Supporting Nigeria’s Recovery: An IMF Perspective - Address by Michel Camdessus
March 18, 199999/7 Address by Michel Camdessus
Managing Director of the International Monetary Fund
at the conference "Nigeria: The Way Forward"
Abuja, Nigeria, March 18, 1999
It is a great pleasure for me to participate in this conference with this visionary theme at this momentous time, when Nigeria has created a new opportunity for economic progress, national harmony, and democracy. Around the world, hopes are high that Nigeria will recover the momentum of development and assume once again its leadership in Africa and among developing countries worldwide.
Let me, today, pay tribute to the leadership and courage of the Head of State, General Abubakar, who has done so much to bring about this unique opportunity. His determination in these past few months to begin the process of social, political, and economic transformation, has laid a cornerstone on which the incoming government and the people of Nigeria can build in the months and years ahead. President-elect Obasanjo, in once again taking on the mantle of leadership, faces a formidable task in the period ahead. More than anybody else, he knows that both democracy and economic progress go well hand in hand, that they can be naturally reinforcing, but as the history of Nigeria has taught us too well, that they are both fragile and need to be backed by all forces in society. Let me tell you that it is wholeheartedly that we offer him and your country, at this moment of unique opportunity, our full support as you are designing and implementing a strategy for guiding the economy along a new path.
There is no mistaking the sense of hope and expectation that exists today, here in Nigeria as well as abroad. But what I find equally impressive is that a spirit of realism exists in the face of the enormous challenges that now confront Nigeria. I need hardly remind you of the difficulties, reflected so vividly in the level of real per capita income—now lower than three decades ago; in widespread poverty and regional inequality; and in declining health and education standards. Let me tell you my personal reaction: this is a historic scandal indeed. How, with the resources of this country, and with the talents of so many of its cadres, can such a situation be justified for so long. All aspects of the economy—institutions, policies, and performance—need radical improvement. This difficult task is made more challenging by an external environment that is clearly not benign.
- The global economy has faced several setbacks in the past two years, notably in the international financial markets. Despite some positive developments, such as the continued strength of the U.S. and signs of recovery in Asia, many downside pressures remain. In particular, oil prices very recently were at their lowest level for a generation, and the prospects for an immediate strong recovery are not promising.
- The confidence of investors on whom Nigeria will need to rely in the years ahead has been undermined: globally, by the crisis in emerging markets; in Africa by the spread of armed conflict; and in Nigeria by cumulative concerns based on many years of weak policy and governance.
The domestic economic situation is extremely difficult. The external environment is not promising. But should we be pessimistic about Nigeria’s prospects? I believe not. I perceive at least four reasons for hope:
First, realism. A few weeks ago in the budget address, General Abubakar recognized eloquently just how great the challenges are. He said:
"... we are painfully aware of the sacrifices all Nigerians have been making these past years. This is why we are anxious to put in place policy measures designed to bring long-lasting relief to our citizens. Unfortunately, however, as in treating malignant diseases, curative measures bring pain first before the desired relief. Our economy has long been in a malignant state.... We are confident that before long, our remedial policy actions would bring relief to our homes." This is the language of realism.
Second, the enormous potential of Nigeria—its people and their entrepreneurial spirit, and the country’s natural resource base, and agricultural potential—remains undiminished.
Third, the advent of a newly-elected government, which offers a window of opportunity to begin to implement the programs and policies that will push the country along the path of recovery and development. The objectives that President-elect Obasanjo has espoused are formidable and deserve our support. Again let me quote:
"...an open, fair and transparent government throughout the period of my mandate; a government in which both the legislature and the judiciary will not be hindered in the discharge of their proper and constitutional duties. And together we will strive to bequeath to the next generation a truly democratic system of governance for our country."
Fourth, the spirit of "Vision 2010" and the Economic Summit of November 1998, which are impressive not only for their far-sighted analysis and recommendations, but also for the fact that the private and public sectors collaborated actively in the process.
* * * * *
What specifically should be done to establish sustainable, high-quality growth? Above all, the full participation of all the citizens to the historic task of laying the basis on which the Nigeria of the new century will grow and prosper for the benefit of all and, particularly, of the too long neglected poorest in society. From this effort, in the framework of a vibrant democracy, no one should be absent: all political forces, the private sector, the NGOs, the churches, the trade unions, etc. should participate. Truly, this is the moment for all to contribute to their country. And the international support will be in proportion to the full involvement of all segments of Nigerian society.
More broadly, a strategy is needed to create an environment in which Nigerians can be confident in their own country, and where they feel secure in saving and investing in their own economy. Such an economy will also be one where foreigners will feel comfortable in investing once again. Within this strategy, I see a few core elements: good governance; liberalizing the economy and integrating it with the rest of the world; and indeed macroeconomic stabilization.
The first and foremost element is good governance. I refer not simply to an attack on corruption—though that is essential—but to wider issues of integrity and soundness of the institutions of government, the administration and the judiciary. And it is a concept that certainly applies to the public sector. But it extends also into the corporate world and society at large, which should be held to equally high standards of conduct. The corruption that you have acknowledged plagues Nigerian society is a symptom of a deep-rooted disease that you are determined to bring to an end. This is a truly formidable task and means fundamental reform at all levels of the economy, society, and government.
Let me suggest a few building blocks on which Nigeria can begin to construct a society characterized by good governance.
- democratically-elected government, which has the support of the public to begin to restructure social and economic institutions. This "first principle" will be fully realized within the next two months. We are there!
- An uncompromising respect for the rule of law. This calls for a transparent legal framework and a strong, impartial judicial system that would give confidence to savers and investors that contracts are sacrosanct and will be enforced, that rights will be protected, and that property will be secure. I also support General Obasanjo’s call for an anti-corruption agency. Such an agency should be independent and be directed by a person of high repute.
- A renewed emphasis on transparency and accountability in all aspects of economic life, both public and private. For the government, this means the prompt provision of accurate information about the economy—and of course information that it should get for itself and for all actors in the economy--and increasing transparency in its macroeconomic policy formulation. Checks and balances could be restored, for instance, by a stronger, independent office of the Auditor General. Private and state corporations would have to comply with standards and codes of good practice in areas such as accounting, auditing, and corporate governance. It will also mean complying with other legitimate demands of government such as taxation, and regulation. In return, the private sector should expect to face a level-playing field.
- A clear and unambiguous commitment to equity in society. It is essential that opportunities for education and access to health care be improved, and a social protection system should be built that supports the poor and the most vulnerable during periods of economic stress and adjustment. And of course, you are heading for a long period of adjustment and reform. One of the key aspects of a globalized world is that reform never stops. This is another reason to have social safety nets in place to assist the poor during these periods of adjustment. Among the efforts to improve the quality of public expenditure that will be needed to pursue these goals, greater scrutiny of large capital projects in the public sector is desirable. The concept of equity should also cover disparities among regions, such as those affecting the oil-producing areas. The different groups in society should not only receive fair treatment in the allocation of budgetary resources, but they should also be able to perceive that fair principles are used.
Our experience around the world, especially in the past two years of crisis in many emerging markets, underscores a basic point: without good governance, countries are at greatly increased risk of economic instability and recession. Let me now turn, much more briefly, to the other essential elements. In being brief, I do not intend to diminish their importance; all three should be regarded equally.
The second key element consists of the changes in economic structure and institutions that are needed to build a competitive and efficient economy that is open to the world outside. The aim should be to allow the private sector to become the engine of growth through a diversification that also lessens Nigeria’s dependence on the oil sector for foreign exchange earnings and government revenues. The agenda is extensive.
- Deregulation and privatization, have been started, but more is needed to improve the quality of essential services, to lower the costs of doing business in Nigeria, and to free the energy and entrepreneurial drive of the private sector.
- The trade system and the exchange system need to be liberalized to ensure that the private sector’s decisions are not based on distorted prices.
- A sound financial sector will also be essential to Nigeria’s economic revival. Domestic financial institutions should be subject to the highest standards of governance and transparency and operate within a clearly defined framework of regulation and supervision.
Looking further ahead, all of these—particularly a robust financial system—are prerequisites for Nigeria’s fuller integration into the global economic and financial system.
The third element is to build the foundations of rapid sustainable economic growth through a firm, credible set of macroeconomic policies designed to establish and maintain stability. This task is made both more difficult and more crucial by the current state of the oil market. Low oil prices have cut deeply into government revenues so that, even with prudent expenditure management, the fiscal deficit has increased significantly. In these circumstances, a tight monetary policy will be central in maintaining stability and avoiding a return to high inflation, even if initially it gives rise to high interest rates.
But now, what are the immediate challenges? What should be done, especially in the next few months, to build on the cornerstone that has already been laid?
Nigeria’s destiny lies in its own hands, and I know that you all share that view. I shall not elaborate the agenda that lies ahead any further, but I can promise that the IMF is ready to work with the Nigerian authorities, if they so wish and as we have already started, to design the more specific policies that will be needed. I am also confident that, once Nigeria has clearly begun to set its house in order, you will find hands to support you in this task from the people in Nigeria and from all your friends abroad.
Let me direct a few words to the international community. This is a time of opportunity; this is a time for a New Deal; and over time, with resolute implementation of policies and the reestablishment of financial discipline, Nigeria has all the potential for creating the conditions that will re-open access to capital markets and attract new direct foreign investment. But such confidence-building will take time, and for some years will require significant external financial support. To the donors and creditors I would say: if Nigeria undertakes sustained reform by carrying through the commitments it has already made, in the framework of our "staff-monitored program", this is a window of opportunity for Nigeria and for all of Africa, and I invite you to join with us in the IMF in extending new support, with as large a concessional component as possible.
It will also be necessary for Nigeria to normalize its relations with its international creditors, through the resolution of its external debt, and I anticipate that an approach to the Paris Club would be a part of the overall package. But here I must speak plainly: if discussions with the Paris Club are to succeed, then Nigeria will need to demonstrate its intention to develop a new kind of relationship with its creditors by rigorously and faithfully complying with the terms of the agreed arrangements. I should also sound another cautionary note: Nigeria’s debt burden is certainly heavy. But a resolution of its debt problem should not be seen as a panacea. Rather, it is an opportunity that is accorded by the creditors for Nigeria to rebuild itself. But this opportunity will be lost unless it leads to a recovery of saving, private investment, and capital inflows.
What will the IMF itself be able to do? We are willing to place the full range of our services and instruments at your disposal: policy advice to help design a program of economic reform; technical assistance and training to assist in strengthening and rebuilding the institutions of government; and financial assistance to reduce the severity and the duration of the pain that you have recognized may well lie ahead.
Already the first steps have been taken. Just a few weeks ago, we were delighted to receive from the Nigerian authorities a memorandum describing a program of economic and financial policies that would be implemented in the coming months of the transition, and that would be recommended to the incoming government. Let me clarify the nature of the program, for this is a mechanism that is perhaps less well-known than many of our loan facilities. A "staff-monitored program" is designed to establish a record of policy implementation. It is intended to signal to our Executive Board, and through it to the world at large, that Nigeria is committed to and capable of sustaining a certain policy course that the international community can support and must support. It is not associated at the beginning with financial assistance; but the Fund staff will monitor implementation of the program. If performance is satisfactory, we would be ready to transform it at the request of Nigeria into a multi-year loan arrangement, which would enable Nigeria to approach the Paris Club for resolution of its external debt. Be assured that, in the months ahead, we will be working hard to support your efforts in this critical phase of what should become a true Renaissance.
I shall not dwell further on the problems that face you and the incoming government. I know that neither you nor President-elect Obasanjo harbor any illusions about the challenges in implementing the strategy on which you have embarked. But as the country takes its destiny firmly into its own hands, I have little doubt that the potential, the will, and the means exist to ensure, in President-elect Obasanjo’s words, that "Nigeria will rise again."