OpinionOPINION: Would Nigeria Take IMF Loan To Cushion Petrol And Naira Subsidy...

OPINION: Would Nigeria Take IMF Loan To Cushion Petrol And Naira Subsidy Removal?

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July 14, (THEWILL) – As I was in the process of releasing this piece into the mass media, the news broke that President Tinubu has, on Wednesday, July 12, put forward a request to the House of Representatives, HoR, for five hundred (N500b) billion naira as extra funds for the provision of succour for the masses undergoing what Mr President referred to as pains similar to childbirth pang experienced by women, who are mothers.

The sum is to be specifically deployed in the provision of succour to the masses distressed due to the immediate consequences of the withdrawal of subsidies on both petrol and the naira policies being implemented by the incumbent administration.

The funds are expected to be deducted from the 2022 Supplementary Appropriation Act, which has a provision of N819.5 billion naira for palliatives envisaged by the predecessor administration.

It was quite a pleasant co-incidence to me because a critical question that l had posed in the later part of this piece before the request for the approval for the allocation is: where would President Tinubu find the funds to provide the much-needed cushion for his temporary painful but ultimately economically revolutionarily positive policies?

Having searched and not being able to identify other more viable alternatives on the horizon, my answer to the question is that taking the option of the International Monetary Fund, IMF, loan may hold a better promise for our beleaguered country.

That is because, although Nigeria is currently distressed financially, it is endowed with the resources and potential to thrive as a prosperous and successful country, which are yet to be tapped or harnessed.

But with the self-imposed reforms-removal of petrol subsidy and end of multiple exchange rates of the naira with foreign currencies, which President Bola Ahmed Tinubu’s government has voluntarily embarked upon in less than 45 days of being on the saddle of leadership, Nigeria is eminently qualified to seek and obtain the IMF loan.

Having basically fulfilled all the loan conditionalities made by the IMF as far back as 1986 under the watch of then military president, Gen. Ibrahim Babangida, IBB, through the sweeping reforms introduced by President Tinubu via his Tinubunomics initiative on 29 May this year, the question that comes to mind would be: is Nigeria taking the IMF loan?

Everyone knows that our country is in dire need of revenue, and its external debt burden that is hovering around fifty trillion naira (N50Tn) added to its local debt brings its indebtedness to an estimated eighty trillion (N80Tn) and has been acknowledged as unsustainable.

And given the paucity of revenue inflow that has been compounded by an epidemic and pernicious crude oil theft (Nigeria’s main source of revenue) that has assumed an alarming dimension, the country may not have any other option than to go the way of its neighbour, Ghana, which recently sought and received a loan of three billion dollars ($3b) from the International Monetary Fund, IMF.

The option of an IMF loan recommends itself because it is becoming increasingly difficult for Nigeria to service her external debt due to the fact that the cost of servicing it practically consumes most of the revenue accruing into the coffers of the Federal Government, to the extent that our country’s debt to equity ratio is in the negative territory and the World Bank reckons that our debt servicing obligations matched against our national income, is at about 96%.

In fact, by some estimates in some quarters ability a year ago is that our debt payment obligations (all things remaining the same), would outstrip our revenue inflow in less than one year.

Consequently, in recent times, there has been very little or nothing left to apply in providing infrastructure or even something as little as basic remedies or palliatives for the hardship triggered by the removal of subsidy on the pump price of petrol and multiple naira exchange rates unification in the last one month of President Bola Ahmed Tinubu’s sweeping economic reforms.

For instance, the economy is in such a dire strait that it is the four hundred million (N400m) that used to be pushed into the black hole, otherwise known as petrol subsidy, on a daily and four hundred billion (N400b) on a monthly basis that is being targeted as the funds for the new administration to kick start the much-anticipated palliatives to ameliorate the hardships currently being faced by Nigerian masses.

It may be recalled that the outgone administration of President Mohammadu Buhari had programmed for the petrol subsidy regime to be over at the end of last June, beyond which there was no financial provision in 2023.

And the Nigerian National Petroleum Corporation Ltd, NNPCL, had claimed that the Federal Government was owing it a princely sum of N2.8 trillion naira after netting off the income from crude oil sales from the cost of petrol imports.

That is despite the fact that N3.5 trillion provision was made in the 2023 budget for petrol subsidy up till June, which is just half of the year after N6 trillion was appropriated as subsidy for petrol in 2022. That brings subsidy in 30 months to a mind-boggling N9.5 trillion, which the HoRs is determined to investigate its disbursement.

That is on top of Nigeria producing crude oil below the 1.8 million barrels a day quota from OPEC and its income from the sale of the commodity, which constitutes about 79% of our country’s foreign exchange earnings (gas is 11%) and as a result, earning only a paltry income in the neighbourhood of $5b, which when converted to the naira, is approximately less than N30 trillion annually.

Meanwhile, the World Bank has estimated that about $5.6b would be saved, owing to subsidy removal from petrol and naira, which is about half of the over $10 billion that the country used to earn annually in the not-too-distant past.

In light of the above, despite the best efforts of tax experts, finding funds to sustain the Government would be like trying to squeeze water out of stone.

And even the dollar proceeds hitherto applied in defending the naira by the Central Bank of Nigeria, CBN, via weekly interventions in the foreign exchange market, through the sale of dollars to a vast array of Bureau de Change outfits that were mainly owned by the government officials and fronted for by surrogates located in popular hotels, airports and strategic street corners, the bonanza is not available anymore as NNPC Ltd had been mandated to use the dollar income from crude oil sales to import petrol into Nigeria and sell at a subsidised rate, which has been returning a net deficit for the federation.

At some point, the weekly dollar bazaar, which was carried out ostensibly to shore up the naira/FX rate was no more available for the twin reasons of crude oil proceeds being exclusively managed by NNPCL that collects and uses the funds to import refined petroleum products into our country and which it subsidises before it is retailed to motorists.

And it is a largesse diverted to the NNPC that has also ended with President Tinubu’s bombshell decision/pronouncement in his inauguration speech on 29 May: “Petrol subsidy is gone”.

As observed earlier, NNPCL, in the wake of the petrol subsidy removal, had claimed that our country owes N2.8 trillion in payment areas for subsidising the pump price of petrol, which is an activity that it had been carrying out on behalf of the Federal Government of Nigeria, FGN.

What the narrative above indicates is that our crude oil revenue was not even enough to support the cost of subsidising petrol pump prices because the FGN was still owing NNPCL N2.8 trillion.

That explains why the FGN has been borrowing to pay civil servants emoluments and meet other governmental responsibilities.

In light of the grim fiscal and socioeconomic situations described above, even as President Tinubu’s team that l have, for the lack of a better nomenclature, branded Tinubunomics evangelists are able to come up with strategies to ease the burden of galloping inflation that has been taking a heavy toll on the masses, the initiatives would need to be cash backed.

Whence cometh the funds, Nigerians would wonder?

Definitely not the paltry $800m that the World Bank offered Nigeria to help cushion the harsh effect of subsidy removal just before ex-president Buhari’s tenure ended, neither is it the new $500m that has been offered to President Tinubu’s new regime by the World Bank, perhaps as a demonstration of its support for the far-reaching reforms so far introduced.

Clearly, both World Bank funds to be availed or already disbursed to Nigeria, even when combined, are inadequate as they would not even scratch the surface of our country’s needs.

So, an IMF loan beckons.

Although President Tinubu appears to have answered the question: whence cometh the funds, clearly, N500 billion can only be a stop-gap measure in light of the urgency required to do something significant to ease the pain on the masses sooner than later.

And the request for approval from HoRs to apply the N500 billion is all the more critical because it is very much needed to bridge the gap as the process of obtaining the IMF loan, in the event that the government decides to toe that path, can be relatively long.

Strikingly, Nigeria had attempted to take the IMF loan under the watch of former military president, Gen Ibrahim Babangida, who incidentally had toppled then-head of state, Gen.Mohammadu Buhari.

And the country was under a similar yoke because the Nigerian economy was, at that time, literally comatose following about two years of draconian policies of then head of state, Gen. Buhari, wherein essential commodities such as rice, sugar, milk etc were so scarce that an agency known as Nigerian National Supply Company Ltd, NNSL, was set up to purchase and ration the items to Nigerians under a very stressful atmosphere reminiscent of the situation in iron-clad countries like the Republic of North Korea.

In my column of June 27 titled: “A Comparative Analysis Of Tinubunomics Reforms And IMF Conditionalities For Loan,” and also widely published in traditional and online media platforms, I reflected on issues pertaining to our country’s contemplation on taking the IMF loan nearly forty (40) years ago, before it settled for a homegrown Structural Adjustments Program, SAP, which it mismanaged with disastrous consequences.

To put things in perspective, below is a snippet: “As it may be recalled, Nigeria had also suffered the dilemma of financial insolvency in the mid-1980s (during the regime of Gen Ibrahim Babangida, IBB (1985-1993) similar to the situation currently being faced by Ghana, which just took the IMF loan.

“That was what prompted the country to seek a bailout loan from the IMF and some reforms were demanded as pre-conditions for granting the loan.

“Some of the conditionalities were very stringent and they were such that the nation baulked at taking the loan facility.

“New York Times reporter, Edward A. Gargan, in his article titled: “Nigerian Leader Wary On IMF Loan” published on October 8, 1985, which is nearly 38 years ago, so stated the following about Nigeria and the IMF loan:
“As a condition for granting the loan, the IMF has called for Nigeria to devalue its currency, the naira, and end the practice of subsidising petroleum products for consumers. At the official rate of exchange, the naira is equivalent to $1.08, but on the black market here in Lagos, money changers are selling naira for as much as four to the dollar.

“Smuggling Is Rampant.
The tremendous disparity between the official and unofficial exchange rate has led to rampant smuggling and has sharply curtailed Nigeria’s ability to sell manufactured goods abroad,” he noted.
“Moreover, gasoline in Nigeria remains the cheapest in Africa – less than $1 a gallon at the official rate and about 25 cents a gallon at black market rates. Today, General Babangida refused to say whether oil subsidies would be lifted, and virtually ruled out any sharp devaluation of the nation’s currency,” the reporter concluded.

“Is it not stunning that the damning socioeconomic atmosphere currently prevailing in Nigeria is exactly the situation that was existing nearly four decades ago and for which the IMF demanded that Nigerian leaders should make some tough decisions to reform as a critical pre-condition for granting her a bailout loan under the watch of military president Gen. Ibrahim Babangida?” l had observed.

The reality is that it is not only gut-wrenching that as a nation, we have remained on the same path of ‘Debt Avenue’ and seeking a bailout nearly forty (40) years after lBB considered it following the ouster of then Gen. Mohammadu Buhari as head of state via a palace coup detat in 1985, but it is equally damning and pathetic that today, an IMF rescue may be contemplated once again after the reign of President Buhari, who was elected president in 2015 after which he succeeded in bringing Nigerian economy to its knees and thus earned the country the unenviable reputation of being the world’s poverty capital, which he has handed over to President Tinubu on 29 May.

Although this feeling is without concrete evidence, one gets the sense that it may be as a precursor to seeking the IMF loan that President Tinubu has been rolling out revolutionising economic reform policies, tagged Tinubunomics that is unshackling our country and making it investment friendly.

By the way, there is currently an equivalent of Tinubunomics in the United States of America, USA, known as Bidenomics, which, as the name indicates, encapsulates President Joe Biden’s economic policies including the groundbreaking infrastructure act that has reflated the economy and boosted employment amongst others through the ongoing massive infrastructure refurbishment in the USA.

As evidence, the Consumer Price Index, CPI, in the world’s largest and wealthiest economy has dropped from 9.1 points to 3 from June 2022 to June 2023. And the drop in inflation by six (6) points between 2022 and June 2023 is owed to the Infrastructure Investments Act or Jobs Act which saw a humongous sum of $1.2 trillion being appropriated for investment in infrastructure.

The monumental investment dubbed a once-in-a-generation stake in infrastructure is encapsulated in Bidenomics driven by the Build Back Better Agenda of President Biden. And if Bidenomics has worked in the USA as is currently evident, there is every good reason to believe that its equivalent in Nigeria – Tinubunomics – would equally have a positive outcome here, if diligently pursued.

In Nigeria Tinubunomics policies range from the repeal of burdensome and archaic economic policies that had shackled our country thus putting long-suffering Nigerians literarily in economic manacles via the erstwhile funds guzzling petrol subsidy, operation of multiple naira exchange rate with the dollar, which is another type of subsidy and the subsidy on electricity production and distribution arising from the fact that the activity was on the Exclusive List, meaning that hitherto, only the Federal Government could provide electricity service.

It is a situation in which the signing into law of the Electricity Act 2023 by President Tinubu has changed for the better, basically because the policy has thrown open the investment space in electricity services to the private sector for participation.

Apart from the earlier referenced Electricity Act 2023 and the Freedom of Data Act that would unleash the potential of information technology, which has been elevated to the level of Artificial Intelligence, AI, being leveraged in the advanced society to enhance all spheres of life, there is also the passage of four (4) Executive Orders that have reversed some anti-business laws such as new tariffs on vehicles imported into Nigeria and 5% Value Added Tax, VAT, on telecoms services as well as similar sundry taxes that were stifling businesses.

It may be recalled that the aforementioned laws that are unfriendly to business had gotten hastily passed by the immediate past regime before its exit on 29 May.

The four (4) executive orders that are business-friendly appear to be in response to the organised private sector which has cried out to President Tinubu for forbearance.

And as if it is to cap the myriads of policy decisions that have so far been taken by President Tinubu aimed at pulling our country out of the abyss of debt and the hole of despondency into which more citizens of our country numbering up to 130 million of 200 million have descended, the President has also set up a tax advisory council with PwC team lead for West Africa, Taiwo Oyedele, as Chairman.

The mandate of the Council, composed of other eminent tax experts, is to seek ways and means of optimally harnessing in a win-win manner the untapped tax resources in our country presently not captured by the existing system.

That is with a view to enabling the administration to carry out the onerous task of pulling out our country from the economic doldrums in which it is currently wallowing as a consequence of eight (8) years of monumental sociopolitical and economic mismanagement by the predecessor government.

It is undeniable that it is a consequence of the unmitigated disastrous socioeconomic and political leadership of our country by the outgone regime that Nigerian masses are being characterised as multidimensionally poor people.

That is even as an additional four million, one hundred thousand (4.1m) are adjudged by the World Bank as having joined the ranks of the indigent, since the withdrawal of subsidies on petrol and the naira exchange rate unification on 29 May when President Tinubu mounted the throne of leadership in Aso Rock Villa.

With the threat of an additional seven million (7m) joining the inglorious poverty club, which is a figure that the World Bank is projecting would likely be the aftermath of the removal of subsidies on petrol and naira by this year-end, if palliatives are not rolled out to cushion the harsh effects of the policies aimed at preventing our country from falling into a looming debt trap, it is not an understatement to emphasise that there is an urgent need to make haste in providing buffers.

That is probably what justifies and is driving President Tinubu’s request for N500 billion from the supplementary appropriation act 2022 currently before HoRs but which the Nigerian Labor Congress, NLC, is kicking against because it believes it is inadequate to support the 300% salary increase that it is demanding.

After breaking the somewhat forty (40) years jinx of operating an economy that has been bearing the debilitating burden of petrol and naira subsidy, which the multilateral and international financial institutions – World Bank, IMF and even investment bank JP Morgan as well as other multilateral financial organisations – have been demanding that Nigeria should remove to free up the economy via major policy reforms as far back as president Buhari’s first coming as military dictator (1984-85), it would not surprise me if the aforementioned global financial agencies are already wooing Nigeria with loan offers.

That would be more so because the ongoing reforms have been voluntary as opposed to being imposed.

As such, despite Nigeria’s estimated N50 trillion external loan exposure, she may be able to obtain international loans on favourable terms simply because the country with its humongous potential (population in excess of 200m and the largest in Africa) with a significant and reasonable purchasing power as well as virile middle class comprising of 60% youth demographics that are very creative, Nigeria is currently the toast of the investors’ globe wide.

But given the horrendous and frightening size of our current debt profile, a significant, if not broad spectrum of Nigerians may kick against the idea of obtaining more loans. But to dig the economy out of the hole in which it is currently stuck, would require more funds.

And being that the debt servicing that watchers of our economy – world bank etc – had warned about a year ago would outstrip our income if adequate care was not taken to cut down on our expenditure costs and boost revenue inflow by plugging crude oil leakages to oil thieves, (an admonition that was unheeded and has become a reality today) hence the future of our country is currently in jeopardy.

According to statistics from the National Bureau for Statistics, NBS, the total exports from Nigeria for 2022 rose by 41.72 per cent from N18.91 trillion in 2021 to N26.79 trillion. But imports rose by 22.77 per cent from N20.84 trillion in 2021 to N25.59 trillion in 2022.

When the value of Nigeria’s total export last year, which is N26.79 trillion, is matched up, it is basically equal to the import value of N25.59 trillion in the same 2022. That simply implies that our country’s exports and imports almost netted off each other in 2022.

If the debt servicing obligation of Nigeria is added, which the Debt Management Office, DMO, puts at N3.36 trillion in 2023, where would this administration find the money to undertake the under-listed huge investments that would facilitate a more people-friendly transition from petrol subsidy removal and naira exchange rate unification?

Although the administration is yet to disclose its plans, l would like to hazard a guess that the immediate need for investment to soften the effects of the policy reforms would likely be: procurement of mass transit buses powered by Compressed Natural Gas, CNG, provision of one hundred percent (100%) salary increase to public servants and offer some tax breaks to businesses to enable the extension of similar 100% salary raise for workers in that sector, as well as avail loan to indigent tertiary institutions students as enunciated in the Students Loan Act.

The above-listed proposals are some of the lofty measures that are likely to be undertaken by the administration as a panacea to the inclement fallouts of the socioeconomic reforms so far rolled out by President Tinubu. The introduction of the palliatives would enable the reforms to come to fruition or materialize without too much collateral damage to the masses.

As earlier observed, it is as if there was a synergy of thoughts and meeting of minds of sorts that the government has put forward the request to HoRs for its approval for the executive branch to apply N500 billion in the 2022 supplementary appropriation act in mitigating the harsh effect of its reforms, which is currently receiving the attention of the legislators.

The NLC’s dissatisfaction with the sum of N500 billion requested, which it deems to be too little, suggests to me that it may be a bridging gap as more funds, probably from the IMF may be sourced to tide the country through the rough patch that it is currently passing through.

Whatever the case may be, the undeniable reality is that this country, right now, looks like a firm or business corporation, which has just been taken over from a very bad manager and needs working capital to put it back on an even keel.

In my reckoning, to make Nigeria work again, it needs working capital, and as financial experts very well know, borrowing from the money or capital markets is obviously more expensive than sourcing funds from a multilateral agency like the IMF, World Bank etc.

The snag may be that our country’s previous experience with lMF might have left an unsavoury taste in the mouths of Nigerians. But there is a difference between 1986 and 2023, which is that the IMF would not be imposing any harsh conditionalities on Nigeria because the country has already voluntarily swallowed the bitter pills.

So, should President Tinubu decide to pursue the option of an IMF loan, Nigerians would acquiesce with it as long as they would be assured by Tinubunomics champions that the funds would be invested in production – infrastructure, factories, employment creation activities etc as opposed to consumption items – salary payments, perks of office and lavishness by public office holders, which have been the pattern in the past eight (8) years.

And the demand by the NLC for more funds to be appropriated for palliatives underscores the belief that the lMF loan may be the most viable option at this point in time.

Magnus Onyibe, an entrepreneur, public policy analyst, author, democracy advocate, development strategist, alumnus of Fletcher School of Law and Diplomacy, Tufts University, Massachusetts, USA and a former commissioner in Delta State Government, sent this piece from Los Angeles, California, USA.

*** Written by Magnus Onyibe

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