When I read the
IMF’s public information notice on its executive board’s conclusion of
the Article IV consultation with Nigeria, Thursday, two weeks ago, I
thought it was a pretty decent report. It just about covered all the
bases on the economy: strong output growth on the back of “a recovery
in oil production and continued strong growth in other sectors”. It
also dwelt on government’s rationale for continuing the fiscal stimulus
last year in spite of this strong growth, and growing concern over
rising inflation. Apparently, the Fund also noted, consolidated public
spending rose last year by 37 percent, after having risen by 10 percent
the previous year. Thus, in 2010, according to the boffins at the IMF,
“the non-oil primary deficit increased by 5 percentage points to 32
percent of non-oil GDP”.
Given that none of
this stuff is new, the fury of the domestic response to the Fund’s
position has been baffling. This has ranged from the usual knee-jerk
“anti-imperialist” twaddle about the “immorality” of the Fund dictating
to a sovereign government through analysts who argue that government’s
over-spend is necessary to compensate for the nation’s infrastructure
dearth, to the CBN governor’s strident riposte over the value of the
domestic currency. The first of these concerns is easily met, and given
space constraints, properly ignored. Concerning fiscal excesses, again,
the arguments are well met, but slightly harder to discountenance.
Indeed, the most
touching bit of the president’s 2010 budget speech to the joint session
of the national assembly in December last year was the contrition
expressed on the budget over-spend. From a deficit-to-GDP ratio of a
little over 5 percent in 2009, government hopes to force the deficit
down to 3.62 percent of GDP in the 2011 fiscal balance. Although the
president had earlier in the same speech alluded to the “challenges
posed by the huge infrastructure deficit” confronting the country, and
his government’s intention “to give greater focus to optimising capital
expenditure to bridge the gap”, it is significant that last year’s
budget deficit was the “result of the exceptional outlays to meet wage
increases granted to civil servants, as well as some other exceptional
items such as the INEC voters registration exercise”. After the same
fashion, the deficit this year is the consequence of “the recent public
service wage increases”.
Moral of the story?
Plenty of money spent, but not on infrastructure. We do need fiscal
consolidation. And Aso Rock agrees! Is the naira over-valued? Sterile
debate! The key point is that there was a cost to keeping the naira
within the CBN’s reference band over the last one year. The “loss in
international reserves”, as the IMF delicately puts it, is the most
obvious such cost. Between December 2009 and December last year, we
spent about US$10bn from the balance on the nation’s gross external
reserve largely to keep the naira afloat. One account lays the blame
for increased demand pressure at the foreign exchange markets on the
repatriation of profits by multinationals doing business in the
country. Another blames it on the activities of speculators taking
“one-way bets in the foreign exchange market”.
Either way, the
Excess Crude Account was also wound down within this period – about
US$18bn of it. In between, crude oil prices for the Bonny Light blend
averaged around US$75 per barrel (pb) last year. The budget benchmark
for 2010 stood at US$58pb, yielding a net accretion to the domestic
economy, of some US$17pb of crude oil sold. Add to this, the fact that
domestic crude oil production also rose last year from around 1.8
million barrels per day (mbd), to circa 2.1mbd. The arithmetic that
follows is quite simple. An additional 300,000 barrels per day was
available at the new price.
Whichever way we look at it, therefore, the country must have spent
a prince’s ransom last year just to keep the naira “strong”. What were
the benefits to the larger economy? By keeping the naira “virile”, we
held imports up; and in an economy as dependent on imports as ours,
this is might just be highly estimable. Against this benefit we must
hold the fact that all of the revenue in question is from a wasting
asset with a trans-generational dimension; in addition, the dollars
earned are too important a resource to fritter away on maintaining our
appetite for imports.
