‘No guarantee govt will implement World Bank’s recommendations’

Shubham Chaudhuri, the World Bank’s Country Director for Nigeria, grew up in India, his country of origin, and served in Indonesia before taking up his new role in Nigeria. The three countries had a lot of socio-economic similarities in the 1970s and early 1980s but there have been much divergence in recent times, manifesting in their recent economic prosperities and developmental strides. Chaudhuri, in this interview with Business Editor, Femi Adekoya and Asst. Business Editor, Geoff Iyatse, shares his experiences across the three countries, highlighting how they have charted different routes to progress. He also spoke on touchy issues around planned subsidy removal, the Bank’s commitment to Nigeria, inflation and the foreign exchange market.

Nigeria not committed to consensus building

Why is the World Bank embarking on this media campaign? Does it have anything to do with the $1.5 billion pending World Bank loan?
I think the categorical answer is that we have not intensified the campaign because of any loan that the country has taken or wants to take. I get asked questions all the time on why the World Bank continues to saddle Nigeria with more debts? And my answer is – we don’t. I would prefer that we make ourselves redundant than saddle members with unnecessary debts. If the $650 million that our board committed towards primary healthcare, that is, immunisation, was not provided, the routine immunisation, the anti-malaria control and eradication programmes would not have been financed.

We wanted to try and do the right thing to help on these issues – investments in human capital and Nigerian children, which I think are critically important. But at some point, we also have to ask ourselves – why are we the ones financing these? They couldn’t be financed with N3 trillion spending on petrol subsidies.

So it is just a flip of the question you posed. It is not that we are intensifying this campaign to try to increase Nigeria’s debt. It is precisely the opposite. We are trying to say that Nigeria does not have to be so reliant on financing. Our financing is concessional, and I hope we can continue to provide it because there are so many needs everywhere, which is the reason Nigeria is also issuing Euro Bonds.

Please let me be clear on this. This campaign comes from a basic desire to try and be an honest partner. Part of what we do is to provide support beyond financing. So, what you heard in the NDU was very much where we are trying to provide support beyond financing. I am very conscious of how that can come across because there is this distrust not only towards individuals but certainly also distrust of neoliberal Bretton Woods institutions. That is part of the reason why I asked that we have an honest, frank conversation.

You may not agree with some of what we are saying in terms of the policy recommendations. But, at least, let us agree on the fact that we are here just trying to be helpful. The policy recommendations, the policy choices, the decisions will ultimately rest elsewhere.

The argument about subsidy removal has always been there. Several times, the government made failed attempts to remove it. Do you think the government is willing to go all the way this time?
There are discussions that bringing PMS to a more cost-reflective level will have an impact on inflation. But if we look at Nigeria’s history – let us not try to do any sophisticated time-series statistical analysis which we have also done – but if we just look at Nigeria’s past episodes where PMS prices have been increased, we don’t think that the inflation impact will be that much. Again, we could be wrong. It will be maybe two or three percentage points higher. That is, you look at where the PMS price is and the kind of the cost-reflective PMS price needed, saying somewhere between N300 to N340.

Now, is it possible that that might be used as an excuse for a whole round of upward price adjustment? It is possible but that is in the past – it has not happened. But you don’t want to take that risk. We think that at the same time, there can be other measures taken to mitigate inflation pressure and on that, you have heard this before including back in June. We think that the effects of foreign exchange restrictions have been a big contributor. FX restrictions and the initial closing of the land borders in August of 2019 are major contributors to inflation. And anyone who looks at it doesn’t have to be an economist to see the effect. I’ve talked to private firms here who have seen costs of intermediate inputs increase.

The FX restrictions on particular commodities, especially food commodities, are high. Given this, the price of corn has gone up by almost 100 per cent. The rise of food prices is partly caused by insecurity obviously but a large part of it is also caused by FX restrictions.

We have seen several programmes over the years that were aimed at taking care of the poor, which did not yield sufficient results. Also, there are concerns that if you remove subsidies and give people money, inflation will rise. What is your position on this?
It depends on whether or not additional cash is in the hands of, let’s call them the bottom half of the population. Whether that is inflationary or not depends on whether or not there is a fair response.

A lot of this cash is going to be spent locally and then that local economic activity. There is a supply response that happens, it is not like refineries where you have to wait for say 10 years before they are built. A lot of what people spend cash on directly feeds local economic activities where there’s a pent-up supply response waiting to happen. That is the least of our concerns in terms of the potential inflationary impacts of a cash transfer programme.

What is the state of the $1.5 billion loan?
The media have been very focused on that one particular loan – the $1.5 billion. This is what we call policy-based budget support. Are you aware of the fact that throughout 2020, our board approved almost $4.8 billion in commitments to financing for everything from primary healthcare, girl-child education, power sector reforms to technical/vocational training programmes to Nigeria? So, why are the media so focused on the $1.5 billion that we were not able to proceed with as opposed to the $4.8 billion that we did proceed with, or at least our board-approved? But I will answer the question; I just want to be sure that you are aware of all of the other funds because the media have been exclusively focused on that $1.5 billion policy-based budget support even though that is only one component of our finances.

It has attracted so much interest because some people have argued that based on direct contributions from agencies to the government, Nigeria did not need the loan. But a minister insisted the country needed it.

The main difference between our policy-based budget support and the other programmes that I mentioned, is that our policy-based budget support is just general budget support that the government can use for a purpose. This is opposed to when we provide $650 million for primary health care. It could only be used for routine immunisation. So, they are much more focused.

If the budget-support loan can be used for any purpose, are you not worried about the utilisation?
If you have policy-based budget support, which can be used for anything, then you have to be able to say that the government is doing all it can to manage its fiscal situation.

In terms of convergence or greater harmonisation of exchange rates, a lot was done in 2020 in terms of adjusting PMS prices upwards. If you think about all of these things, these are ways in which the government helps itself manage its fiscal situation.

Those were the basic points behind the $1.5 billion. Our board would ask – is the government doing all it can to help itself? If yes, we can certainly make up the difference. What held it up, in the end, was the foreign exchange management. The PMS price adjustment has stopped. Put it this way, we were ready to help at that point. If you have a 15-feet hole that you are in, and you are trying to climb out, we are providing help that will get you up to 1.5 feet; it is not going to get you out of the hole. So, we should help you figure out how the other – the rest of the hole – can be filled out.

It is the same approach now. We were trying to say let us help you do something so that you don’t get into that hole next year.

There are concerns across Africa and developing regions that the policies that result from your recommendations and support tend to worsen poverty, unemployment and inflation as against reducing these in line with your mandate. Nigeria today is also at the point it was a few decades ago when the Structural Adjustment Programme (SAP) was recommended. Have you considered how the subsidy removal advocacy will affect the people and its impact on your mandate to reduce the number of people living in extreme poverty to three per cent in 2030?

Let me answer in two parts. First, is there potential in the recommendations? Absolutely. It is very clear that with the right policies and implementations, Nigeria can dramatically accelerate growth in a broad-based way and create jobs that help lift people out of poverty.

The second part of the answer is that we can lay out the potential – and a lot of this is how the policies get implemented and whether they get sustained. For example, last year, we were very hopeful about the PMS subsidy issue. There was an adjustment. And by the way, that was what helped, to a large part, the recovery as quickly as Nigeria did.

And if you look at the fiscal costs, and the fact that the government was able to finance many stimulus programmes but just kept up basic services, even though revenues from oil fell, the country did the right things. So when you ask me that, when the IMF or the World Bank talks about these policy reforms, they often end up having very negative social consequences, I would say that sometimes it is because maybe the policy recommendations were not the right ones. But most times, it is because the policy is started and then they are dropped. Sometimes, doing something halfway is worse than not doing it at all.

What happened in the 1980s is that the initial part of SAP was implemented, and then it was stalled. So, you got all the hurt without any of the benefits. That is my answer. I am personally wrestling with the fact that we see the potential. But we are not the ultimate, neither are we the decision-makers.

So, we are having to make the case that if you do this, you have to stick with it. You have to implement it properly and the reason that we have some confidence is that we have seen how it has worked in other countries. Think of it this way, all we are doing is putting suggestions on the table. We are trying to be as clear as to why we think these suggestions are worth pursuing. We base this on the experience of other countries. This is one chart I like to show everyone, where Indonesia started in 1970, where Nigeria was in 1970 and what has happened in the last 50 years.

Take a look at that chart and then I can tell you, Indonesia and Nigeria are not that different. They are more similar than you can think. Why has Nigeria not managed to have the Indonesian trajectory? It has to do with a lot of what you might call neoliberal reforms. But neoliberal reforms were fully implemented rather than half-implemented.

You pointed out poor or half-way implementation as a major obstacle to Nigeria’s economic breakthrough. Going forward, what is the confidence level that the current or next administration would fully implement the policy you are recommending today?
I think at this point, there is no guarantee. That is part of the idea. What I’m saying is just thinking about this – fear is what keeps people to say let us preserve the status quo. Let us continue with business as usual. But there comes a point in time when business as usual, is going to lead to a very bad outcome. That is why consensus has to come first – we need to find an alternative.

So, if we said the money from PMS subsidies has to go directly to expenditures that will benefit ordinary Nigerians, there’s a role for both the political principals to make that commitment publicly and for the public to hold them accountable. It will be a worse outcome if PMS subsidies are removed and the money gets wasted in some other way. So we’re very conscious of that. But, it doesn’t have to be that.

There has always been a trust issue. How do you define the poor? How many of them will have access to the subsidy grant? What do you think of it that the grant is not captured in 2022 appropriation?
If I were in the shoes of many of the people who have been commenting, I think my reaction would be different, especially if you agree something needs to be done about this. If you don’t agree that something needs to be done on the subsidies, then we need to have a different conversation. I would say let’s not throw the baby out with the bathwater. Let’s figure out how to do this properly – hold the government accountable. Let’s say you and I are going to work on a financial inclusion campaign so that more households, even without a smartphone, can still get access to mobile money, get registered, whether it’s NIN or BVN. What I will say is to interrogate the details. Is subsidy removal essential? That’s the first point. Second, if subsidy removal is essential, then you agree that some form of compensation to ease the pain is needed.

I have heard some people saying why bother with that entire grant. You should just take that and invest in roads. There has to be a consensus. Is temporary compensation necessary while the bulk of the funds will go towards the much-needed investments in human capital and infrastructure?
Perhaps, it’s ironic for me that the reaction is what it is because part of the issue has been that the past government has not stepped up in acknowledging and stating what will be seen as an unpopular position. So the fact that the Minister of Finance has gone out and said that to get a debate going, I think, I hope that there will be much more details about what is planned and then what the numbers are.

On the budget question, if you think about it there is a provision. See, that’s the thing about the way PMS subsidies are reported because it is not listed as expenditure. It is listed as a deduction that will reduce revenue. If you look at it, they were anticipating N443 billion in deductions because of PMS subsidies in 2022 and that was the first thing I pointed out. I said, do you realise that that figure will last you less than two months? But look, this is what we are saying is that to some extent if the PMS subsidies are rolled back, there will be additional revenues coming in that can be used for compensations.

So, the fact that it is not in the budget right now does not matter. How do you achieve that process as part of a budget authorisation and are there going to be any liquidity issues in the sense that the funds will come in but you need to spend it before it comes? It is clear that if you reduce subsidies, you will have more revenues flowing into the Federation Account, which you can then start earmarking.

At both the Federal and state levels, budgets have not been passed. So, they could even do it now or they could do a supplementary budget. In terms of the liquidity, we have been asked to provide. We will be providing, we will present to our management and the board and see how we can potentially support the social assistance programme. So, we are doing it from our side but then it would have to go through all of the federal government and NASS approval processes. We have said that we would be willing to provide the financing if it will help as part of the compensation mechanism.

When we speak profoundly about the role of the political elite, we go with the opinion. We have read about John Perkins’ confession and contrasted it with another classic ‘Why Nations Fail’. When all these things happen, the political elite looks on to benefit.

What is your own opinion about the political elite in Indonesia where you have served, India where you were born and Nigeria where you currently work?
In Indonesia and some of the other East Asian countries, there was a consensus. It wasn’t unanimous; it was contested. But there was a consensus on certain things. Consensus has to be maintained, and sometimes you can have backsliding. I would say there’s less of a consensus in India but other dynamics have come up. In India, we are not constitutionally a federation, but effectively a federation.

There is that competition where each state wants to outperform and then sometimes it’s easier within the level of a state or sub-national unit to have a little bit more of a consensus.

In India, I did not have the benefit of enjoying Coca Cola growing up because Coca Cola was not allowed in the country. We had our local varieties. But there was a growing recognition amongst us that we had to wake up. In India, there used to be what we called the Hindu rate of growth – three per cent, no more. But changed in the 1990s and 2000s. And some of that dynamism of the 90s and 2000, also came from the dynamism of the states.

In Nigeria right now, I do not see that consensus. Now I’m straying very far from my training and experience as an economist. But this idea – things are still very much seen through a lens of geopolitical zones and I think that is getting in the way of the broader consensus function.