Reforms: World Bank, IMF face backlash amid rising inflation, petrol cost

• Nigeria Can No Longer Execute Socialist Policies, Experts Declare
• Govt Must Subsidise Food To Sustain Reforms

“The World Bank is not the most popular organisation in Nigeria right now,” the beginning of the opening remarks of the World Bank Country Director for Nigeria, Ndiame Diop, at the unveiling of the Nigeria Development Update Report, recently, aptly captured the perceptions of Nigerians towards the Bretton Wood institution.

With the pump price of petrol hitting N1, 200 per litre, naira exchanging for N1,700 to a dollar, food inflation at about 40 per cent, transport fare spiking to the level that has pushed some Nigerians to quit their jobs even as many are facing existential threat, the endorsement of the hardships by the World Bank and the International Monetary Fund (IMF) will expectedly attract public hatred.

In his address at the event, which was held with the theme, ‘Staying the Course: Progress Amid Pressing Challenges,’ Diop stated that the removal of fuel subsidy, subsequent deregulation of the downstream sector and liberalisation of the exchange rate have all resulted in modest growth, improved fiscal health and rising foreign exchange reserves. However, he noted that while these measures were necessary to urgently avert a fiscal crisis and place Nigeria on a stronger development path, they have imposed short-term pressures on households and businesses.

In its report, the World Bank highlighted the need to sustain the policies while addressing structural issues to combat inflation and promote long-term investment, growth and job creation. While it is still early, the report held that positive results from the reforms are starting to show at the macroeconomic level.

It pointed out that output growth has remained modest overall, but inched higher through mid-2024 as oil sector output has stabilised and activity in some services has been robust. The fiscal position is also improving, with the Federal Government’s fiscal deficit narrowing to 4.4 per cent of GDP in the first half of 2024 from 6.2 per cent in the first half of 2023, helping to mitigate debt-related risks.

On his part, World Bank Lead Economist for Nigeria, Alex Sienaert, stated that despite the hardship, it is important for Nigeria to stay the course, adding: “Yet, in the medium term, staying the course with the implementation of the current policy mix will reduce inflation, expected to fall to 14.3 per cent by 2027 in the base case.”

But experts have faulted the ‘short term’ hardship narrative the Bretton Woods institutions are deploying to describe the harrowing experiences Nigerians are going through.

A retired banker, Mohammed Ande, while noting that he understands the factors that support the standpoint of the World Bank, said there is a timeframe within which the pains will turn to gains.

His words: “Look, there is what orthodox economics tells us. The Nigerian experience has defied what the books prescribe many times. The pain of the people is too grave and there are no statistics to show when it will end. There is no short-term solution in sight. The number of barrels of crude oil that Nigeria can produce will not move from about 1.2 million barrels per day to three million barrels per day in three years. The value of the naira will not fall below N1,000 by magic. Therefore, the pump price of petrol will not come down to N800 per litre in another year. Transport fares to and fro work will not reduce any moment. The price of rice may not fall below N80,000 any time soon. There won’t be jobs for job seekers. Manufacturing cannot increase production because people cannot buy because of low purchasing power and the cost of borrowing has gone beyond 40 per cent. So, where is the evidence of the short term pains the World Bank is talking about?”

With the national minimum wage in limbo, Ande said the hope of a salary raise, especially at the state level, is blurry.

Although the foreign exchange reserves rose from $32.9 billion at the end of 2023 to more than $38.8 billion by mid-October 2024, experts see this as a paper achievement that has no impact on the life of the citizenry.

Tightening of the monetary policy by the Central Bank of Nigeria (CBN), which is pushing the interest rate up, is another endorsement by the World Bank and IMF some experts are finding difficult to understand.

They argued that with inflation moderating, the CBN ought to be holding rates by now and not maintaining its tightening stance.

But the World Bank maintained that complementing monetary policy tightening with measures to address long-standing structural constraints will enable faster progress in the fight against inflation and spur the investment, growth and jobs, which Nigeria urgently needs.

In addition, the report explained that previous distortionary and unsustainable policies were hindering Nigeria from achieving its immense potential. It held that monetary and foreign exchange policies were increasingly opaque, distortive and inconsistent with maintaining price stability, including multiple managed and overvalued official exchange rates.

To the governor of Bauchi State, Bala Mohammed, the report is too academic and does not capture the realities of the Nigerian people.

“I find this report too academic. We should go back to the basics. Nigerians are not enjoying this regime. The onus rests on the Finance Minister and the other managers of the economy to come up with programmes and economic policies that will reduce hardship. Most of our people live in rural areas and operate in the informal economy. The World Bank should know this. That is how we are. Government must come up with programmes that can transform people into self-employed entrepreneurs,” he stated.

The governor, who attended the presentation of the report, argued that the hardship Nigerians are going through is a result of the economic policies of the current administration.

He added: “We all can see that inflation is going up, which means the policies that are creating inflation should be looked into. I want to say that there is pain and hardship in the land that is beyond the sub-national governments. The governors did not introduce the economic policies that are responsible for high inflation. The revenue that is coming in is not enough to address the cost of infrastructure that is needed. The policies on agriculture and manufacturing are not yielding the required fruits.”

However, an energy expert, Henry Adigun, threw his weight behind the World Bank report, saying: “The World Bank assertion is the reality that we must agree to. Reforms do take time to harvest. I compare it to planting teak trees. Does the World Bank have an agenda? I don’t know. What I do not know is that the reforms undertaken were critical and needed.”

Nevertheless, Adigun faulted the lack of proper sequencing and cushioning to sustain the reforms. He added that countries that Nigerians run to today also underwent painful economic reforms at some point in their histories.

He said: “Many countries that are now places of refuge for Nigerians undertook this. Margaret Thatcher, for instance, is remembered for her hard stance on reforms and remains a divisive figure. But one can state that had she not reformed the United Kingdom when she did, the economy would not have been as competitive as it is today or was before the misrule by the Conservatives.”

He noted that the government can indeed undertake economic reforms that will not deform the people, faulting the Federal Government for not providing alternatives or having well thought out plans for its reforms.

“Government can undertake reforms without killing Nigerians. What this government did not do was to understand the fundamentals before tinkering with it. Then it did not provide alternative pathways to mitigate the challenges people and industries will face. There was no modelling,” he stated.

Adigun insisted that the Tinubu administration was yet to realise the impact of currency devaluation on the lives of Nigerians.

“One can argue that the biggest challenge currently is the unification of the exchange rates or devaluation of the currency. I don’t think that the government understood how much impact the exchange rate had on the economy,” he noted.

He maintained that for any reform to take root and be acceptable to the people, food must not only be made available but affordable as well.

“Nigerians would have been more tolerant of the reforms if food was not a problem. The government should subsidise food. That is the key to selling reforms,” Adigun said.

On his part, an economist, Kelvin Emmanuel, was bullish in his thoughts as he insisted that the government is no longer in a position to provide subsidies of any kind.

“The reality is that even if the government wanted to operate a socialist state where it provides subsidies for the 62 per cent of Nigerians living in multi-dimensional poverty, it would not be able to afford it. Nigeria finances 52 per cent of its budget from debt. There are three major layers of subsidy it has to remove to free up N14 trillion that can be invested in compliance with the Abuja declaration of 2010 which seeks to make education and healthcare 15 per cent each of the budget; these areas are FX, power, petrol,” he explained.

Emmanuel held that the decision of the CBN to adopt a floating exchange rate model, the decision of the Federal Government to transfer power to the concurrent legislative list and to comply with Section 205 of the PIA on the deregulation of the downstream sector of the oil and gas industry are the foundational building blocks for rebalancing the macroeconomic fundamentals required for stabilising the economy.

He expressed optimism that the economic pains caused by the reform are about to ease, saying: “I think we have seen the worst, and it only gets better from here.”