Nigeria’s plan to secure external financing from international lenders to meet the shortfall in this year’s budget and stabilise the economy has run into difficulty. This is as a result of the insistence of international lenders, chiefly the World Bank and the International Monetary Fund, for further economic reforms by the Nigerian government.
As a result, discussions on loans to Nigeria have reportedly been stalled. Specifically, the World Bank has said it would not be able to disburse any loans to Nigeria until next year because it has not yet received the macroeconomic framework needed for the discussions to progress. But, the Finance Minister, Mrs. Kemi Adeosun, who is leading the Federal Government’s team on the loan negotiations, has disputed the World Bank’s claims. The bank has, however, said it is “continuing its discussions with Nigeria on a wide range of critical reforms for restoring macroeconomic resilience”.
It added that it would determine with the Nigerian government, “the most appropriate instrument to support the reform programme”. It, however, did not give a timeline for the discussions. In the same vein, the IMF has called for more flexibility in Nigeria’s economic policies, and has projected that the current recession might not end until next year.
As the IMF rightly noted, the Nigerian government should be wary of rising debts in the public and private sectors, a development it described as “anti-growth. In its World Economic Outlook released last week in Washington, USA, the organisation projected that Nigeria’s economy will witness a dampening slow growth of 0.6 percent with a Gross Domestic Product (GDP) contraction of 1.7 percent. Nigeria’s economy was earlier projected to contract by 1.8 percent. The country had already recorded 0.36 and 2.06 percent contractions in the first quarter and second quarter of this year respectively, plunging it into its worst recession in 29 years.
Taken as a whole, government should not overlook the demands for reforms by these multilateral financial institutions, but should be careful in acceding to all their demands. Undoubtedly, government’s economic policies need to be retooled to pull Nigeria out of the current economic recession. Although recent government measures, including the adjustment of fuel prices and the present flexibility in the foreign exchange market, are some of the painful economic pills Nigerians have been compelled to take, we disagree with the suggestion of the global money lenders that government should further devalue the naira which is currently in bad shape against major foreign currencies.
While external borrowing has become inevitable, extreme care and circumspection are necessary to avoid another debt trap that could mortgage the future of the country and that of its citizens. With the benefit of hindsight, it is clear that some of the prescriptions of the international money lenders have not been in the best interest of debtor nations.
We are mindful of the fact that our country is facing tough times, with a heavy shortfall in revenue to meet critical needs. That may have made external financing expedient, prompting government to take loans from the African Development Bank (AfDB), Japan International Cooperation Agency and Export-Import Bank of China. This is in addition to the Federal Government’s plans to issue about $1billion Eurobond.
Our view is that while economic reforms are necessary, the way forward lies in putting other economic enablers firmly in place. Beyond domestic and external loans, we need a strong Economic Team that will be proactive rather than reactive to economic challenges. The current managers of the nation’s economy appear overwhelmed by the challenges in the land.
There is an urgent need to address the deficiencies in government’s current monetary and fiscal policies. The Central Bank of Nigeria (CBN) and the Ministry of Finance which recently openly disagreed on the best way to tackle the economic challenges and stimulate growth need to streamline their positions and work out the best way out of this recession. Weak growth leads to lower investment, slower productivity and erosion of human capital. Our economists must find a way to overcome these.
We reiterate our earlier calls on government to improve the Ease of Doing Business in the country. Nigeria still ranks low in virtually all parameters on the global Ease of Doing Business index. This has made foreign investors to hold back investments to Nigeria.
We know that fixing Nigeria’s broken economy cannot happen overnight. Government should, therefore, make a detailed appraisal of the economy and design measures to tackle all the identified problems. Patronage of made-in-Nigeria goods can go a long way in stimulating growth, while the effort to diversify the economy should be pursued with more vigour to attain inclusive growth.