LAGOS – The Managing Director, International Monetary Fund, IMF, Ms Christine Lagarde, yesterday, warned Nigerian leaders to immediately commence the process of rebuilding the nation’s depleting reserves or face an impending economic disaster that would possibly arise from another global financial crisis.
She said: “A sustained slowdown in advanced countries will dampen demand for Africa’s exports, and, together with continued financial market uncertainty, this will likely inhibit private financing flows, remittances, and concessional financing. Her comment came on the heels of mounting debt pressure in Europe, declining economic growth and unemployment in the United States of America, China and Asia generally.”
Speaking at an interactive session with private sector leaders, organised by the Federal Ministry of Finance and the Nigerian Economic Summit Group, in Lagos, Lagarde, cautioned that unless the country restores its fiscal buffers, such as shoring up its foreign reserves, oil reserves, foreign exchange rate and churning out people-friendly policies, it will not be able to withstand the shock of an economic crisis which is currently ravaging Europe and other advanced countries, with the threats of it spreading to emerging economies.
She further cautioned that the country’s growth programmes be all-inclusive and be capable of creating jobs and bringing about a revival in the real sector.
It will be recalled that Nigeria’s excess crude account dropped from $20 billion at the beginning of 2009 to $11.2 billion in 2010 and further to about $4 billion in 2011. The account has been a source of contention between state Governors and the federal government. The fund was used to beef up revenue allocation to the three tiers of government following the dwindling revenue accruing to the federation account as a result of the global economic recession that has resulted in the fall of prices of crude oil the major revenue source of the country.
Former Minister of state for Finance Mr. Remi Babalola had told the nation that “the global economic meltdown impacted on Nigeria’s excess crude savings and the external reserves, as both declined from their levels of $20.44 billion and $50.11 billion in 2009.
The amount saved from oil windfall in the country’s excess crude revenue account has been depleted and what is left will not protect the country from any financial down turn should oil price fall below the budget bench mark. The savings in the Excess crude account has been disbursed and what is left based on what the three tiers of government in the country agreed on will not be enough to make any significant impact on the budget if the prices of oil fall below the budget bench mark.
Nigeria’s growth should be all-inclusive — IMF
Largade said an all-inclusive growth is better sustained and will ensure that more people are brought into the growth equation. She pointed out that Nigeria needs to build a more inclusive society where every Nigerian would have equal access to economic and developmental opportunities.
According to her, policies need to tread a fine line between defending against the global slowdown in the near-term, while also preserving fiscal resources for investment in much-needed infrastructure that will help promote employment and growth.
She advised that government focus on restoring the fiscal buffers that served the continent and Nigeria so well during the last economic downturn, as this will help prepare the country for another economic crisis, if it eventually gets to Africa.
According to her, establishing the Sovereign Wealth Fund and emphasizing the use of oil revenues for stabilization and investment are important advancements. Pressing ahead with these reforms is particularly important given the external environment—namely, the need to rebuild fiscal buffers.
She stated further, “A sustained slowdown in advanced countries will dampen demand for Africa’s exports. And, together with continued financial market uncertainty, this will likely inhibit private financing flows, remittances, and concessional financing.
“The potential for greater volatility in commodity markets could cause further disruptions, with winners and losers within the region. The risk of a drop in world oil prices if global demand weakens is the key watch point for Nigeria.
“Faced with these risks, my main worry is that many countries do not have as much capacity to absorb shocks as they did three years ago. Added to that, the global slowdown could be more pronounced this time around.”
Lagarde lauded the economic policies of the Jonathan administration and called on Nigerians to support the programmes and policies of the government.
Don’t expect reduction in recurrent expenditure — Sanusi
Also speaking, Governor of the Central Bank of Nigeria, CBN, Mallam Sanusi Lamido, said Nigerians should not expect a reduction in recurrent expenditure in subsequent budgets unless the country undertake a review of its constitution.
Sanusi, who spoke in Lagos at a conference in which the Managing Director of the International Monetary Fund, IMF, Ms Christine Lagarde and private sectors leaders were in attendance, said the Nigerian constitution, is designed with a number of fixed costs elements which will always account for a high recurrent expenditure in the budget.
According to Sanusi, Nigerians should not clamour for a reduction in recurrent expenditure or blame the government’s economic team for this; instead, Nigerians should be asking if we have constitutionally wired ourselves to have lower cost of governance.
He noted that people should be bothered about a review of the constitution to address the issues responsible for the high recurrent expenditure.
He said, “Nigeria’s constitution provides for a bi-cameral legislature, 36 states with each of the states having a national assembly and 778 local government areas. The constitution also provides for a minister from each of the 36 states and many others. All these have put a certain fixed cost element on the country’s expenditure profile. “Until the constitution is reviewed to address these issues, Nigerians should not expect any reduction in recurrent expenditure and cost of governance.
Sanusi warned that any attempt to effect a reduction in the recurrent expenditure will result in massive retrenchment or a downward review in the salaries of public officers.
Fuel subsidy: Nigeria spends $16bn in 11 months — Sanusi
Sanusi further warned that unless Nigeria removes subsidy on petroleum products as planned,the country could be plunged into a major crisis if the country was later forced to undertake the removal by forces outside its control. Sanusi said fuel subsidy is putting enormous pressure on Nigeria’s reserves and the economy in general.
He noted that the Federal Government has spent $16 billion in the last 11 months on both the importation of fuel and subsidy to oil marketers. According to Sanusi, $8 billion was sourced by oil companies for the importation of refined petroleum products while $8 billion was used in subsidizing the products, bringing the total to N16 billion within the last 11 months.
FG Committed to reduction in recurrent expenditure — Okonjo-Iweala
However, Minister of Finance, Mrs. Ngozi Okonjo-Iweala, said the federal government has put in place measures to bring about a significant reduction in recurrent expenditure and an increase in capital expenditure in the next couple of years.
She said the government is committed to reducing the recurrent expenditure to below 70 per cent and is targeting the increase of capital expenditure by 10 percentage basis points before the end of the current administration. She called on Nigerians to support the programmes and policies of the Federal Government, saying that the government is taking the issue of implementation of its programmes seriously. She said the 2012 budget is designed to create the right fiscal conditions that will make the economy work.
“Nigerians should watch and see the results of government programmes and policies. We are plugging leakages in the system and we call for the support of every Nigerians. In the course of our activities, some people will be displaced; these people who are displaced will not give up easily, they will engage in a fight and we are fighting back,” she said.
Okonjo-Iweala said the government is targeting a significant increase in investment in Nigeria, especially in the petroleum sector; hence it is working towards re-presenting the Petroleum Industry Bill to the National Assembly. She said the Bill, which will be re-presented to the National Assembly in the next of couple of days, will address a number of the bottlenecks recorded in the first Bill.
