Nigeria: IMF, Standard and Poor's Reports acknowledge progress not stability
Nigeria's macroeconomic stability and banking sector are potentially sound as suggested by reports coming respectively from the International Monetary Fund (IMF) and influential credit rating agency Standard and Poor's (S&P). On the report issued by IMF after its consultation with Nigeria, in which the country's macroeconomic wellbeing and stability were reviewed, IMF's report was cautiously optimistic emphasizing progress not stability. IMF positively suggested that Nigeria is in a right direction with regards to the county's currency, GDP growth and its on going subsidy reforms.
The IMF recommendations and counsel were not utterly comprehensive, not delving deeply into the structural problem of the Nigerian economy makes it lopsided and insufficient. The report was congratulatory to the policymakers even when it was not necessary. The report should have adapted a laser beam approach to the problems of poverty, unemployment and others that makes the sound macroeconomic stability of the country unattainable.
Standard and poor’s (S&P), the authoritative credit rating agency gave a thumbs up to the county's banking reform that took $21 billion for the bailout and recapitalization. The Sanusi's CBN and Chike Obi's AMCON deserve some credits but with $21 billion sunk into the banking sector there must be a quantifiable progress and much more, in which there must be a sizeable returns, a reasonable dividends to the taxpayers that provided the fund. Another issue that was not delved by S&P was the inflationary trend that was probably triggered by the influx of large sums of money into the banking sector. The inflation can be easily accelerated by quick and cheap money supply at the monetary base. Standard and Poor's (S&P) stressed about safeguarding and protecting banking sector with credible supervision, more to that it is cogent, if not imperative that a stress test should be administered to checkmate breakdown.
Standard and Poor's (S&P) rightly and deservingly point to Nigeria towards a strong and sound banking environment that have checks and balances. Nigerian banks must be grounded on strong rules and regulations to avoid being a weak link and non-performing sector of the economy. Banks that are sound are needed for reliable and productive economies.
IMF report highlighted the troubling inflation rate which stood at 10.3 percent in December 2011 but since then has surged to 12.3 percent at the first quarter of 2012. Without mincing words IMF called on the Sanusi's Central Bank of Nigeria (CBN) to be more creative in its application of its monetary tightening policy to rein in the surging inflationary trends and to desist from jacking up interest rate erratically to combat inflation.
The report “noted the monetary authorities’ commitment to further reduce inflation but considered that a pause in the tightening cycle is at present warranted. More broadly, they agreed that a monetary framework better focused on a clear inflation objective should help anchor inflation expectations and support disinflation. Greater exchange rate flexibility will also facilitate the pursuit of price stability."
Sanusi's CBN has been so much fixated with the jacking up interest rate to combat the troubling inflation, at the expense of other alternatives. But other credible alternative is no easy task which is to convince the presidency to throw in its fiscal policy. To be fair to Sanusi he has been calling on the executive to trim down bloated budget with restrictive fiscal expenditure in order to reduce spending and to regulate the cheap money supply. The presence of Dr. Okonjo-weala as the finance minister has helped to make the case of living within the country's means more successful. Okonjo-Iweala's principle of transparency and probity makes the achievement of sound macroeconomic stability attainable.
The IMF report alluded to the fuel subsidy removal when it mentioned the higher petrol price that triggered higher inflation rate. IMF did shy away from the role it played in the subsidy removal in Nigeria but rather concentrated its report on methodology on combating higher inflation without slowing down the robust and impressive economic growth. The growth of the real GDP was 6.7 percent for both oil and non-oil sectors which was indeed a big one. The report consciously omitted on pointing out the greatest vulnerability of the impressive economic growth which is its inability to produce jobs for the working community. The impressive growth may lose its luster before Nigerian people that do not see the benefit of the surging economic growth.
Poverty an indicator of wellbeing was not sufficiently dealt with in the report, poverty is getting worse in Nigeria, most especially in the north of the country where the increasing instability and social unrest are making life unbearable. The point that must be made is the provision of infrastructure that must be present to achieve a long term macroeconomic stability. With steady electricity, security and highly trained workforce Nigeria can attract investors and improve naira value with accumulation of foreign exchange coming from array of products for export.
The recent appreciation made by naira was conditional as a result of selling of dollars in the forex market provided by CBN and oil companies. But after the appreciation of naira for past three weeks there was a slight decline of naira value due to the drying up of dollar sales by oil companies. The report provided by IMF failed to convey to the policymakers that the long term value of a naira should not be rested solely on the availability of dollars and higher price of oil. But also in the ability for Nigeria to be able to replenish it foreign reserve by multifarious ways other than oil exports. To be able to erect bulwark against currency speculators, the country's war chest which is its foreign reserve should be able to deter the forces of demand through abundant supply of dollar from exports from non-oil sector.
On the banking sector IMF report shared same perspective with S&P: IMF report “commended the authorities for their actions to resolve the recent banking crisis. The modalities of operation of the asset management corporation should continue to make sure that fiscal risks and moral hazard are minimized. Directors supported the central bank’s focus on strengthening supervision and the regulatory framework, including by addressing remaining deficiencies in the Anti-Money Laundering/Combating the Financing of Terrorism regime. They also agreed that a Financial Sector Assessment Program update will help take stock of the progress so far and provide a road map for remaining reforms in the financial sector."
Both IMF and S&P reports convey to Nigerian economic leaders and policy makers that a lax in the banking sector does not bode well for a nation trying to achieve a sound macroeconomic stability. Therefore a well fortified banking system with rules and regulations in place is the antidote to banking failures and vulnerabilities.
Emeka Chiakwelu is the Principal Policy Strategist at Afripol Organization. Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa. http://afripol.org. email@example.com