surprisingly raised the red flag to caution the government to be circumspect in its dalliance with IMF.

The memory which comes flooding back was the farce which we had in this country when the country in 1986 threw open for debate whether the country should take the IMF loan when even market women became instant economists all crying wolf should the country take the IMF loan. One of the historic false step which this country in its governance experience took was to accept the IMF conditionality through the introduction of the Structural Adjustment Programme which was aimed at unleashing market forces and total decontrol but without the loan in deference to dominant sentiments! But we have a duty and responsibility to correct such wrong, misplaced sentiments and perception of the IMF. The IMF as part of its mandate and through the annual Article IV visitation which Lagarde assures will be following one week after her visit offers advice to member countries regarding strategies to adopt in meeting some of the fiscal challenges they might encounter.

The IMF is a body with Head Quarters in Washington D.C. which was established as part of the Bretton Woods institutions which were established just after the Second World War in 1944 but actually commenced operations in 1945. It had an initial membership of 29 countries which currently stands at 188 countries. It is, therefore, a members’ only organisation with a mandate to foster secure financial stability, facilitate international trade, and promote high and sustainable employment and sustainable economic growth to achieve the reduction on the incidences of poverty in the world. Specifically IMF mandate requires it to work to improve the economies of member countries through the adoption of self-correcting policies and the management of their exchange rate in a manner that prioritises growth. Members seed money which the IMF uses for its operations are realised from the contribution which individual member countries make via a quota allocation system. The IMF would normally lend to countries that have encountered balance of payments difficulties and are in need of urgent accommodation which realistically could not be expected to be readily available from other sources. It is, therefore, more or less a lender of last resort in this connection. This explains why the IMF Managing Director is spot on when she observed that she has not come to discuss programme loan with Nigeria. And it is only when you go to the IMF for such accommodation that the loan conditionality kicks in and becomes a precondition for loan draw down.

Ms. Christine Lagarde had observed how Nigerians have been able to manage a diversified economy hallmarked with growth in the last decade which averaged seven per cent per annum and a maturing political system. She observed that the importance of Nigeria amongst the comity of nations should not be understated as the country remains the largest economy in Africa and in her words: ‘Nigeria has a large regional foot print and its fortune affects that of its neighbours especially through trade. It is estimated for instance that one per cent reduction in Nigeria’s GDP will lead to a drop of 0.3 per cent in the GDP of Benin Republic. As she observed, one of the reasons that informed her visit is to engage with critical stakeholders in view of the shocks from the external environment characterised by falling commodity prices particularly oil in the Nigeria situation, tightened global financial conditions, slowdown in growth in emerging and developing countries and increase in geo-political tensions.

To assuage the fears of those who suppose that she has come to dictate to the government, she observed that Nigerians are well known for their resilience and strong belief in their ability to improve and manage their economy thereby encouraging others to follow their lead. She underscored the fact that she has come as an interested party to offer advice only when she quoted iconic Chinua Achebe who once observed: ‘If you do not like someone’s story, write your own.’ She publicly acknowledged the stability of the Nigerian banks and whilst encouraging the introduction of some flexibility in the management of the foreign exchange rate applauded the monetary authorities for correct policies taken so far including encouraging the banks to extend credit to real sector as well as SMEs at concessionary terms which the banks had already voted to do as per the communique which was recently released following the annual bankers’ committee retreat which was held in Lagos toward the end of 2015.

And for those canvassing for low hanging fruits in our present predicament of falling price of oil she reminded us of the opinion which some of us have long held that we should aim to widen the tax net by bringing many companies and compatriots who are not currently paying taxes to begin to do so while enthroning greater efficiency as we undertake resource mobilisation through taxation. She recommended an increase in the VAT rate as it is well known that the rate in Nigeria is the lowest in the sub-region and added her voice to the worn out recommendation that we should bite the bullet to remove the much abused and hardly sustainable fuel subsidy. And advice caution as we book loans noting though that the debt stock is 12 per cent of the GDP, it is worrisome if we spend 30 kobo of every one Naira earned to service debts. What is most important is to maintain an open mind as Nigerians contemplate some of the recommendations which Ms. Christine Lagarde has made during her visit.

• Dr. Boniface Chizea wrote from Lagos.