My Blog

Tag: IMF

  • Hunger Protest: D-DAY in Nigeria?

    Hunger Protest: D-DAY in Nigeria?

    A blogger called it the “Ides of March in August.” Some called it the “Day of Rage.” Others have aptly described it as the “day to take back Nigeria.” Call it what you may but today is August 1, 2024 and what shall not be in doubt is that President Bola Ahmad Tinubu shall today play host to some not-too-August visitors, as Nigerians from all works of life pour onto the streets, if all go as planned, to demand better treatment from the leadership of their country.

    Operated under the hashtag: #END BAD GOVERNANCE, a group of Nigerians issued a notice to the Federal Government some weeks back with the intention to embark on ten days of mass protest, starting August 1-10, 2024, to demand reversal of economic polices that the current government had introduced. Some of these policies include the withdrawal of subsidy on petrol, hike in energy (electric power) tariff, further liberalization of the foreign exchange market.

    It is worth repeating here that these policies were dictated by the International Monetary Fund (IMF) and the World Bank, so called Bretton Woods Institutions, created in December 1945 to mastermind the implementation of the Bretton Woods Agreement of July 1944. Over the years, the two institutions have served “as important pillars for international capital financing and trade activities.” Unfortunately, their advises and the prescriptions contained in the Structural Adjustment Policies (SAPs) that they recommend, have always failed to serve the interest of needy Third World Countries.

    From countries of the Latin Americas to poor countries in Africa and the Asia, the one-size-fits-all policies that these two lending institutions propose to third world countries often lead to mass revolts, often because of the hardship that they cause. As for Nigeria, it is a deja vu as the current episode is Nigeria’s second attempt at implementing SAP. The first also ended in a fiasco as the country was thrown into a turmoil of mass revolt that is today remembered as the anti-SAP Riots.

    Same as now, the Anti-SAP Riots were a result of the government decision to implement the Structural Adjustment Program (SAP) in 1986 under the International Monetary Fund (IMF) in an effort to counteract the impact of declining oil revenue and devaluing the Naira, cutting back on social spending, implementing widespread layoffs, being measures taken to guarantee Nigeria’s eligibility for loans from the IMF.

    Public resentment to IMF Structural Adjustment Programmes are fueled by several factors. Apart from the very bitter pills that they prescribe, the failure of the ruling elite to subordinate themselves to the same lifestyle modification that they recommend to the mass of the people, spike most of the anger that drive the protests. In Nigeria, just as the ongoing episode in Kenya, while the people grapple with cost of living crisis, politicians and their families, supposed servants of the people, revel in obscene affluence.

    In Nigeria, the numbers tell all the story. Down by 370.55 percent, the local currency was so massively devalued that a US dollar today exchanges for 1,660 naira, instead of N448.0 by end of 2022. With this fall in the value of the naira, and Nigeria being import dependent, the price of all goods skyrocketed. Just to give an example, rice, Nigeria’s most staple food has become a luxury item in many family menus as a 50kg bag, hitherto sold at N7,500 in 2023 now sells between N85,000 and N100,000. Food inflation estimated at 40 percent. While interest rate hovers around 28-30 percent.

    President Tinubu, either wittingly or otherwise, it was, who set the tone and pace for the current harsh economic reality buffeting Nigerians when he announced that subsidy on petrol was gone while reading his inaugural speech. Even the most strident advocates of subsidy removal sharply disagreed with the method of withdrawing the very critical subsidy on petrol by the president. This was due to how he announced it without proper review and implementation plan.

    The rest, as they say, is now history. The country now tithers precariously by the edge of the cliff. Whether the people will troupe out to carry out the threat of a mass protest shall become manifest momentarily. What is of critical essence going forward is how the law enforcement agents contain the protest that the Federal Government and the sub-nationals can not be excused as having done enough to stave off.

  • More Proactive Push Needed For Central Bank Digital Currencies – IMF   

    More Proactive Push Needed For Central Bank Digital Currencies – IMF   

    The head of the International Monetary Fund (IMF) has urged countries to make a more proactive push to develop Central Bank Digital Currencies (CBDCs).

    Eleven countries, including a number in the Caribbean, and Nigeria, have already launched CBDCs. Around 120 others are exploring them, although progress and approaches differ widely and a few have even abandoned the idea altogether.

    “We may be at a point where the public sector needs to offer a little more guidance,” IMF Managing Director Kristalina Georgieva said in a speech in Singapore.

    “Not to crowd out, not to disrupt,” she added. “But to act as a catalyst, to ensure safety and efficiency – and to counter fragmentation.”

    She made her remarks as the IMF published the first instalment of a “virtual handbook” on CBDCs, designed to help countries with the design and set-up process and ensure that the new technologies are globally interoperable.

    Supporters say CBDCs will modernise payments with new functionality and provide an alternative to physical cash, which seems in terminal decline.

    But questions remain as to why they represent an advance when current systems are already capable of many of the proposed benefits, and countries such as Nigeria that have already launched CBDCs are seeing very low uptake among the public.

    Georgieva said that with technology advancing so rapidly, countries needed to push ahead with development now to avoid getting caught out in future.

    “If anything, we need to raise another sail to pick up speed,” she said, likening the efforts to a nautical journey. “The world is changing faster than most imagined”.

  • IMF Downgrades Nigeria’s Economic Growth By 2.9%

    IMF Downgrades Nigeria’s Economic Growth By 2.9%

    The International Monetary Fund (IMF) has downgraded Nigeria’s economic growth by 2.9 per cent for 2023.

    In July, the Fund had projected a 3.2 per cent growth for Nigeria in 2023. The lender however warned that the growth would be impacted by security issues in the oil sector.

    In its October World Economic Outlook with the themed, ‘Navigating Global Divergences,’ posted on its website Tuesday, the IMF said, “Growth in Nigeria is projected to decline from 3.3 per cent in 2022 to 2.9 per cent in 2023 and 3.1 per cent in 2024, with negative effects of high inflation on consumption taking hold.

    “The forecast for 2023 is revised downward by 0.3 percentage point, reflecting weaker oil and gas production than expected, partially as a result of maintenance work.”

    The International lender, while commenting on its new prediction for the country, said: “

    For the sub-Saharan African region, growth is expected to decline to 3.3 per cent in 2023 due to worsening weather shocks, the global slowdown, and domestic supply issues, the IMF said.

     However, growth would pick up by 2024 to 4.0 per cent in 2024, which is still below the region’s historical average of 4.8 per cent.

    It also stated that global economic growth was projected to slow from 3.5 per cent in 2022 to 3.0 per cent in 2023 and 2.9 per cent in 2024, well below the historical (2000–19) average of 3.8 per cent, the IMF declared.

    “Advanced economies are expected to slow from 2.6 per cent in 2022 to 1.5 per cent in 2023 and 1.4 per cent in 2024 as policy tightening starts to bite. Emerging market and developing economies are projected to have a modest decline in growth from 4.1 per cent in 2022 to 4.0 per cent in both 2023 and 2024″, the IMF said.

    The global financial institute stated that global inflation is expected to decelerate to 6.9 per cent in 2023 and 5.8 per cent in 2024 from the present 8.7 per cent in 2022.  

  • IMF Advocates Fiscal Adjustments As Solution African Countries’ Debts 

    The International Monetary Fund (IMF) has urged African governments to re-anchor fiscal policy through a credible medium-term strategy to avoid a debt crisis.

    According to the Fund in its report ‘How to Avoid a Debt Crisis in Sub-Saharan Africa’, it stated that to avoid a debt crisis, African countries seek to achieve key debt targets.

    The Bretton Woods Institute said the average debt ratio in the region has almost doubled in 10 years adding that the average debt ratio to gross domestic product (GDP) has increased to 60 percent as of 2022, which is a 30 percent rise compared to the figures of 2013.

    According to the Fund, this is what makes debt repayment costlier.

    “In most sub-Saharan African countries, fiscal policy focuses excessively on short-term goals and is not guided by a clear medium-term strategy. This lack of anchoring has resulted in frequent breaches of fiscal rules and ever-increasing public debt levels.

    “A more strategic approach to fiscal policy would be preferable by setting explicit debt targets that integrate key policy trade-offs between debt sustainability and development objectives, rather than focusing narrowly on short-term fiscal deficits.

    “The paper suggests a novel approach to estimating country-specific medium-term debt anchors, which ensures that debt service costs remain manageable.

    “The region’s ratio of interest payments to revenue, a key metric to assess debt servicing capacity and predict the risk of a fiscal crisis, has more than doubled since the early 2010s and is now close to four times the ratio in advanced economies,” the IMF said.

    In the report, the IMF said more than half of the low-income countries on the continent are at high risk or already in debt distress as at the end of last year.

    The multilateral also said mobilising more domestic revenue through the elimination of tax exemptions or digitalising filing and payment systems is key to avoiding a debt crisis as well.

    “Sub-Saharan African countries tend to rely excessively on expenditure cuts to reduce their fiscal deficits.

    “Although this may be warranted in some circumstances, revenue measures, like eliminating tax exemptions or digitalizing filing and payment systems, should play a greater role.”

    The IMF noted that mobilising domestic revenue is less detrimental to growth in countries where initial tax levels are low, whereas the cost associated with reducing expenditures is particularly high given Africa’s large development needs.

  • IMF supports Nigeria’s exchange rate unification

    The exchange rate unification policy of the President Bola Ahmed Tinubu has received the backing of global lender, the International Monetary Fund (IMF). 

    Over the last several years, Nigeria has been operating a dual exchange rate regime which had led to round tripping with many Nigerian businesses preferring to trade dollars than engage in their legitimate businesses.

    According to the Apex Bank had in a statement abolished the dual exchange rate collapsing it into the Investors Exporters (I&E) window. 

    The regulator stated that it is expected to be a willing seller and a willing buyers 

    With the policy, all applications for medicals, school fees, business travel allowance/personal travel allowance, and SMEs would now go through the I&E window.

    in a short statement, on Friday, IMF’s Resident Representative in Nigeria, Ari Aisen said it would support the federal government as it implement the new reform. 

    “The Fund greatly welcomes the authorities’ decision to introduce a unified market-reflective exchange rate regime in line with our long-standing recommendations. We stand ready to support the new administration in its implementation of FX reforms.”

    The Bretton Woods institute and experts consistently warned the federal government on the dangers of keeping a dual exchange rate saying it created room for arbitrage. 

  • MENA countries vulnerable to rising financial risks – IMF

    Volatile growth, high universal subsidies, and loss-making state-owned enterprises expose many low- and middle-income economies in the Middle East, North Africa, and Pakistan to such fiscal risks.

    These factors combine with adverse external developments such as recent interest-rate rises and food and fuel price surges to put public finances under pressure in many countries.

    In a new report titled the “MENAPEG”, the Fund averred that it often leads to a situation where budget revenue and spending often end up far away from government plans.

    Despite the frequency of these events, policymakers are often caught off guard. Such shocks force them to make ad hoc cuts to development and other priority spending. This also limits many countries’ ability to use fiscal policy to smooth economic slowdowns, precisely when it is needed most.

    The report noted that economic growth is more volatile than in other parts of the world just as high reliance on resource revenue and pervasive universal energy and food subsidies across the region have also exposed budgets to fluctuations in commodity prices.

    “Second, state ownership of non-financial corporations and banks in these countries can generate sizable government obligations that can come due when negative events occur, known as contingent liabilities. For example, a public electric or water utility company that faces large operational losses might require government financial assistance to continue providing services.

    “Many state-owned enterprises (SOE) in the region are financially weak and require regular government cash injections. This often reflects their role in fulfilling quasi-fiscal activities such as selling goods and services at below market rates or creating jobs, rather than being run on a commercially sound basis. Contingent liabilities may also be arise from public-private partnerships (PPPs). For example, certain PPP contracts might require government to compensate a private partner if collections, as in toll road projects, fall short of projections,” the Fund noted.

    As a way of addressing this, the Fund urged policy makers in the region to strengthen their capacity to analyze and manage fiscal risks.

    However, the report said, the region’s governments still need to take steps to enhance fiscal risk data collection, identification, analysis, and management capacity.

    Economic reforms can help address fiscal risks at the source. For instance, stronger macroeconomic frameworks can lessen growth volatility. Governance reforms and asset divestment can moderate contingent liabilities or lower the odds of their materialization. And improved budget processes reduce the likelihood of surprises.

    Given various uncertainties, fiscal risks in the Middle Eastern and North African countries cannot be fully avoided. However, better risk awareness and stronger fiscal risk management will reduce budgetary surprises and provide firm ground for long-term development policies.