Discussions between IMF and Nigeria made public

Sep 05, 2002 02:00 AM

In its editorial of 30th July 2001, the 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 andgot 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. 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 2000, 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 Nigerian government argues that the remaining benchmarks will be met if the SBA is extended. In 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 privatisation 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 privatisation and commercialisation, 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 the economy.
Encouraging non-oil economic activity by easing infrastructure bottlenecks through accelerated privatisation 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 $ 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 % 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 holdings 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 04/30/1990 475.00 0.00
Stand-by 01/30/1987 01/31/1988 650.00 0.00

Certification of due process for capital expenditures
The certification of due process for federal government capital expenditures comprises three stages.

I. 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.

II. 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.

III. Certification of completion of work.
Subsequent payments are conditional upon certification that satisfactory progress is being made toward completion of the project. To this end, the NPC, liasing 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 favourable certification to the Minister of Finance, which along with confirmation from the accounting officer in the spending ministry/agency, will form the basis for the 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 N 313.2 bn, N 80.7 bn (25 %) 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 $ 43.50 bn (73 % of the budgeted outlay of N 480 bn) and cash spending to N 250 bn 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 1.
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 ending 31 December 1999.

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 the Ajaokuta 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 IMF 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 privatisation programme was mixed: Draft telecom and electricity laws 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 commenced but can be finalized only after the enactment of theenabling 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 March 2001 (a performance criterion). A strengthened regulatory system is being put in place to allow the sale of NITEL by end-2001 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 end December 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 privatisation 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 with the assistance of the World Bank. A recent study by the original Russian (the Soviet)| contractors estimates that an investment of $ 400-600 mm 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 performance criterion). While the operations 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 firms of auditors are being hired so that the results of value-for-money audits of expenditures in the first quarter of 2001 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 performance criterion) 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 appropriate stand-alone fiscal regime for gas and power projects.

The FT editorial on IMF and Nigeria
A year ago Nigeria signed a $ 1 bn 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 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, has been painfully slow. Other targets agreed with the IMF have been missed or falsified. Mr Obasanjo has been trying to divert attention from these issues at home by campaigning abroad, seeking agreement to write off Nigeria's $ 30 bn 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; $ 350 mm is earmarked for a sports stadium in the capital Abuja, and nearly $ 100 mm is to be spent on a "space programme'.
Yet Nigeria is a poor country. Two thirds of its 110 citizens subsist on $ 1 a day. Half of the population are under 18, a blighted generation paying for the faults of the past. Debt rescheduling 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.

Source: This Day
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