Nigeria’s President, Bola Ahmed Tinubu was the toast of the Western economic experts upon his assumption of office on May 29, 2023. The first thing Tinubu did to secure the praise of IMF and the World Bank was the his ‘subsidy is gone’ pronouncement at his inauguration. The Bretton Woods institutions have been waiting for such a bold pronouncement from the Nigerian capital for ages. All through the eight years of President Muhammadu Buhari, ‘Naira was overvalued’ was the sing song on the lips of IMF and its brother institutions.
The second confidence booster for Tinubu was the decision to float the Nigerian currency and leave it at the mercy of “willing buyer, willing seller.” The twin policies immediately made Tinubu a darling of the Bretton Woods institutions to the extent he was singled out for public praise.
Late in June, the World Bank and the International Monetary Fund (IMF) openly lauded the president’s decision to carry out what they termed “bold reforms.” According to the World Bank, Nigeria will save N3.9 trillion in 2023, equivalent to 1.6 percent of its GDP, following the removal of petrol subsidy and the Foreign Exchange unification policy.
“The recently undertaken PMS subsidy an FX reforms are historic, NGN3.9 trillion in savings in 2023 alone, stops Nigeria from going over a fiscal cliff and sets the stage for a new, upward Investment, growth, and development trajectory,” Alex Sienaert, chief economist at World Bank Nigeria, said in Abuja at the launch of the Nigeria Development Update for June 2023.
The persistent call for the devaluation of the Naira, called FX unification was no sonorous music to the hears of notable Nigerian traditional economists like the renowned Dr. O A Lawal, who had strongly declared that the policy of floating the Naira will kill the currency.
Dr. Lawal had taken us memory lane to remind our economic managers that the IMF had late in the 1980s, posited that Nigeria’s Naira needed to be devalued and that the nation concurred. He said that Nigeria even overshot IMF’s recommendation, which he said was at the time put at 60 per cent.
He said in an interview: “When the IMF said that Naira was overvalued, that was when they introduced the Structural Adjustment Programme (SAP) and they said we should devalue the Naira by 60 percent. But under SAP, we devalued the Naira more than 500 per cent. We introduced SAP and the Second-Tier Foreign Exchange Market(SFEM).”
If you will recall, the SAP and SFEM cubes were ingested by the regime of military President Ibrahim Babangida, which was in power between 1985 and 1993. So if the Naira was said to have been overvalued in 1985 and was subsequently devalued by over 500 per cent, while it has continued the downhill trend ever since, how did IMF come about another so-called overvaluation of the Naira in 2023, even after the currency had historically lost over 2,000 percent of its value.
As predicted by the likes of Dr. O A Lawal, the introduction of the subsidy removal and FX unification policies, now regarded as Tinubunomics, immediately triggered galloping inflation, the type the National Bureau of Statistics said has not been seen since 2005.
In August 2023, Nigeria’s annual inflation rate hit the 25.8% mark, rising from 24.08% in July, the highest rate the country has seen since September 2005. The NBS said the rate spike is reflective of the impact of the removal of fuel subsidy, the devaluation of the official exchange rate and security issues in food-producing parts of the country. In fact, since the ‘subsidy is gone’ pronouncement by President Tinubu, the street has not been smiling as Nigerians would say. Inflation rose from 22.41 per cent in May to 22.79 per cent in June. It further rose to 24.08 per cent in July and 25.80 per cent in August 2023. And what we are saying principally is that the price of food, drugs and commodities have been going out of reach of the working class. In a country with 41 per cent unemployment rate, you can imagine the weight of the burden on the citizens.
On October 12, perhaps to wash its hands off the albatross the economic policies were fast becoming, especially as there seems no end in sight for the weakening Naira and the attendant inflation, the IMF sang a different tune, urging the Federal Government to make adequate provisions for the poor and vulnerable.
According to reports from the World Bank/IMF Annual meetings held Marrakesh, Morocco, the IMF, though commended the Nigerian government for removing the fuel subsidy but noted that efforts must be made to protect poor citizens from the crisis occasioned by high cost of living.
Reports quoted the Assistant Director, Fiscal Affairs Department of the IMF, Era Dabla-Norris, as saying that the Federal Government must complement the fuel subsidy removal with “a set of policies that could help lower inflation and protect the most vulnerable citizens.”
The Assistant Director had said: “The first is to protect the most vulnerable from the (high) cost of living, and there’s a number of targeted programmes that can be ramped up and the poor, the really vulnerable populations, are protected.
“A set of other policies, macroeconomic policies are needed to durably bring inflation down. In the case of Nigeria, the revenue-to-GDP ratio is quite low relative to other emerging markets and developing countries. So efforts will need to be made to increase revenue collection in an efficient manner. Our research shows that countries like Nigeria have large untapped tax potential.”
In literary classes, we were taught to read the lines, read between the lines and even read beyond the lines. That perhaps is what the implementers of Federal Government’s economic policies missed as they listened to the vociferous arguments pushed by the IMF/World Bank in favour of subsidy removal and FX unification prior to May 29. When the IMF speaks, we ought to know that it speaks largely in macro-economic terms.
Those who feel it know it, goes the saying by our people. The stark Nigerian realities are confronted at the micro-economic space and that should speak more to government’s policy implementation. A country with 41 per cent unemployment rate and one where the minimum wage cannot take the workers home, cannot just throw subsidy away. The only thing it must do is to deal with the corruption deliberately infused into the subsidy policy by officials of the government, which makes the idea look like an anathema. Any act to the contrary, cannot guarantee industrial peace or ensure the streets smile.
