Nigeria and the IMF: End of the Fulani Marriage?

“Nigeria’s $1.5 billon World Bank loan is a modified Fulani marriage; it has gotten a skinny plain bride for a few strokes… The reforms Nigeria has signed up to are by no means bold and the Buhari administration clearly has agreed to a World Bank programme not because it believes in the reforms but because Nigeria desperately needs dollars.”

The Fulani have a marriage tradition called “sharo” – the practice of a suitor enduring a flogging in order to win a maiden’s hand in marriage. The successful suitor is the one that exhibits strength and resilience, not fleeing or breaking down sobbing. The process of implementing economic reforms is somewhat like competing for a Fulani bride: a country signs up for a package of painful reforms (the strokes) in exchange for loans (the bride) from the World Bank and the International Monetary Fund (IMF). 

The reforms the IMF and World Bank ask for can range from the unification of exchange rates, removal of subsidies on petroleum, to the restructuring of the entire civil service that would see thousands of public workers lose their jobs. 

Also Read: Egypt Reforms Paying Off as Cairo Moves Closer to Another $1.6bn IMF Loan While Nigeria’s World Bank Loan Stalls

There are long-term gains to be derived from the reform programmes. An example is when salaries for bloated bureaucracies packed by politicians with political supporters or people who have paid a bribe to get in are converted into rural infrastructure to support the export of cash crops or into higher salaries for qualified primary school teachers. 

The “Loud Mouths” Have Always Won 

IMF and World Bank programmes are never popular because they inflict clear and instant pains on many people while the gains of the programme are in the future and have only potential beneficiaries (it is not certain that the savings from eradicating fuel subsidies for instance would be spent on rural infrastructure).

Furthermore, the potential beneficiaries of IMF/ World Bank-supported reforms may be unaware of the benefits of the reforms and/or be poorly organised and have little political influence. Farmers who could gain from a devaluation (by earning more from exports) or eradication of fuel subsidies (when the savings is invested in rural roads or agriculture extension services) have no unions, are far from capital cities, and lack access to the media.   

An alliance of urban groups-labour unions, university lecturers, activists, students, journalists, etc., such as the one that the Oxford economist Paul Collier described as “loudmouths” during the January 2012 anti-fuel subsidy removal protests aggressively mobilise against the adoption of World Bank/IMF-supported reforms. Nigerian leaders, partially (e.g. former President Olusegun Obasanjo) or completely (e.g. President Muhammadu Buhari) share the economic ideas of the anti-reform urban coalitions. 

The anti-reform coalition benefits the most from wasteful and unsustainable policies (such as the uncontrolled expansion of subsidised university places) that IMF/World Bank reforms target. Nigerian governments have avoided, seriously diluted, or rolled back economic reforms due to the influence of the diffuse but highly effective anti-reform coalition.

The government of Alhaji Shehu Shagari (1979-1983) approached the IMF as the oil price dropped and Nigeria found it increasingly difficult to pay for imports. The Shagari government inherited $5.1 billion in external reserves in 1979 but had racked up $20 billion in external debt when it was deposed in a coup in December 1983. 

Protracted negotiations with the IMF did not result in a loan because the Shagari government refused key IMF conditions: reducing tariffs on imports, devaluation of the naira, and the removal of fuel subsidy. 

The military government of General Muhammadu Buhari could also not agree to an IMF loan as it also refused these conditions. General Buhari in 1985 said the IMF conditions “are not in the interest of Nigeria”, assuring Nigerians it would not “mortgage the interest of the country.”

By 1986, Nigeria’s foreign exchange earnings had fallen to roughly $7 billion from $26 billion in 1980 and the country’s external debts had become unserviceable, making it very difficult to import goods. Nigeria desperately needed dollar loans to relieve the chokehold of the balance of payments crisis on its economy. Because of low oil prices,  Nigeria was using almost half of its export earnings to service foreign debts. 

The government of General Ibrahim Babangida which replaced Buhari’s administration through an August 1985 coup launched a national debate on whether to accept IMF/World Bank conditions in return for debt rescheduling and desperately needed dollar loans. The urban “loudmouths” dominated the debate and soundly rejected an IMF loan.

The Babangida government then proceeded to initiate in June 1986 a “home-grown” reform package that looked very much like a typical World Bank/IMF-supported programme and in fact, bore the name – Structural Adjustment Programme – as such programmes. 

Nigeria’s SAP had the tacit approval of the World Bank and IMF which meant that bilateral donors could once again support Nigeria. But it was a Fulani wedding – Nigeria decided to implement a typical but poorly funded IMF/World Bank programme by rejecting the IMF loan it could have gotten. 

Has Buhari Ended the Fulani Marriage 34 years later?

Nigeria this year found itself back in 1986 as a result of the coronavirus pandemic. Battling with the unprecedented plunge in oil prices and crumbling finances, the government sought a $1.5 billion loan package from the World Bank. By May 2020, Nigeria was using more than 90% of its income to service debts. 

Also Read: World Bank’s New Chief Economist Says Nigeria is in a “Terrible Shape”, Oil Income Falls by 80%

Nigeria in April 2020 announced the removal of the fuel subsidy and also moved to allow market-determined electricity tariffs as part of the effort to qualify for the World Bank loan. These are reforms that the government had resisted since 2015 when it was first elected. 

But approval of Nigeria’s application was delayed for months due to concerns over its reluctance to fully embrace foreign exchange rate reforms.

Although the naira has been devalued twice in 2020, a gap still exists between the value of the naira at the black market and the Central Bank of Nigeria (CBN) exchange rate as a result of the reluctance of the CBN to adopt a unified, more flexible exchange rate.

The CBN continued to impose controls that impede the evolution of a market-determined and stable foreign exchange rate even as Nigeria was ostensibly trying to convince the World Bank it would meet conditions for the $1.5 billion loan application.                         

Also Read: Nigeria Close to Securing $1.5bn World Bank Loan – Finance Minister

But the World Bank’s Board of Directors on Monday 14 December approved the $1.5 billion loan for two programmes – the Nigeria Covid-19 Action Recovery and Economic Stimulus – Program for Results (Nigeria CARES) and The State Fiscal Transparency, Accountability and Sustainability Program for Results (SFTAS). 

The CARES programme will spend $750 million to “increase access to social transfers and basic services” for “poor and vulnerable households” while the SFTAS will spend $750 million additional investment in a pre-existing programme, which assists Nigerian states to increase revenue-generating capacity and reduce theft (the World Bank doesn’t put it so bluntly) of public funds by supporting measures such as passing legislation on procurement and reducing ghost workers through linking civil servants salaries to BVNs.

The CARES and SFTAS are lending programmes developed within the context of a Country Partnership Framework (CPF). The CPF seeks to promote reforms that attract private sector investment (which the World Bank considers critical for reducing poverty), that improve financial management and service delivery capacity of the public sector and improve “human capacity” through investment in basic education, healthcare, sanitation, etc.

The World Bank has gone some way in securing the objectives of the CPF in getting the FGN to scrap subsidies for fuel and electricity and through the movement towards a unified exchange rate (which will eventually eliminate the money lost through “round-tripping” and attract foreign exchange). In theory, these reforms make more funds available for investment in education and healthcare. 

Nigeria’s $1.5 billon World Bank loan is a modified Fulani marriage; Nigeria has gotten a skinny plain bride for a few strokes. Shubham Chaudhuri, World Bank Country Director for Nigeria said about the new Country Partnership Framework, “To realize its long-term potential, the country has to make tangible progress on key challenges and pursue some bold reforms.” The reforms Nigeria has signed up to are by no means bold and the Buhari administration clearly has agreed to a World Bank programme not because it believes in the reforms but because Nigeria desperately needs dollars.

In fact, the World Bank made it known on December 10, prior to the approval of the $1.5 billion  (CARES and SFTAS) loan, that it had not sent Nigeria’s application for a $1.5 billion policy support loan (an additional sum which would have gone into the FGN’s budget rather than earmarked for specific uses like the CARES and SFTAS) to its Board of Directors. This is because of Nigeria’s evidently weak commitment to reforms. A source told BusinessDay, “There is scepticism about the commitment to structural reform. They are trying to ensure the reforms started are followed through and the commitment is credible.”

It is impossible to avoid the impression, if Santa sent Nigeria a $120 per barrel oil price as a Christmas gift, all the subsidies would be promptly restored. The Minister of Finance, Zainab Usman, often reassured the public that Nigeria was not seeking an IMF loan, commenting on the $3.4 billion emergency assistance extended to Nigeria in April 2020, “This facility will not be tied to any conditionalities (sic). However, it is important to clarify that Nigeria does not intend to negotiate or enter into a formal programme with the International Monetary Fund, at this time, or in the foreseeable future.”

Egypt signed a $12 billion IMF programme in 2016 when it embraced thorough-going currency and other reforms and signed another $5.2 billion Standby Agreement in June 2020. Egypt has roughly half Nigeria’s population, a GDP of $250.9 billion compared to Nigeria’s $397.3 billion (2018 World Bank figures) and World Bank Human Capital Index (HCI) ranking of 104 out of 157 compared to Nigeria’s 152 of 157 countries. 

Nigeria has more economic potential and greater need than Egypt; if Nigeria was more committed to reforms it could have attracted about $7 billion from the IMF and more funding from the World Bank. (World Bank/IMF money has low-interest rates, 5-year payment moratorium, and 30-year repayment period). 

With a low appetite for reforms and low ambition for economic growth, all Nigeria could muster is a $1.5 billion World Bank loan. However poorly executed, Nigeria pursued economic reforms in the mid-1980s and decided not to take an IMF loan. Three decades later, Nigeria is much more unwilling to initiate reforms. The government has not even bothered to ask Nigerians if they want the bride.

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