Second coming of IMF conditionalities

The International Monetary Fund (IMF) is back in Nigeria.  It has not been here since 1988 when military dictator, Ibrahim Babangida proclaimed the Structural Adjustment Programme (SAP).
No one loves the IMF anywhere in the world.

Even the Third World governments that impose IMF conditionalities on their impoverished people do so only when they have to choose between the devil and the deep blue sea.  No one has ever won a battle with the IMF. Babangida and Greek Prime Minister Alexis Tsipras are living witnesses.  Babangida asked Nigerians to choose between IMF loan and a home-grown belt-tightening programme.

Everyone voted against a deal with the IMF.  Workers salaries were even deducted and remitted to boost government’s dwindling revenue.  When the chips were down, Babangida smuggled IMF conditionalities through the back door.
In 2014 as the economy of Greece collapsed under the weight of foreign debts amounting to 250 per cent of gross domestic products (GDP), its creditors in the European Union (EU) enlisted the services of the IMF to restructure the country’s economy and qualify it for bailouts.

IMF ordered merciless cuts in welfare packages and astronomical tax hikes. The Greek people hit the streets with crippling protests which brought down the government within weeks.  During the campaigns for new elections, a young atheist named Alexis Tsipras took the podium and promised to reverse IMF conditionalities.  He was voted massively into office.  Within months he realized that he needed IMF conditionalities to placate the country’s creditors if the much-needed EU lifeline must be released.  He dumped his electoral promises and toed the IMF line.  His government collapsed within months due to popular protest.

He went back to the polls only for Greek voters to realise that the IMF as the devil was a better evil.  They voted Tsipras back to power.  IMF won.
Nigeria is not negotiating for IMF loans.  But the federal government needs close to $5 billion in foreign loans to execute the fiscal stimulus package in the 2016 budget.  It would need a clean bill of financial health from the IMF to convince international financial institutions to subscribe to the debt instruments it would issue to obtain the loan.  With Nigeria’s low credit rating, its debt instrument would be a hard sell without a clean bill of health from the IMF.

The team that would follow up IMF managing director, Christine Lagarde’s visit, would negotiate the conditionalities for Nigeria’s clean bill of health.  It would almost certainly demand the imposition of asphyxiating tax hikes, massive cuts in social welfare packages and an end to fuel subsidy. It would also demand extensive devaluation of the naira which could touch off spiraling inflation. Lagarde has already hinted that Nigeria has one of the lowest rates of value added tax (VAT) in the world.

IMF might demand anything from15 per cent as VAT rate.
It rammed something perilously close to 20 per cent down the throats of Greek consumers. Nigeria’s property tax is the most liberal in the world.  Aside from Lagos State, no one cares about property tax in the country.  The IMF might call for massive hikes in property and company taxes. The 2016 Appropriation Bill is predicated on the liberal tax logic that lower rates would bring in higher revenue as more defaulters are persuaded to pay.
That kite cannot fly with the IMF. It might order the scrapping of government’s liberal social welfare package which attracts N530 billion in the 2016 budget.

Like many in Nigeria’s organized private sector, Lagarde was very hostile to fuel subsidy.  She argued that it encourages people to burn fuel recklessly and pollute the environment, adding rather derisively that the rich benefitted most from the scheme.
At the moment, low crude oil price has settled the issue of fuel subsidy as the open market pump price drops to N84 per litre.  The federal government believes that low oil price would keep the price of fuel below subsidy rate for the rest of the year.  Consequently, there is no provision for fuel subsidy in the 2016 Appropriation Bill.

However, Ahmed Farouk, the executive secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA) said recently that fuel price would be reviewed on quarterly basis.  In the absence of a definite government policy on fuel subsidy, it is assumed that government would bear the cost of any surge in fuel price between the quarterly reviews.  The IMF would demand a definite stand on fuel subsidy which could ignite a showdown between government and the labour unions.

Lagarde suggested that with adequate tax hikes, enhanced collection and blocking of leakages, the federal government does not need loans to balance its budget.  The federal government on the other hand believes that high tax rates kill business and reduces revenue.  It believes firmly that its social welfare package is indispensable to the fiscal stimulus needed to stem the brewing recession.
The government and the IMF are running on parallel lines which can only meet if the government is convinced that negotiation with a devilish institution like the IMF is the only way out of the financial asphyxiation it finds itself.  This may be the second coming of IMF conditionalities.

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