The International Monetary Fund (IMF) on Friday released a report that covertly puts pressure on President Muhammadu Buhari to increase the pump price of petrol from the current price of N165/per litre, under the guise of removing non-existing subsidy on petrol. The same policy mandate was given to the Nigerian President by IMF on electricity tariff where the government also claims creative subsidy. Invariably, the Nigerian President is under pressure from the IMF to weaken local production by increasing the cost of production through high cost of the two major alternating sources of energy supply to industries as well as homes.
The All Progressives (APC) Government under the leadership of President Buhari had planned a new price increase under the guise of removing perceived subsidy on petrol in the second half of 2022. But the International Monetary Fund (IMF) wants it done immediately at the end of this year. The IMF is impressing on the Nigerian government to fully remove fuel subsidy and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act (PIA). Unfortunately, the IMF is not impressing on the Nigerian government to stimulate domestic production (refining) of petrol and move to an open or competitive market.
Meanwhile, the IMF, in its 2021 Article IV Mission statement on Friday, frightened the Nigerian government that despite high crude oil prices in the international market, Nigeria’s fiscal deficit would widen in 2021 to 6.3 per cent of Gross Domestic Product (GDP).
IMF conjured a fiscal deficit at 3.93 percent and 3.39 per cent of GDP in Nigeria’s 2021 and 2022 budgets, respectively.
The IMF is deceiving the Nigerian government that increasing hardship for citizens and making compensation for the poor is a better option than stimulating production in the domestic economy, creating job opportunities, improving the standard of living of the people, then, promoting growth and development of the economy. The IMF is craftily conditioning the Nigerian President into succumbing to the historical consumption and dependency economy at home while shifting employment and wealth creation opportunities to foreign economies.
Accordingly, the IMF in the report declared: “the complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor.
“In addition, the implementation of cost-reflective electricity tariffs as of January 2022 should not be delayed. Well-targeted social assistance will be needed to cushion any negative impacts on the poor particularly in light of still elevated inflation.
“Nigeria’s past experiences with fuel subsidy removal, which have all been short-lived and reversed, underscore the importance of building a consensus and improving public trust regarding the protection of the poor and efficient and transparent use of the saved resources.”
Again, the IMF pretends to be oblivious that Nigeria is still battling with generating sufficient electricity, and already has high electricity tariffs beyond the income of consumers.
The IMF further threatened that there are significant downside risks to the near-term fiscal outlook from the ongoing COVID-19 pandemic, weak security situation and spending pressures associated with the electoral cycle.
The Fund maintained in the medium term, that without bold revenue mobilisation efforts, fiscal deficits are projected to stay elevated above the pre-pandemic levels with public debt increasing to 43 per cent in 2026.
“With the emergence of fuel subsidies and slow progress on revenue mobilisation, the fiscal outlook faces significant risks. Continued reliance on administrative measures to address persistent foreign exchange shortages is negatively impacting confidence,” the IMF declared.
Again, the Fund expressed the belief that Nigeria’s solution to foreign exchange shortage is to increase domestic prices rather than export promotion.
According to the IMF: “The economy is recovering from a historic downturn. Helped by government policy support, rebounding oil prices and international financial aid, Nigeria exited the recession in 2020 Q4, earlier than expected. Output rose by 5.4 per cent (y-o-y) in the second quarter, mainly reflecting base effects from transport and trade sectors and continued strong growth in the IT sector.
“However, manufacturing and oil sectors remain weak, reflecting continued foreign exchange shortages, and security and technical challenges. “Headline inflation rose sharply during the pandemic reaching a peak of 18.2 per cent y-o-y in March 2021 but has since declined helped by the new harvest season and opening of the land borders.
“Reported unemployment rates are yet to come down although COVID-19 monthly surveys show the employment level to be back at its pre-pandemic level.”
The IMF postulated that while Nigeria’s real GDP is projected to grow by 2.6 per cent in 2021 and continue in the range of 2.6-2.7 per cent per annum over the medium term, “this is just above the population growth rate implying stagnant per capita income in the medium term.”
It insisted that despite an ease in food prices, inflation is projected to remain in double-digits, in the absence of monetary policy reforms.
The IMF in its anti-domestic development stance, stated that there are upside risks from faster-than-expected reaching of the Dangote refinery’s production capacity along with effective implementation of the 2021 Petroleum Industry Act in terms of higher manufacturing production and investment in the oil sector.
The IMF advocated major reforms in fiscal, exchange rate, trade and governance to alter what it considered as “the long-running lackluster growth path.”
The IMF listed near-term priorities for Nigeria, which include the implementation of e-customs reforms, including efficient procedures and controls, developing a Value Added Tax (VAT) compliance improvement programme, improving compliance across large, medium, and micro/small taxpayers and rationalising tax incentives and customs duty waivers, the recent passage of the PIA and emphasises on its timely implementation.
The report indicated that preliminary assessments by the IMF and the World Bank suggest that the approved fiscal terms would provide greater incentives to invest in the oil and gas industry but would reduce the fiscal take from new and converted fields.
On exchange rate policy, the IMF advocated reduced administrative measures and room for a market-clearing unified exchange rate.
The Fund endorsed actions taken toward unification of the exchange rate, emphasizing the need for further actions.
The Fund stated: “The discontinuation of the official exchange rate is a step in the right direction, but continued dependence on administrative measures to address FX shortages sustains uncertainties and increases the risks of a sudden and large adjustment in the exchange rate.
“To preserve competitiveness, any exchange rate adjustment should be accompanied by clear communications regarding exchange rate policy going forward, macroeconomic policies to contain inflation and structural policies to facilitate new investment.
“A further move toward a market-clearing exchange rate will also help build foreign exchange buffers through higher capital inflows.”