IMF visit to Nigeria

02 December 2010

The International Monetary Fund (IMF) recently gave a damning assessment of the pattern of fiscal management of the resources available to the Nigerian economy.

At the conclusion of the IMF 2010 article IV mission to Nigeria between November 4 and 18, led by Scott Rogers of the institution, the IMF, in its press statement, variously criticised the manner in which resources are being allocated between recurrent expenditure and capital expenditure.

Two quotations are in order here. First, the IMF "supports reduction in (planned) deficit from 2011 - 2013. It recommends that expenditures be reallocated from recurrent to capital projects to support economic growth. The medium term fiscal policy for all levels of government should be anchored by a strong oil price rule which would align government spending with available resources".

Also in the statement, the IMF said: "However, achieving the high level of public investment outlined in the strategy (Vision 20: 2020 economic strategy) will require major shift in public resources from recurrent to capital spending, substantial increase in  non oil revenues, and substantial expansion in budget implementation capacity".

These criticisms, although not new, are nevertheless weighty ones and should be taken seriously by the government. Essentially, there must be a marked shift if the rhetorics of the present government officials about the goal of vision 20: 2020 are to be achieved. Let us break down the statements to fully understand what the IMF thinks about the present pattern of resource management in Nigeria.

First, the IMF considers the present level of deficit expenditure inappropriate. It is contained in the support for reduction in the coming years. Reduction support is only canvassed because it feels the level of deficit is currently too much. There are two ways of looking at this: the level of deficit is too much because it may not have been necessary, for instance, because oil price has remained high; it is also possible that the IMF considers the level of deficit too high because it has largely been consumed, rather than being part of public investment.

Second - and this is related to the first - the IMF considers the level and pattern of expenditure between recurrent and capital to be inappropriate for the macroeconomic objectives of the country. For instance, the IMF believes there needs to be increase in capital expenditure in relation to recurrent expenditure for the support of economic growth; meaning that the current pattern does not adequately support economic growth.

Third - and very critical - the IMF says that there needs to be a marked shift in approach if the country will make progress towards vision 20: 2020. The shift required is that from the current focus on consumption to one on public investment as underlined by capital expenditure.

Now, government should not consider all these as mere grammar; it is worth pointing out that in all of these observations by the IMF are contained the perennial issues of waste, inefficiency and corruption. These three factors are responsible for the repeated focus on recurrent expenditure, and consequently, the repeated stalling of the required sustainable economic growth in Nigeria. These are not new problems and the IMF is not the first to point them out. Without resolving the pattern of government expenditure, we will continue to struggle as an oil-dependent country.