Dismissing IMF Report as False Alarm - Enwegbara

The International Monetary Fund, IMF says the Nigerian economy is facing serious pressure despite some of the policies by the government against the impact of declining global oil prices. But, Massachusetts Institute of Technology, MIT-trained management consultant and economist, Odilim Enwegbara, told PREMIUM TIMES’ Bassey Udo in an interview that the doomsday prediction will fail.

PT: IMF in its recent Article IV Report said the Nigerian economy is facing substantial challenges, with the country’s current account surplus projected at 2.4% in 2014 declining to 2.7% of GDP. Does this report scare you?

Enwegbara: The IMF’s 2016 Article IV, in my thinking, was practically re-emphasizing that the macroeconomic structure of our economy needs complete overhauling, although not the kind geared toward growth, diversification and inclusiveness. That makes the IMF notoriously dishonest and insincere with policy suggestions to developing countries like Nigeria, that rather than help them develop and spread prosperity, they are mostly counterproductive. That is why each time the IMF talks, we listen without taking them seriously.

In a nutshell, the IMF’s one agenda has always been to tell developing countries like Nigeria how to remain suppliers of industrial raw materials to their western counterparts in return for western manufactured goods.

If the IMF could admit, although our non-oil sector is growing and now accounting for about 90% of our GDP, our overly import dependency has continued to erode economic diversification efforts, while increasing pressure on foreign exchange reserve accounts.

What the IMF hides from us is that the only way out of our perennial high cost of doing business, which makes imports always cheaper than domestic production of same goods, is to massively invest in reducing the country’s high infrastructure deficit, currently about $350billion.

If the last government, whose economic manager was Mrs Okonjo-Iweala, was patriotic enough to make serious efforts at infrastructure investment, the current high import dependency pressure on our foreign exchange reserve accounts would not have been there.

In other words, had the Okonjo-Iweala-led economic team not pursued anti-infrastructure investment, anti-real sector growth, and anti-diversification economic policies, the current negative impact of global oil price volatility on our economy, especially on our fiscal and external accounts, would have been minimal.


The good news is that the foreign exchange reserve doomsday the IMF has been hypocritically announcing is nose-diving to as low as $21.5billion before the end of 2016 fiscal year will end up as another IMF false alarm, thanks to present government’s proactive efforts, including bilateral currency swap agreement with China. This makes Nigeria the 32nd member of this China-led bilateral currency swap club, involving virtually all major economies of the world, including EU, UK, South Korea, Brazil, UAE, Russia, South Africa, etc., except US.

By removing dollars in major bilateral trade between Nigeria and China, currently involving over 60% drain on our dollar-denominated foreign exchange reserve accounts, will be a source of relief to our fiscal and external accounts.

For the first time in its monetary policy pronouncements, the same IMF has fiercely criticized our current monetary policy rate, MPR, regime by agreeing that such high interest rate stance of the CBN is adversely affecting the growth of our real sector, particularly our small and medium enterprises, SMEs that cannot invest because they cannot borrow at such cut throat interest rates and be competitive.

But, turning around to insist that we shouldn’t borrow to fix our infrastructure deficit, to reduce our current high cost of doing business, is contradictory.

Given our current debt-to-GDP ratio at 13% against world’s 60% average, it makes Nigeria among the most creditworthy economies, to the extent that we can borrow as high as 50% of our GDP in the next four years without being afraid of debt trap, especially since we will be borrowing to invest in reducing our current high infrastructure deficits. Apart from jumpstarting our economic diversification, it will attract the highest return on investment in a way that cancels whatever additional debt burden it may impose on our debt profile.

The damage Mrs. Okonjo-Iweala did on the economy in the four years of the Jonathan administration – included borrowing for capital projects only to later divert the money into recurrent spending – remains such fiscal policy criminality that this government should waste no further time in investigating.

PT: How was this possible?

Enwegbara: Look at all government spending between January and December 2013, capital spending voted out was N1.59 trillion. But, what was actually spent was N900 billion. This means that about N690 billion was not spent.

Look at debt service payment, what was voted out was N591 billion, but about N834 billion was actually spent, meaning about N243 billion extra was spent. While nobody could correctly claim to know the source of the money, certainly it was not appropriated originally or by supplementary appropriation by the National Assembly.

That such extra money was spent without it going through a supplementary budget approved by the National Assembly and signed into law by the president was illegal and criminal.

In 2014, the vote for capital spending was N1.119 trillion, but, N587.61 billion was actually spent. The vote for debt service payment for the year was N712 billion, but N940.1 billion was spent, making one to wonder where the extra N228.1 billion came from.

What the government was doing in those two years was that most of the money meant for capital projects was never released so that it could be illegally moved into paying for some unbudgeted debt service, while the remaining money was eventually moved to further bloated recurrent expenditure.

The same thing happened in 2015, where N417 billion was voted for capital spending, the lowest, but only N194 billion was actually spent. About N715 billion was voted for debt service payment, but N908 billion was spent, showing about N193 billion was over-spent on debt service without mentioning its source, nor appropriated.

Why was the capital items in the budget suppressed to allow money moved to debt service? The answer is simply because owners of 90% of our so-called domestic debts which (Naira denominated) were either friends of those in charge of managing our economy, or in government as private business owners who strategically paid their way into becoming members of the Okonjo-Iweala-led economic management team.

The so-called portfolio investors were actually Wall Street and City of London international speculators taking advantage of the high arbitrage caused by the CBN high MPR. They would not have been successful without our local banks conniving with them to smuggle into Nigeria cheap funds to lend to government at cutthroat interest rates.

So, they need their fraudulent loans given to fraudulent managers of the economy to be serviced first, including money budgeted for capital spending. That is why the CBN has kept the country’s key interest rates the highest among our peer economies.

And that’s why most of our commercial banks continue declaring huge profits by only lending to government in bonds and treasury bills. This is an international financial cabal using their financial engineering to unleash havoc on our financial economy, because it’s too difficult for our politicians to understand the fraud, which they normally argue is perfectly legal.

PT: But, now that the TSA has made it difficult for banks to have easy access to public funds, is it still possible for the financial engineering to occur?

Enwegbara: The TSA is necessary to block the mind-boggling diversion of public funds public officeholders were placing in fixed deposit accounts with the commercial banks. But, it is yet to be implemented by the legislative and judicial arms of government, not to mention most states. That is why the call for the separation of the harmonized cash reserve ratio (CRR) for public and private sectors by the CBN is important.

The managers of our monetary policy should stop this fraud by immediately effecting the separation, and quickly move CRR on public deposits close to 100 per cent. This way, even if any arm of government, along with most states, refuses to join the TSA, they should expect close to zero return on their deposits in commercial banks.

On the other hand, the CBN should be forced to reduce CRR on private deposits if the CBN wants to encourage private deposits.

PT: The country’s debt stock appears very high. How comfortable are you seeing these debts keep accumulating, particularly domestic?

Enwegbara: Our domestic debt, currently at about N13trillion, cannot be repaid with our current growth rates. We need a GDP growth rate as high as 10% to contemplate repaying the debts. Even the debt service is not sustainable given how deep it is eating into our national budget. But, nations who find themselves trapped in domestic debt often end up freeing themselves by printing local currency to pay off the debt.

Unfortunately, the beneficiaries of our debt, serviced at such cut-throat interest rates, will always oppose every step to pay it off. How else would they be able to keep the country in the present financial gas chambers they have forced us into? Their men are fully in control of the CBN, the commercial banks, SEC, NSE, and hundreds of government revenue generating agencies purposefully kept inactive to attract high fiscal deficit year-in-year-out. More government domestic borrowing means more trillions of naira spent each year in debt service payment.

So, this government should boldly pay off our present domestic debt by printing exactly the Naira value and pay our creditors.

PT: The IMF is consistently opposed to the CBN policy of FOREX restriction, describing it as stifling the economy. What do you think?

Enwegbara: The IMF simply wants the market to determine the exchange rate regime. Clearly, that’s calling for official devaluation of the Naira, which is as high as N320 to the dollar at the parallel market. The truth is that no country in the world allows market forces to determine its currency rate, not even the U.S. with the dollars.

The unexplained danger the IMF is carefully pushing Nigeria into is that once the official devaluation starts, the country’s enemies, mostly the currency speculators, money launderers, local bank fraudsters and monopolists along with foreign saboteurs, driven by arbitrage seeking, would quickly take full control of the country’s FOREX policy.

The result will be Nigeria running out of FOREX to meet its trade obligations. Going to IMF for a bailout would come with the usual draconian conditionalities, which should include demanding government to do away with current social welfare policies currently needed to make our economy as inclusive as possible like most other modern economies.

So, one can understand the IMF’s game plan – waiting for opportunity to deploy its arsenals. The good news is that whether IMF likes it or not, its plan will never happen, given the on-going efforts by the Buhari administration to look toward China.

PT: In essence, you are saying that Naira devaluation is not in our interest?

Enwegbara: Absolutely, it is not, for two reasons. If we devalue, currency speculators, hedge fund manipulators, banks and monopolists, would push the Naira to a level where nobody would be in control.

Second, importers of finished goods and importers of critical inputs to jumpstart and grow our industrial base should not source FOREX at the same rates. It is to the advantage of the importers of the finished goods that can easily be made local than those wanting to produce the same locally, given all the high costs associated with doing business in Nigeria. Of course, banks will prefer selling FOREX to importers than lending to those wanting to produce the same locally.

PT: But, of late, with government resisting pressures to devalue the Naira, the economy seems to be dragged in all directions – inflation rate is high, while the economy is on the slow lane. What’s the way out?

Enwegbara: Why do we think that a high inflation rate is bad for the economy? This is what is happening. We are importing most of the things we consume here, because cost of production here is high. Instead of reducing cost of production by actually providing money to invest in infrastructure; by making cost of money lower in the country, the CBN is raising interest rates.

What a high interest rate causes is high cost of production, which pushes inflation rates further higher and higher. High cost of domestic production forces producers to join the bandwagon of importers of cheap manufactured goods. This puts more pressure on our scarce FOREX reserve and increases in exchange rate, since more demand in the presence of dwindling supply means higher prices for the scarce dollar. Until we start producing locally, the problem will continue.

The tired policy of mopping up liquidity to fight inflation is a grossly ill-informed policy. Rather, we need to do the opposite, which is monetary easing to make liquidity available to small businesses whose increased production will reduce pressures on imports and foreign reserves as well as curb imported inflation.

We have to focus on importing those critical inputs to manufacturing, in terms of plants and equipment to help diversify the economy. Also, we should discourage importation of finished goods. Those exporting finished goods to Nigeria should be forced to relocate to Nigeria to produce those things locally. Over a period, the pressure on our FOREX would reduce and inflation would come down.

However, high inflation is not necessarily bad for emerging economies, or those transiting from non-industrial to high industrial. That is why we should not be comparing US, EU, Japanese, South Korean, Chinese low inflation rates with Nigeria’s. Those have already developed their infrastructure, driven cost of doing business close to zero, and forced inflation to close to zero.

During this transition, high inflation is not only inevitable, but also necessary. This tells serious investors that there is a huge disparity between supply and demand sides to the extent that whoever rushes in should make huge profit trying to meet the growing demand.

This means there is need for more production locally. With most foreign manufacturers seeing the gap, taking advantage will require quickly relocating their factories.

High inflation is not bad for developing economies. In reality, the reverse is the case. The Chief Economist of the World Bank, Michael Bruno confessed that high inflation is good for transitional economies from agriculture to industrial.

Therefore, if we start fighting inflation now, we would be fighting the wrong battle. We can be winning the battle, but losing the war. We cannot be fighting inflation, as we are doing now. Rather we should stop importation of those goods that are not adding value to the economy.

PREMIUM TIMES: If you say high inflation is not bad, and it has so far risen to about 11.4 per cent and still rising, to what level should it get to become bad for the economy?

Enwegbara: The country’s inflation can rise to as high as 20%. By the time we reduce cost of production by building modern industrial infrastructure and reduce cost of money, inflation would begin to come down from double digits to single digit.

PT: The IMF is also against gradual increase of VAT and Tax as a way of getting out of this situation. What’s your take on this?

Enwegbara: I have no disagreement with that at all. In fact, Nigeria is one of the countries in the world with the lowest VAT rates. We have to move that to a minimum of 25%, because we have about $350 billion infrastructure deficit. It is obvious that we cannot have our cake and eat it.

If our tax and oil revenues are low, and the country is borrowing low, how do we get the money to invest in infrastructural development? But, also besides increasing our present low VAT rate, we also have to deal with the problem of diversion that involves as high as 75%. That is why we also have to have in place modern ways of collecting VAT. Government must come up with a policy on collecting VAT efficiently to reduce the present diversion.

PT: If you were the Economic Adviser to the government today, which areas would you advice government to focus on to reinvent the economy, and create jobs?

Enwegbara: First, I would want government to know that we have come to a point where we cannot continue with our current monetary policy. In the interest of our commonwealth, I will advise government to ask the CBN governor, Godwin Emefiele, and all his deputies, to kindly step aside.

A caretaker governor and respective directors should be running the CBN until a new governor and deputies are appointed. Before that, the CBN must be reformed by amending the 2007 CBN Act. Then, the CBN should be stripped of the banking regulation and supervision roles by creating the Nigerian Banking Regulatory Commission (NBRC).

While the CBN functions solely as monetary policymaker, NBRC will regulate and supervise the activities of the banks. After that, he has to go and take a close look at what has gone wrong with the banks by ensuring that a full forensic auditing of all the commercial banks and the CBN from 1999 to date is undertaken.

This should include investigating all the past CBN governors and deputy governors with the goal of finding out how they mismanaged the CBN for personal gains, including FOREX policy.

Government should aggressively diversify our power source to include targeting 20,000 megawatts of solar and coal within two years. This is a good option given the country’s huge coal deposits in Enugu and Kogi states.

China is the world leader in coal technology as well as in solar technology. We can make it a national policy that rural areas must be solar-powered.

Again, we have to look at agricultural development and small businesses, which is the engine room of every economy. Government must build industrial parks and agricultural settlements with cluster services across the nation without any more time wasted.

Premium Times