IMF Chief cautions Nigeria against expansionary fiscal policy

Nov.1 (PREMIUM TIMES) – With growing concerns  abroad about negative impact of rising level of recurrent expenditure over capital budget in the country, the International Monetary Fund, IMF, on Thursday urged the Federal Government to exercise caution against expansionary fiscal policies in its planning.

Last Tuesday, the former Secretary General of the Commonwealth, Emeka Anyaoku, at the public presentation of the book, “Reforming the Unreformable: Lessons from Nigeria,” written by the Minister of Finance and Coordinating Minister for the Economy, Ngozi Okonjo-Iweala, gave a similar warning that the high recurrent expenditure by the Federal Government was detrimental to the country’s development aspirations.

Speaking at the presentation of the World Economic Outlook in Abuja, Senior Resident Representative of the Fund in Nigeria, Scott Rogers, said despite the current impressive performance of the country’s economy in gross domestic products terms, caution was necessary in view of the growing uncertainty in the global economic environment.

He said it is important for Nigeria to take full advantage of the current growth to strengthen her fiscal position by saving for the future through appropriate policies, pointing out that there are no assurances of early global economic recovery in the horizon.

“The global economic outlook remains uncertain,” Mr. Rogers said.  “The global context has continued to witness slowing growth, mostly marked in the advanced economies.  The U.S. housing prices remain depressed, and that nation’s weak economy is impacting negatively on many other countries of the world, because the U.S. is an export destination of many countries of the world.

“The US economy is recovery but the recovery is still weak. If the world economy remains weak, it will continue to affect countries of the world, especially those with strong ties with the U.S. and the Euro area, which could actually go into recession.  Export growth in Sub-Sahara Africa has remained weak due to the weakening economies of the advanced countries”, he stated.

The IMF Chief noted that the situation could worsen if by next January, the U.S. President, Barack Obama, fails to reach a deal with the Congress to raise the deficit ceiling, adding that “that will mean raise in tax rates and cut in government expenditure across board which could further weaken the growth or even throw the economy into recession”.

According to him, the Nigerian economy risk being saddled with the negative impact of lower crude oil prices due to weak global economy, adding that in view of this likely negative oil price trend, a high oil price benchmark for the 2013 budget as being proposed by the National Assembly could hurt the economy.

On the way out of the fiscal challenge, Mr. Rogers said there was need for the nation to generate fiscal surplus, while oil prices are high and use it to build the nation’s reserves, rather than drawing down the Excess Crude Account, ECA, to be spent.

“Stop spending today what is meant to be saved for tomorrow.  Make the oil price rule effective”, he said.

The IMF chief, who also reviewed the performance of the petroleum sector, disclosed that about 80 per cent of fuel consumed in neighbouring Benin Republic is smuggled from Nigeria.

He said the illegal trade has  for over two decades continued to boom due to the attraction of high profit on the sale of the commodity in that country and other neighbouring countries because Nigeria’s petroleum products prices are the cheapest in the region.

He attributed the non-competitive pricing of petroleum products between the country and neighbouring countries in the West African sub-region to the fuel subsidy regime, which successive administrations in the country  has sustained to the country’s national disadvantage.

“About 80 per cent of PMS (premium motor spirit) consumed in Benin is from Nigeria.  Nigeria’s oil price is the lowest in the region.  This has been going on for many years and not a new phenomenon.  It will continue.

“As long as Nigeria’s prices are far below prices in other countries around her, she will always have products smuggling.  Wouldn’t you like to have efficient refineries?  Wouldn’t you like to see the queues go away and the funds spent on petroleum subsidy to be redeployed to other critical sectors? Wouldn’t you like to have better-funded educational sector? Wouldn’t you like a better health sector? Better transport system?” Mr. Rogers wondered.

He said from the analysis of Nigeria’s oil reserves in comparison with her over 160 million population, the country’s wealth is not as much as some people think, adding that Nigerians have  a choice to make for themselves on the challenge of producing for other economies to enjoy at a great risk to their socio-economic well being by ensuring that they promote policies that would help promote economic growth.