THE International Monetary Fund (IMF) recently gave a pass mark to Nigeria on economic management in its annual Article IV Consultation, an annual review of the economic policies and outlook of all member states. While the IMF noted positives such as prudent fiscal and macroeconomic policies and the better health of the banking system, Nigerians ought to be more concerned about the risks to the Nigerian economy, which the said assessment highlighted.

The risks revolve around the possibility of a severe disruption to Nigeria’s economy should the oil price fall and negatively impact the nation’s capacity to import both consumer goods and raw materials. There is also the government’s ability to finance its domestic obligations, such as salaries and payments to contractors on which consumption in the economy overwhelmingly depend. A closer reading of the IMF Article 1V Consultation would reveal that Nigeria is doing pretty little to manage these risks. This is even more alarming given the very low level of public discussion and total absence of political debate about the key reforms required to reduce Nigeria’s excessive dependence on crude oil exports and the severe socio-economic dislocation it may give rise to. While the near term outlook is positive as noted by the IMF, the nation may well be sleepwalking towards an economic precipice given the uncertain outlook for growth in Europe, China and the United States, the economies of which determine the international oil price.

On the positives in the Article IV Consultation, tighter fiscal and monetary policies have maintained inflation at a level that doesn’t pose a threat to investment and growth. Accruals to the Excess Crude Account is also growing again, currently standing at $5.2 billion, though still very much below its 2007 level of $17.3 billion, because government spending is slowly declining. The IMF is also pleased that due to the intervention of the Asset Management Company of Nigeria (AMCON), the level of bad debts in the Nigerian banking industry is low and bank lending is rising again. AMCON has formally announced a cut-off period for its operations, thus minimizing the risk that its operations would give rise to moral hazard or become a burden on the Nigerian treasury.

But shortly after the review, the World Bank warned that in the event of a drop in the global oil price, Nigeria’s Excess Crude Account and other reserves would be wiped out in a year. In April, $1 billion was withdrawn from the ECA and distributed among the Federal, State and Local Governments to make up for shortfalls in government revenue. It is worrying that withdrawals are being made from the ECA while the oil price remains relatively high. According to the World Bank, should the oil price fall to $70 per barrel, Nigeria would have to resort to borrowing to close the gap between its income and expenditure. It is much wiser for Nigeria to cut its expenditure and increase its reserves or savings while oil prices are still relatively high.

The argument for cutting expenditure and boosting savings is particularly strong given the well-known failure to translate the funds shared monthly in Abuja by the Federal, State and Local Governments to jobs and better livelihood for Nigerians. While the nation’s per capita GDP is roughly $1,300 on paper, over 60 per cent of Nigerians live on less than $2 per day, i.e. $730 per annum using the most generous unofficial estimate of per capital income.  For a change, the focus needs to be on better quality spending, generating more bang per buck spent in the Ministries of Education, Health, Works etc, which remain very weak mechanisms for transmitting fiscal expenditure into better healthcare, schooling, infrastructure, etc.

What seems to be happening is that technocrats in the nation’s financial sector have managed to gain political acceptance of some policies promoting monetary and financial restraint, which has somewhat improved the economic atmosphere for investment and growth. But the engine rooms of government, bureaucratic and political elements in the Ministries, the Presidency and the National Assembly, which are responsible for wider policymaking and execution, have carried on with the usual mediocrity.   Reforms that can boost investment, jobs and growth in Nigeria and the nation’s income from sectors such as oil and gas and housing and real estate are either inadequately promoted by the Executive branch or stuck in the National Assembly for years. It is amazing that the Peoples’ Democratic Party (PDP) controls both the executive and legislative arms of government and yet cannot pass legislation such as the Petroleum Industry Bill, the delay of which has resulted in over $80 billion in lost investments. The opposition parties have an equal share of the blame. In a functioning democracy, their main role is offering feasible policies that the electorate is convinced would improve their lives, not criticising every government policy without offering alternatives.

The IMF Article IV Consultation clearly paints the enormity and urgency of reforms that Nigeria needs to undertake. It is therefore, a fail grade rather than a pass mark for Nigeria’s economic management. The IMF can only advise on reforms such as downstream petroleum sector liberalisation, the passage of the PIB and public service strengthening. The political will, focus and credibility required can only be provided by Nigerians.