Time To Ignore IMF’s Unsolicited Advice, By Odilim Enwegbara
…government should make sure that fiscal and monetary policymakers are working together to promote a sustainable inward-looking economy, which in promoting real sector firms along with imposition of an all-encompassing local content regime, should be rolling out millions of jobs. This cannot be more timely.
Western governments always pursue Keynesian economics as developed countries. But, through the International Monetary Fund (IMF), they impose neo-liberal economics on developing countries.
In other words, while they pursue expansionary, deficit-spending policies that focus on growing the real sector, creating jobs, and keeping infrastructure modern and upgraded, they continue to insist that developing countries pursue anti-growth and anti-job macro-economic prudence. This includes balancing their books every year (and possibly having budget surplus) by keeping capital spending low without borrowing even to invest in infrastructure.
The goal is to keep developing economies in perpetual economic stagnation (if not perpetually underdeveloped), leading to economic devastation and social dislocations.
While the IMF forces developing countries’ finance ministers and central bank governors to pursue anti-investment, anti-growth and anti-jobs restrictive fiscal and monetary policies, their developed countries’ counterparts are never expected to follow this policy path.
Neither would Western fiscal policymakers cut deficit by keeping budgets balanced, nor do their central bank governors pursue tight monetary policy stance that should lead to both increasing interest rates and reducing system liquidity.
Nonetheless, why are Western governments not practicing what they preach to the developing countries?
Understandably, practicing what they preach would amount to putting their economies in the same reverse gear they insist on for developing economies like ours. They know that that will not grow the economy, create jobs, and most importantly, generate desirable tax earnings for the government.
In short, Western governments do not need to be told that cutting interest rates and increasing government deficit spending are the twin boosters of the real sector economy by increasing demand.
Therefore, contrary to what the imperialist neo-liberals and their local agents in developing countries like ours have falsely made us to believe, the macro-economic system they operate in reality is pro-Keynesian for the West and anti-Keynesian for developing countries like Nigeria, which accepted this unopposed until the arrival of the Buhari administration.
In fact, for Western governments, it is good for them to pursue pro-growth and pro-job capitalist socialism, while through their IMF they insist on anti-growth and anti-job capitalism for us. That is why, while running budget deficits on a permanent basis is okay with them, especially as long as the resulting debt is productively channelled towards justifying growth, such growth decisions, the IMF always insists, should not be tolerated in developing countries like ours.
Refusing developing countries to “live beyond their means” (as neo-liberals have always called it) like them, has made it extremely difficult for the finance ministers in countries like Nigeria to insist on borrowing to invest in infrastructural development – the well-known centuries-old ‘secret’ of economic development and the instant game-changer that makes the acceleration of economic growth unstoppable.
Is it not naive for us to agree with these ladder-shifting IMF and World Bank arguments? Are these not a kind of forcing us to accept that we should not live beyond our present means, which remains the only way for us to be able to build a more prosperous future than we are currently building?
In other words, neo-liberals are always insisting that developing countries should be saving, not spending, not to mention of borrowing to invest in the development of their economies.
That their representatives in countries like ours are bold enough to agree that there are no justifications for us to borrow, even when it is obvious that there’s no way we can ever generate enough money internally, especially given that to grow tax revenue, the economy has to grow first.
Following their faulty advice is why, no matter the immense future benefits to our economy, they are against our borrowing, including borrowing responsibly to invest productively.
However, without investing in strategic infrastructure, how could countries like Nigeria be able to address their huge infrastructure deficits, or be expected to become as competitive as developed countries by reducing the current high cost of doing business?
Without economic diversification and infrastructure borrowing, how else do we intend to begin to narrow the present gap that has kept us as the world’s number one dumping grounds for foreign made goods, or goods we should ordinarily be making ourselves? Why should we be so fooled into believing that we should preoccupy ourselves with saving for the future, rather than efficiently investing in the rapid transformation of our economy in ways to catch with the West?
For how long should we continue to refuse borrowing productively, when the history of today’s advanced economies is a history filled with heavy borrowings and heavy investments in infrastructure, especially during their initial industrialisation take-off stages?
In other words, should we not know that by borrowing today to invest in our future, we would be bequeathing productive debt to future generations?
We would also be bequeathing better and superior infrastructure, including a more inclusive society. How else should Nigerians expect their country’s economy to be fast-tracked without having to inject trillions of naira in expanding and upgrading its critical infrastructure?
Is it not hypocritical for Western neo-liberals to be insisting that we should not be borrowing like Western economies are doing, given that our debt-to-GDP ratio, which at about 12%, is by far the lowest among our peers?
In other words, how many times has IMF advised OECD countries like Japan to stop borrowing because their debt-to-GDP ratio stands at 224%; Italy’s, which stands at 128.50%, US’s at 107%, France’s at 95%, and UK’s at 89.80%?
What about Nigeria’s peer countries, like South Africa with debt-to-GDP ratios of about 44%, India’s 66.10%, Brazil’s 60.80%, Kenya’s 50%, Ghana’s 67.50%, and so it goes?
Is IMF fair to Nigeria by insisting that notwithstanding its $350billion infrastructure deficit, it is okay for the country to remain among the league of nations that have the world’s lowest debt-to-GDP ratios like Algeria at 8%; Kuwait at 7%; Afghanistan’s 6.60%, Libya’s 6.10%, and Saudi Arabia’s 1.60%, etc.?
Of course, IMF advisers are fully aware that there is no way Nigeria would expect to become an economic powerhouse that attracts an army of domestic and foreign investors, while having our kind of Third-World infrastructure. Because it has never happened anywhere before, it will never happen in Nigeria.
And that the Central Bank of Nigeria fights inflation blindly by both raising the cost of funds and tightening system liquidity, without preoccupying itself with how much damage such pro-recessionary monetary policy does to the real sector, growth and jobs makes one to wonder what exactly is the basis for such policy stance.
If not being narrowly conducted in the interests of banks and trying to please friends at the IMF, what else would the managers of our monetary policy say is their reason for thinking that they can solve the inflationary problem of the economy by taking measures that further increase the inflation?
Of course, do those in charge of our monetary policy need to be taught Finance 101, which includes increasing the cost of funds, as a major driver of inflation, especially in the presence of high infrastructure deficit?
How do they believe that increasing monetary policy rate, MPR along with liquidity tightening would not crowd out the real sector? What else should be driving these deep-seated poor judgments than ulterior motives?
Obviously, at this critical stage of our economic development, one should have expected the CBN to abandon its current pro-recessionary monetary policy if not for any reason, at least for the very fact that such entrenched tight monetary policy regime has neither short-term, nor long-term benefits to the on-going Buhari administration’s economic diversification agenda.
Why should these managers of our monetary policy ever care when they enjoy absolute independence – a sort of sovereign and non-representative power in our representative democracy?
That is not their fault. Even in the U.S., as the headquarters of Western capitalism, the Federal Reserve System (central bank) does not enjoy the kind of absolute independence the CBN managers enjoy.
The reason is because unlike the present CBN, the Act establishing the Fed clearly states that it should “conduct the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment…by moderating long-term interest rates.”
That is why to ensure the Fed. does that, the Fed. Chairman has to constantly face a pro-growth Congressional committee.
Understandably, in his full independence, rather than reducing its MPR to help the Buhari administration’s economic diversification agenda, by further increasing interest rates, the Godwin Emefiele-led CBN has simply been doing the opposite.
Whatever their argument could be, they should not deny that their hike in interest is undermining the government’s economic diversification agenda.
Since it has become a common argument that to fight inflation, they have to always raise interest rate and tighten liquidity, they should be informed that some countries, in their effort to grow the economy in a way that eventually lowers inflation, have their inflation rates higher than their key interest rates (central bank rates).
Turkey and Japan are handy examples. With 7.5% interest rate against 8.78% inflation rate, Turkey’s interest rate is far lower than its inflation rate. The same is true with Japan, where in an effort to grow the economy by growing consumption too, the interest rate at -0.100% against inflation rate of 0.000%, is far lower than the inflation rate.
Even our so-called inflation figures produced by National Bureau of Statistics (NBS) are always lacking in credibility that in most cases they have figures carefully doctored to always favour the banking and financial sector, since it’s on the basis of these figures that the pro-banks high MPRs — like the 12% hike during the recent MPC meeting — are based.
The only way government can free the economy from this perennial sabotage is to reform the CBN, along with the entire banking and financial sector, so that both the CBN monetary policy stance and the banking and financial sector activities are in line with government’s overall economic growth and diversification agenda.
Since the foundation of every modern economy is its banking and financial sector, without reforming the current operation of our banking and financial sector, it will be difficult for our economy to transit from its present non-industrial to the expected highly diversified industrial economy.
Because the Buhari administration knows that, it also knows the urgency for a sweeping reform, in order to be able position the country’s economy.
Having said that, the most plausible way to bypass this anti-SMEs and anti-real investment monetary policy of the CBN remains the federal government creating a specialised development bank, a bank that functions solely as provider of cheap and long-term loans (single digit loans) to Nigeria’s critical and strategic sectors, such as industrial, manufacturing and agricultural/food processing sectors.
Besides, since the current CRR harmonisation, which has never promoted a robust monetary policy, reversing it by separating CRR on public sector deposits from CRR on private sector deposits, needs no further time wasted.
This is the only way genuine pressure on the CBN could drastically reduce CRR on private sector deposits to close to 0.000% to encourage private deposits.
While on the other hand, pushing CRR on public sector deposits close to 100% is the only way to discourage public funds supposedly quarantined to be finding their way into commercial bank loan books.
The on-going argument that the implementation of the treasury single account (TSA) has taken care of that and as a result makes the separation unnecessary, is not true, because most states, as well as federal legislative and the judicial arms of government, are yet to fully comply with the TSA policy.
Therefore, with government pursuing macro-economic decisions designed to reduce the current destructive currency speculations, economic financialisation and real sector bankruptcies, no doubt, such carefully constructed pro-investment and pro-growth policies, geared toward real sector-led economic development and diversification, should gradually, over time, make the naira to begin to appreciate in value, especially if government does not pursue aggressively pro-export economic policies.
That is why government should make sure that fiscal and monetary policymakers are working together to promote a sustainable inward-looking economy, which in promoting real sector firms along with imposition of an all-encompassing local content regime, should be rolling out millions of jobs. This cannot be more timely.
Odilim Enwegbara, a development economist, writes from Abuja.