Views & Commentaries
Nigeria and the IMF
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The IMF and Nigeria, an Enduring Relationship|
A Commentary by Gary G. Moser
Resident Representative in Nigeria
International Monetary Fund
April 15, 2002
Macroeconomic management in Nigeria was the focus last week for legislators, government officials, representative of the media and the private sector, and experts from within Nigeria and abroad, including from the IMF. The conference made a valuable contribution the development of a home-grown economic strategy, particularly relevant after the recent ending of the informal monitoring arrangement between the Nigerian government and the IMF. Yet that announcement has raised many questions about the state of our relationship, so I would like to set the story straight.
Nigeria and the IMF are partners, and we have a close and cooperative relationship. We do not always agree-few partners do-but we share a common vision for Nigeria, a vision expressed by President Obasanjo through his leadership in the New Partnership for Africa (NEPAD).
To its great credit, the government has been increasingly transparent about its relations with the IMF. This can be seen, for example, in the government's decision to publish the details of its August 2000 request for IMF financial support. Last year, the Fund's annual consultation report, which contained the Fund staff's candid assessment of the government's policies, was also publicly disseminated. Indeed, it was very encouraging that this report provoked widespread debate within the country, enhancing the national dialogue on economic policies.
The IMF has been criticized for focusing on macroeconomic and related structural policies rather than a broad development agenda. But the policies we propose are geared to-and, indeed, are prerequisites for-achieving developments goals. Financial stability and a vibrant private sector, supported by strong domestic institutions, provide the basis for durable long-term growth and poverty alleviation.
The IMF has provided Nigeria with policy advice, technical assistance, and training in its areas of expertise, as well as financial support for policies that will help achieve the country's economic and social objectives. The government economic program that the IMF supported with a $1 billion pledge in August 2000 did achieve some early success. Most notably, inflation was reduced and transparency in the use of public resources was improved. But a big increase in spending in early 2001 fueled a sharp increase in inflation to over 20 percent and widened the differential between the official and parallel exchange rates to over 20 percent, distorting the allocation of resources in the economy.
Although the objectives of the program were not met, the government still felt that it would be in the country's best interest to continue the close relationship and remain actively engaged with the IMF. So, in October 2001, the IMF and the government agreed on an informal framework that would monitor the country's economic policies over a six-month period.
It was expected that the six-month framework would be the precursor of a broader three-year program to tackle Nigeria's economic problems, fostering growth and reducing poverty. Such a program could have been supported by IMF financing and, by showing consistency in dealing with Nigeria's economic problems, could have been used by the government to support its appeal for debt relief from foreign creditors. However, for the same reasons mentioned above, the objectives of this framework were not achieved.
Our concern on excessive spending and distortions in the exchange system are shared by many participants in last week's conference and others throughout Nigeria, but are worth elaborating. First, when oil prices are high, the government-like any household that receives a windfall-should save for a rainy day.
But Nigeria has pressing needs: to rehabilitate the infrastructure, strengthen education, improve delivery of medical services, and many others. So the legitimate question is, Why not spend now? But it is vital that spending be calibrated with the government's ability to spend well, and to provide the best value to the people for public resources. If not, the money is wasted: that has been the sad reality of Nigeria's past. That mistake should not be repeated.
On the exchange rate, large differentials between the official and parallel exchange rate generate opportunities for corruption, as easy profits can be made "round-tripping" by those with the right to buy dollars at one rate and sell them at the other. This is why it is advisable to aim for a unified exchange system, one that responds to market conditions.
Despite these differences, and the ending of the informal monitoring, the IMF and the Nigerian authorities will continue their close relationship. The IMF welcomes the government's invitation to provide its technical expertise, and it will continue to offer technical assistance to develop the skills of Nigerian officials to implement economic policy. The IMF supports the government's resolve to devise a home-grown program, and will also provide advice to aid in its formulation, as we did last week.
The democratically elected government inherited deep-rooted economic, social and political problems. Decades of negligence and economic mismanagement led to a prolonged decline in real earnings, rising poverty, deteriorating health indicators, infrastructure decay, and widespread misuse of public resources.
The IMF will continue to support efforts by President Obasanjo to provide a brighter future for all Nigerians-indeed, for all Africans, given his role in NEPAD. IMF Managing Director Horst Köhler, who has twice visited Africa during his two years in office and who will come twice more this year, has made clear the IMF's support for Africa and for Nigeria. As Nigeria undertakes the difficult task of building a bridge to the future, the IMF can be counted on for support, as a partner and as a friend.
IMF EXTERNAL RELATIONS DEPARTMENT