In its editorial of 30th July 2001, Financial Times (FT)
warned both the International Monetary Fund (IMF) and the
executive arm of the Government of Nigeria (GON) against
'perpetuating a facade of reform'. According to the FT editorial,
in the last one year, 'the government of President Olusegun
Obasanjo has pretended to reform its economy, and the IMF
has pretended to monitor the process. For the sake of Nigeria,
and for the credibility of the IMF and the World Bank, it
is time to call a halt to this policy of pretence.'
Discussions between the IMF and the executive arm of the
GON have always been shrouded in secrecy. This secrecy has
left important stakeholders that include business leaders,
international investors, labour movement, the press, general
public, academia, and even legislators in the National Assembly
guessing about key economic policies. This has tended to
heighten economic uncertainty and bred strong distrust towards
the IMF in the country. Many have often openly blamed the
nation's economic woes on wrongful advice from the IMF.
The secrecy has also tended to undermine the accountability
of the executive arm of government to the generality of
Nigerians, and also to the National Assembly. The two chambers
of the National Assembly have openly dissociated themselves
from a few economic policy announcements by the executive
arm in the last couple of years. The unilateral increase
of the pump prices of the petroleum products in May 2000
and the executive campaign for 'deregulation' or 'liberalization'
of the downstream sector in 2001 are a couple of examples.
In both instances, the executive arm clearly saw no need
to for accountability, at least to the National assembly,
before announcing economic policy changes that could have
far reaching effects on the lives of Nigerians. In both
instances, there has been stout resistance from the assembly,
labour and generality of Nigerians. In the case of the first
example, The executive was forced to reverse its decision
by a nationwide strike action by workers, who received open
support from a good number of state governors. In the case
of the second example, the executive has been forced to
soft-pedal and get inputs from Nigerians before deciding
on the best course of action.
The IMF was widely accused of pushing the executive into
the steps taken in both cases, making a few to suggest that
the IMF was undemocratic in its disposition. The IMF has
largely ignored the criticisms of its role in Nigeria by
domestic stakeholders. Although it also now tries to carry
the national assembly along in appreciating some of the
suggestions it makes to the government, it has not pushed
it to the point of making public the full details of its
discussion with the executive. The executive arm on its
part has often openly denied the influence of the IMF on
many of its questionable and politically risky economic
policy intentions.
Eager to clear itself of the FT accusation of pretence
in its relations in Nigeria, the IMF sought and got the
consent of the Obasanjo administration to publish in full
the IMF Staff Report on discussions with the GON. The reports
were released on the IMF web site on the 6th of August 2001,
so that the readers can make their own judgment.
Thus, whatever fears the GON had in restraining the IMF
from publishing the full details of its discussions with
the IMF can now be dispelled. The nation is in a position
to know what policies the IMF urged, why, which ones were
sensible or right, and which ones were not. The public disclosure
of the full discussions between the IMF and Nigeria is a
healthy development. Courtesy of the FT editorial that put
the IMF on the spot. We note that while the reports published
by the IMF are useful, they do not have much more than post-mortem
values. It would have been better if the key agreements
and critical benchmarks had been made public ex-ante, with
the IMF and the GON ready convince Nigerians of the rationale
behind proposed reform measures until Nigerians consciously
accept or reject them. It is cowardly to hide key reform
measures from public debate and undemocratic to try to force
such down the throat of innocent Nigerians. Little surprise
that the report is more or less a catalogue of economic
policy failures.
We suggest that the IMF and the GON should now resolve
to make it regular practice to publish the full details
of their discussions and proposed agreements before they
are signed. That will increase accountability of the executive
arm to the nation and foster public debate that will enable
the nation to buy in. The knowledge that everybody is watching
will also lead to more sensible policy suggestions from
the IMF. Finally, once the entire nation become the watchdog
of the executive arm with respect to the agreed benchmarks,
there will be a higher level of compliance of the GON with
credibly agreed reform measures, as the government will
find it politically difficult not to comply.
Nigeria's Relations with the IMF
Nigeria joined the IMF on the 30th of March 1961. From
1987 to date, the country has a total of four Standby Arrangements
(SBA) with the IMF: Jan. 1987 to Jan. 1988, Feb. 1989 to
April 1990, Jan. 1991 to April 1992, and, August 2000 to
August 2001. Each arrangement usually involves a credit
line from the IMF and a set of policy reform measures that
GON should put in place. Nigeria has never drawn down on
any of the four loans. Successful completion of the SBA
is usually needed to secure debt rescheduling from the country's
creditors. This is why the SBA is important to the GON.
The IMF now has a Senior Resident Representative in Abuja
since June 2Q00, assisted by a Deputy Resident Representative
since August 2000. With their presence in the country, Nigeria
has benefited from a series of far-reaching technical assistance
from the IMF through the instrumentality of the benchmarks
stipulated in the SBA. Two of the most striking ones are
the Certification of Due Process for Capital Expenditure
and the Review of the 2001 Capital Expenditure Project.
Nigeria's Performance under the 2000-2001 Stand-by
Arrangement
Of the 14 Benchmarks that the Nigeria was expected to meet
between September 2000 and March 2001, the country only
met four. The other ten are yet to be met. The Nigeriar
government argues that the remaining benchmarks will be
met if the SBA is extended. I spite of serious doubts about
the ability of the Nigerian government to meet the remaining
benchmarks, the IMF has extended the termination date of
the current SBA from August to October 2Q01. If the IMF
is satisfied at the end of the extension, discussions will
start on a successor 3 year arrangement that should enable
the country to qualify for generous debt rescheduling from
the various creditors, plus a genuine possibility of debt
reduction.
Views that IMF Need to reconsider
One would readily commend the IMF for urging the government
to undertake measures that will increase transparency and
accountability in the use of budgetary resources (due process
tests, review of capital projects etc.) Urging the government
to establish legal and institutional arrangements for successful
completion of the privatization of key utilities is also
a good idea.
Some of the suggestions and comments of the IMF on fiscal
and monetary arrangements in the country are however strongly
objectionable. The IMF suggested the following:
Imposition of an absolute cap on government spending: it
would have been more sensible to focus on the structure
Government spending, and encouraging the government to spend
in such a way to stimulate a higher level of economic activity.
What is undesirable are increase in direct spending by the
Government. Incidentally, government now has a lot to spend,
given the proceeds of privatization and commercialization,
which must be added to the mini oil boom. But private spending
is not only stagnant but have been contracting, reflecting
the impact of resources extracted from the economy by the
government. These are currently being spent on questionable
projects. ensuring that these funds are transferred back
into the personal through higher pay for government workers
would appear a more sensible line of action. This would
stimulate output growth in t he economy.
Encouraging non-oil economic activity by easing infrastructure
bottleness through accelerated privatization will still
require sustained local demand to work. Purchasing power
has been weak and increased pay in the public sector is
a way of reviving spending to stimulate a non-oil sector
growth.
Saving oil windfall for a 'rainy day'?Is the IMF suggesting
a return to the General Abacha days, when a lot of idle
reserves locally and internationally were created even the
economy stagnated as a result? The IMF is probably concerned
about saving for debt repayment.
The IMF believes that the government's wage bill is excessive.
Minimum wage in the public sector is less than US$2 per
day. It is a surprise that the IMF would obstruct attempts
to ensure that the lowest paid workers manage to get a living
wage. It is not clear if it was the IMF that persuaded the
government not to pay workers the 25 percent pay rise they
promised in 2000.
The fact that IMF still believes there is a subsidy on
refined petroleum products suggest that the unilateral price
hike by the government might have been the IMF's idea.
Active monetary policy to absorb any excess liquidity.
Everyone knows that it is government spending that is creating
the excess liquidity. Even the Central Bank of Nigeria and
the Minister of Finance have openly stated this fact. The
suggestion by the IMF that the CBN should issue more Treasury
Certificates will only help to mop up private funds when
everyone knew that the excess liquidity was created by fiscal
expansion. There can be no monetary solution to fiscal misalignment.
Nigeria: Relations with the Fund
(As of April 30,2001)
I. Membership Status: Joined: 03130/1961; Article XIV
II. General Resources Account: SDR Million %Quota
Quota 1,753.20 100.0
Fund Floldings of Currency 1,753.12 100.0
Reserve position in the Fund 0.14 0.0
III. SDR Department: SDR Million %Allocation
Net cumulative allocation 157.16 100.0
Holdings 1.89 1.2
IV. Outstanding Purchases and Loans: None
V. Financial Arrangements:
Amount Amount
Approval Expiration Approved Drawn
Type Date Date (SDR Million) (SDR Million)
Stand-By 08/04/2000 08/03/2001 788.94 0.00
Stand-By 01/09/1991 04/08/1992 319.00 0.00
Stand-By 02/03/1989 04/3011990 475.00 0.00
Stalld-By 01/30/1987 01/31/1988 650.00 0.0
Certification of Due Process for Capital Expenditures
The certification of due process for federal government
capital expenditures comprises three stages.
Certification of preparatory work. Ministries/agencies
must submit their project proposals to the Budget Monitoring
and Price Intelligence Unit (BMPI) in the Presidency for
certification before they can be considered for budgetary
funding. This certification requires that the proposed projects:
are consistent with overall policy, laws, rules and regulations
of the federal government and are an economic or social
priority in the relevant sectors;
have been technically and financially appraised and feasibility
studies satisfactorily undertaken; and
are included in the national development plan prepared
by the National Planning Commission (NPC).
The Executive Council (cabinet) selects projects from the
universe presented by the ministries, which are then included
in the annual draft budget submitted to the National Assembly.
Only the projects approved by the National Assembly will
be executed.
Certification of contract process. Upon enactment of the
budget, ministries/agencies formulate and submit to the
Minister of Finance their quarterly implementation plans,
thereby requesting that warrants be issued accordingly.
The Minister of Finance will adjust the requests to bring
the total amount of warrants to be issued in line with the
available resources. At this stage, spending units can initiate
steps for awarding contracts.
However, before contracts are effectively awarded, the
BMPI unit must certify that:
competitive bidding has been conducted in line with international
standards;
the least-cost bid has been selected among the qualified
bidders; and
costs are in conformity with comparable international practices.
Thereafter, requests for award of contracts can be submitted
to the Executive Council for approval. Requests for down
payment must be accompanied by a copy of the certification
delivered by the BMPI unit and a certification by the accounting
of officer in the spending unit that other requirements
of due process (procurement guidelines in - particular)
have been observed.
Certification of completion of work. Subsequent payments
are conditional upon certification ~at satisfactory progress
is being made toward completion of the project. To this
end, the NPC, liaising with the Office of Budget Management
and the Accountant General, will prepare a progress report
with recommendations for possible modifications. The BMPI
unit will then issue a favorable certification to the Minister
of Finance, which along with confirmation from the accounting
officer in tbe spending minisby/agency, will form the basis
for ~e release of additional funds.
The 2001 Capital Expenditure Budget
In response to the concern that the size of capital expenditures
in the 2001 budget might compromise their quality, the authorities
appointed an internal task; force to review the capital
budget.
In submitting its report in April 2001, the task force,
which reviewed the capital expenditure plans for eight ministries,
found that the necessary project analysis, design, and specification
for a number of projects had not been articulated. Further,
some ministries could not ensure completion of even the
ongoing projects, rendering it unlikely that the new projects
introduced in the 2001 budget could be implemented. In some
cases, projects were grossly underfunded, raising concerns
about whether projects could begin implementation. Based
on these findings, the task force recommended that:
This review exercise be extended to cover all ministries;
and
Projects and programs that had not been properly designed
be rolled over into the next fiscal year. In its view, of
the appropriations of eight ministries totalling N313.2
billion, N80.7 billion (25 percent) should be rolled over
into fiscal year 2002. Further, the Ministry of Finance
should be directed to reflect this rollover in the issuance
of warrants to affected agencies.
The findings of the task force are consistent with an earlier
World Bank assessment of the capital budget which noted
that the poverty focus of the 2001 capital budget was not
evident and that in some areas cost estimates were significantly
higher than could be achieved using competitive and transparent
procurement procedures.
The report also made recommendations to improve the cost-effectiveness
of spending, including a thorough reform of the budget process.
This would ensure that funds were not released for unsubstantiated
projects, sound procedures were followed to minimize waste,
and proJects with high poverty impact were not impeded by
funding constraints.
The understanding reached between the staff and the authorities
to limit warrant issuance to $4350 billion (73 percent of
the budgeted outlay of N480 billion) and cash spending to
N250 billion is thus broadly consistent with the government's
own review as well as the assessment of the World Bank.
Nigeria: Structural Benchmarks, 2000
(performance criteria are marked *)
By end-September 2000
l. Submission to the National Assembly of the Auditor General'
report (Parts I and II) on the accounts of the government
of the Federation of Nigeria for the period ended 3l St
December l999.
Status Not met
2 Commencement of the operations of the independent Anti-Corruption
Commission; nomination of the head of the Commission.*
Status Met
3. Completion of the audit of the federal civil service.*
Status Not met
End-December 2000
4. Approval by the Council of Ministers of the Draft Telecommunications
Law, the Draft Electricity Law, and the regulatory framework
for the power and telecommunications sectors.
Status Not met
5. Completion of a technical audit to study options for
theAjaokuta Steel Complex and the Aladja steel works.
Status Not met
6. Bring to the point of sale of NICON Insurance, Nigerian
Reinsurance, the Nicon Hilton Hotel, and Nigeria Hotel Limited.
Status Not met
7. Completion of a comprehensive review of the structure
of trade tariffs and level of real effective protection
and value added in a range of industries.*
Status Not met
8. Implementation of recommendations of lMF and World Bank
technical assistance missions regarding the strengthening
of petroleum tax administration.
Status Met
9. Publication of the results of value-for-money audits
of randomly selected federal government expenditures undertaken
during the third quarter of 2000.*
Status Not met
End-March 2001
10 Adopt appropriate stand-alone fiscal regime for gas
and power projects.
Status Not met
11.Establish regulatory agencies for power and telecommunications
sectors.
Status Not met
12.Publication of the results of value-for-money audits
of randomly selected federal government expenditures undertaken
during the fourth quarter of 2000.*
Status Not met
13.Bring to the point of sale of NITEL/M-Tel.
Status Met
14. Institute and publish new procurement procedures.
Status Not met
The Implementation of the privatizalion programme
was mixed:
Draft telecom and electricity law s were submitted to, and
provisionally approved by the Federal executive Council
by end-December, for circulation to the public. Preparation
of regulation and administrative arrangements for the regulatory
framework has comnenced but can be finalized only after
the enactment of the enabling legislation. Thus, the programme
target (viz., a new Electricity Law and
Regulatory Framework Law, and a new Telecommunications
Law, approved by the Council of Ministers by end-December
2000 for submission to the National Assembly for approval,
with a view to completing the reforms of the Iocal and regulatory
framework by January 2001) was not met. Moreover, regulatory
agencies for telecommunications and power sectors were not
in place by the end of Marc 2001 (a performance criterion).
A strengthened regulatory system is being put in place to
allow the sale of NITEL by end-200 1 (see also below) and
an independent regulatory agency is also to be established
in the power sector by the end of the year.
Four public enterprises were brought to the point of sale
as required to meet an endDecember 2000 benchmark.
The end-March 2001 structural benchmark relating to the
bringing to the point of sale of NTTEL/M- Tel was met when
the Nigerian authorities invited expressions of interest
for the privatization of the company in the local and international
press.
A technical audit to study options for the Ajaokuta Steel
Complex and the Aladja steel works was to have been completed
by end-December 2000 (structural benchmark). This audit
is now expected to be completed by end-June 2001 withthe
assistancc of the World Bank. A rccent study by the original
Russian (the Soviet)| contractors estimates that an investment
of USS400-600 million would be required to complete the
first phase of the Ajaokuta and steel complex.
Measures to assist improved transparency and accountability
of the use of budgetary
resources were implemented with Delay, or are Still Behind
Schedule:
The Anti-Corruption Commission was inaugurated in September
(a pcrfonnance criterion). While the opcrations of the Commission
were initially hampered by a lack of funding, investigations
are now underway on some 20 cases.
The Auditor General's report on the 1999 accounts were
submitted to the National Assembly in February 2001 (a September
2000 structural benchmark).
The federal civil service audit was completed in December
(a performance criterion for end-September).
The value-for-money audits for the third and fourth quarters
of 2000 are being prepared. An interim report, which suggests
that there may have been significant breaches in procedures,
was issued by the auditor-general's office in late-April.
Additional finns of auditors are being hired so that the
results of value-for-money audits of expenditures in the
first quarter of 200 l are available by end-June.
New procurement regulations are now expected to be in place,
with World Bank assistance, by end-June rather than end-March
as initially planned.
A comprehensive review of the structure of trade tariffs
and level of real effective protection and value added in
a range of industries (an end-December structural perforrnance
critcrion) is now expected to be completed by September
2001, in time for a major revision of the current tariff
code in the 2002 budget.
While the authorities have thoroughly discussed the recommendations
of IMF and World Bank technical assistance mission regarding
the strengthening of petroleum tax administration, no progress
was made in adopting an appro priate stand-alone fiscal
regime for gas and power projects.
The status of quantitative perforrnance criteria for September
and December 2000 is summarized in Table 1. Table 2 sumrnarizes
the performance against the structural performance criteria
and benchmarks for September 2000-March 2001.
The FT editorial on IMF and Nigeria
A year ago Nigeria signed a Dollars 1bn 12-month standby
agreement with the International Monetary Fund. Since then,
the government of President Olusegun Obasanjo has pretended
to reform its economy, and the IMF has pretended to monitor
the process. For the sake of Nigeria, and for the credibility
of the IMF and the World Bank, it is time to call a halt
to this policy of pretence.
The fund and its supporters face what has become a familiar
predicament. The Nigerian government is seeking to extend
its agreement with the IMF-which ends this week- until the
end of the year. All involved privately acknowledge that
Nigeria's performance has been poor. But they argue that
it would have been much worse without the constraints of
an IMF agreement, however inadequately followed.
Adamu Ciroma,the country's finance minister, is negotiating
to extend the agreement until the end of the year. By then
he hopes that the government would have established a sufficient
record to support a medium-term arrangement with the IMF.
This privatisation programme, central to the country's
recovery, have been painfully slow. Other targets agreed
with the IMF have been missed or fudged. Mr. Obasanjo has
been trying to divert attention from these issues at home
by campaigning abroad, seeking agreement to write off Nigeria's
Dollars 30bn external debt.
This campaign also highlights the country's vital role
in trying to settle regional conflicts, and Nigeria's leading
part in promoting the recovery programme for Africa known
as the Millennium Action Plan. But these policies should
be driven by Nigeria's self-interest, and not used as a
cover for the weakness of domestic reform.
Old profligate habits die hard; Dollars 350m is earmarked
for a sports stadium in the capital Abuja, and nearly Dollars
100m is to be spent on a "space programme'.
Yet Nigeria is a poor country. Two thirds of its 110 citizens
subsist on Dollars 1 a day. Half of the population are under
18, a blighted generation paying for the faults of the past.
Debt reschduling on generous terms-with appropriate conditions-is
a vital part of any programme.
But the government also needs frank talk and blunt warnings
from friends, above all from the IMF.
Neither party has anything to gain from perpetuating a
facade of reform.
Culled from Financial Times, Jul 30, 2001
