Nigeria: Would Nigeria Take IMF Loan to Cushion Petrol and Naira Subsidy Removal?

As I was in the process of releasing this piece into the mass media,the news broke that President Tinubu has on Wednesday 12 July ,put forward a request to the House of Representatives, HoR for five hundred (N500b) billion naira as extra funds for the provision of succor for the masses undergoing what Mr President referred to as pains similar to child birth pang experienced by women who are mothers.

The sum which is to be specifically deployed in the provision of succor to the masses distressed due to the immediate consequences of the withdrawal of subsidies on both petrol and the naira policies being implemented by the incumbent administration.

The funds is expected to be deducted from the 2022 supplementary appropriation act which has a provision of N819.5 billion naira for palliatives envisaged by the predecessor administration.

It was quite a pleasant co-incidence to me because,a critical question that l had posed in the later part of this piece before the request for the approval for the allocation is: where would president Tinubu find the funds to provide the much needed cushion for his temporarily painful but ultimately economically revolutionarily positive policies?

Having searched and not being able to identify other more viable alternatives in the horizon,my answer to the question is that taking the option of the International Monetary Funds,IMF loan may hold a better promise for our beleaguered country.

That is because although Nigeria is currently distressed financially,it is endowed with the resources and potentials to thrive as a prosperous and successful country which are yet to be tapped or harnessed.

But with the self imposed reforms-removal of petrol subsidy and end of multiple exchange rates of the naira with foreign currencies which President Bola Ahmed Tinubu’s government has voluntarily embarked upon in less than 45 days of being on the saddle of leadership,Nigeria is eminently qualified to seek and obtain the IMF loan.

Having basically fulfilled all the loan conditionalities made by the IMF as far back as 1986 under the watch of then military president Gen.Ibrahim Babangida, IBB,through the sweeping reforms introduced by president Tinubu via his Tinubunomics initiative since 29 May this year, the question that comes to mind would be: is Nigeria taking the IMF loan ?

Everyone knows that our country is in dire need of revenue, and its external debt burden that is hovering around fifty trillion (N50Tn) naira added to its local debt that brings its indebtedness to an estimated eighty (N80Tn) trillion has been acknowledged as unsustainable.

And given the paucity of revenue inflow that has been compounded by an epidemic and pernicious crude oil theft (Nigeria’s main source of revenue) that has assumed an alarming dimension,the country may not have any other option than to go the way of its neighbor,Ghana which recently sought and received a loan of three ($3b) billion dollars from the International Monetary Fund,IMF.

The option of IMF loan recommends itself because it is becoming increasingly difficult for Nigeria to service her external debt due to the fact that the cost of servicing it practically consumes most of the revenue accruing into the coffers of the federal government, to the extent that our country’s debt to equity ratio is in the negative territory and the world bank reckons that our debt servicing obligations matched against our national income, is at about 96%.

In fact,by some estimates in some quarters ability a year ago is that our debt payment obligations,(all things remaining the same)would outstrip our revenue inflow in less than one year time.

Consequently,in recent times there has been very little or nothing left to apply in providing infrastructure or even somethings as little as basic remedies or palliatives for the hardship triggered by the removal of subsidy on the pump price of petrol and multiple naira exchange rates unification in the last one month of president Bola Ahmed Tinubu’s sweeping economic reforms.

For instance,the economy is in such a dire strait that it is the four hundred (N400m) that used to be pushed into the black hole otherwise known as petrol subsidy on a daily and four hundred billion (N400b ) on a monthly basis that are being targeted as the funds for the new administration to kick start the much anticipated palliatives to ameliorate the hardships currently being faced by Nigerian masses.

It may be recalled that the outgone administration of President Mohammadu Buhari had programmed for petrol subsidy regime to be over at the end of last June beyond which there was no financial provision in the 2023.

And the Nigerian National Petroleum Corporation Ltd,NNPCL had claimed that the federal government was owing it a princely sum of N2.8 trillion naira after netting off the income from crude oil sales from the cost of petrol imports.

That is despite the fact that N3.5 trillion provision was made in 2023 budget for petrol subsidy up till June which is just half of the year after N6 trillion was appropriated as subsidy for petrol in 2022.

That brings subsidy in 30 months to a mind boggling N9.5 trillion which the HoRs is determined to investigate its disbursement.

That is on top of Nigeria producing crude oil below the 1.8 million barrels a day quota from OPEC and its income from the sale of the commodity which constitutes about 79% of our country’s foreign exchange earnings (gas is 11%) and as a result earning only a paltry income in the neighborhood of $5b which when converted to the naira is approximately less than N30 trillion annually.

Meanwhile, the world bank has estimated that about $5.6b would be saved owing to subsidy removal from petrol and naira which is about half of the over $10 billion that the country used to earn annually in not too distant past.

In light of the above,despite the best efforts of tax experts,finding funds to sustain government would be like trying to squeeze water out of stone.

And even the dollar proceeds hitherto applied in defending the naira by the Central Bank of Nigeria,CBN via weekly interventions in the foreign exchange market through the sale of dollars to a vast array of bureau de change outfits that were mainly owned by government officials and fronted for by surrogates located in popular hotels,airports and strategic street corners,the bonanza is not available anymore as NNPC ltd had been mandated to use the dollar income from crude oil sales to import petrol into Nigeria and sell at subsidized rate, which has been returning a net deficit for the federation.

At some point, the weekly dollar bazaar which was carried out ostensibly to shore up the naira/ FX rate was no more available for the twin reasons of crude oil proceeds being exclusively managed by NNPCL that collects and uses the funds to import refined petroleum products into our country and which it subsidizes before it is retailed to motorists.

And it is a largesse diverted to the NNPC that has also ended with

President Tinubu’s bombshell decision/ pronouncement in his inauguration speech on 29 May: “Petrol subsidy is gone “.

As observed earlier,NNPCL in the wake of the petrol subsidy removal had claimed that our country is owing it N2.8 trillion in payment areas for subsidizing the pump price of petrol which an activity that it had been carrying out on behalf of the Federal Government of Nigeria,FGN.

What the narrative above indicates is that our crude oil revenue was not even enough to support the cost of subsidizing petrol pump price because the FGN was still owing NNPCL N2.8 trillion.

That explains why the FGN has been borrowing to pay civil servants emoluments and meeting other governmental responsibilities.

In the light of the grim fiscal and socioeconomic situations described above ,even as President Tinubu’s team that l have,for the lack of a better nomenclature branded Tinubunomics evangelists are able to come up with strategies to ease the burden of galloping inflation that has been taking a heavy toll on the masses,the initiatives would need to be cash backed.

Whence cometh the funds,Nigerians would wonder?

Definitely not the paltry $800m that the world bank offered Nigeria to help cushion the harsh effect of subsidy removal just before ex president Buhari’s tenure ended,neither is it the new $500m that has been offered to president Tinubu’s new regime by the world bank,perhaps as a demonstration of its support for the far reaching reforms so far introduced.

Clearly ,both world bank funds to be availed or already disbursed to Nigeria,even when combined are inadequate as they would not even scratch the surface of our country’s need.

So,an IMF loan beckons.

Although,President Tinubu appear to have answered the question: whence cometh the funds, clearly,N500 billion can only be a stop gap measure in light of the urgency required to do something significant to ease the pain on the masses sooner than later.

And the request for approval from HoRs to apply the N500 billion is all the more critical because it is very much needed to bridge the gap as the process of obtaining the IMF loan,in the event that government decides to toe that path,can be relatively long.

Strikingly,Nigeria had attempted to take the IMF loan under the watch of former military president,Gen Ibrahim Babangida who incidentally had toppled then head of state,Gen.Mohammadu Buhari.

And the country was under a similar yoke because the Nigerian economy was at that time literally comatose following about two years of draconian policies of then head of state Gen.Buhari wherein essential commodities such as rice,sugar, milk etc were so scarce that an agency known as Nigerian National Supply Company Ltd,NNSL was set up to purchase and ration the items to Nigerians under very stressful atmosphere reminiscent of the situation in iron clad countries like Republic of North Korea.

In my column of June 27 titled: “A Comparative Analysis Of Tinubunomics Reforms And I.M.F Conditionalities For Loan”, and also wifely published in traditional and online media platforms,l reflected on issues pertaining to our country’s contemplation on taking the IMF loan nearly forty (40) years ago,before it settled for a home grown Structural Adjustments Program, SAP, which it mismanaged with disastrous consequences.

To put things in perspective,below is a snippet: “As it may be recalled,Nigeria had also suffered the dilemma of financial insolvency in the mid 1980s (during the regime of Gen Ibrahim Babangida,IBB (1985-1993) similar to the situation currently being faced by Ghana which just took the IMF loan .

“That was what prompted the country to seek a bailout loan from the l.M.F and some reforms were demanded as pre conditions for granting the loan.

“Some of the conditionalities were very stringent and they were such that the nation balked at taking the loan facility.

“New York Times reporter , Edward A. Gargan, in his article titled : ” Nigerian Leader Wary On I.M.F Loan” published on October 8, 1985, which is nearly 38 years ago so stated the following about Nigeria and the I.M.F loan:

“As a condition for granting the loan,the I.M.F. has called for Nigeria to devalue its currency, the naira, and end the practice of subsidizing petroleum products for consumers. At the official rate of exchange, the naira is equivalent to $1.08, but on the black market here in Lagos money changers are selling nairas for as much as four to the dollar.

“Smuggling Is Rampant.

The tremendous disparity between the official and unofficial exchange rate has led to rampant smuggling and has sharply curtailed Nigeria’s ability to sell manufactured goods abroad”, he noted.

“Moreover, gasoline in Nigeria remains the cheapest in Africa – less than $1 a gallon at the official rate and about 25 cents a gallon at black market rates. Today, General Babangida refused to say whether oil subsidies would be lifted, and virtually ruled out any sharp devaluation of the nation’s currency.”, the reporter concluded.

“Is it not stunning that the damning socioeconomic atmosphere currently prevailing in Nigeria is exactly the situation that was existing nearly four decades ago and for which the l.M.F demanded that Nigerian leaders should make some tough decisions to reform as a critical pre condition for granting her a bailout loan under the watch of military president Gen. lbrahim Babangida?”, l had observed .

The reality is that it is not only gut wrenching that as a nation,we have remained on the same path of ‘Debt Avenue’ and seeking a bailout nearly forty (40) years after lBB considered it following the ouster of then Gen. Mohammadu Buhari as head of state via a palace coup detat in 1985,but it is equally damning and pathetic that today,an IMF rescue may be contemplated once again after the reign of President Buhari who was elected president in 2015 after which he succeeded in bringing Nigerian economy to its knees and thus earned the country the unenviable reputation of being the world’s poverty capital which he has handed over to President Tinubu on 29 May .

Although ,this feeling is without concrete evidence,but one gets the sense that it may be as a precursor to seeking the lMF loan that President Tinubu has been rolling out revolutionizing economic reform policies tagged Tinubunomics that is unshackling our country and making it investment friendly.

By the way,there is currently an equivalent of Tinubunomics in the United States of America,USA known as Bidenomics which as the name indicates encapsulates president Joe Biden’s economic policies including the ground breaking infrastructure act that has reflated the economy and boosted employment amongst others through the ongoing massive infrastructure refurbishment in the USA.

As evidence ,the Consumer Price Index, CPI in the world’s largest and wealthiest economy has dropped from 9.1 points to 3 from June last year to June this year.

And the drop in inflation by six (6) points between 2022 and June 2023 is owed to the Infrastructure Investments Act or Jobs Act which saw a humongous sum of $1.2 trillion being appropriated for investment in infrastructure.

The the monumental investment dubbed once-in-a-generation stake in infrastructure is encapsulated in Bidenomics driven by the Build Back Better Agenda of president Biden.

And if Bidenomics has worked in the USA as is currently evident,there is every good reason to believe that its equivalent in Nigeria – Tinubunomics would equally have a positive outcome here, if diligently pursued.

In Nigeria Tinubunomics policies range from the repeal of burdensome and archaic economic policies that had shackled our country thus putting long suffering Nigerians literarily in economic manacles via the erstwhile funds guzzling petrol subsidy,operation of multiple naira exchange rate with dollar which is another type of subsidy and the subsidy on electricity production and distribution arising from the fact that the activity was on the Exclusive List,meaning that hitherto ,only the federal government could provide electricity service.

It is situation which the signing into law of Electricity Act 2023 by President Tinubu has changed for the better basically because the policy has thrown open the investment space in electricity services to the private sector for participation.

Apart from the earlier referenced Electricity Act 2023 and the Freedom of Data Act that would unleash the potentials of information technology which has been elevated to the level of Artificial Intelligence,AI being leveraged in the advanced society to enhance all spheres of life,there is also the passage of four (4) Executive Orders that have reversed some anti business laws such as new tariffs on vehicles imported into Nigeria and 5% Value Added Tax,VAT on telecoms services as well as similar sundry taxes that were stifling businesses.

It may be recalled that the aforementioned laws that are unfriendly to business had gotten hastily passed by the immediate past regime before its exit on 29 May.

The four (4) executive orders that are business friendly appear to be in response to the organized private sector which has cried out to President Tinubu for forbearance.

And as if it to cap the myriads of policy decisions that has so far been taken by President Tinubu aimed at pulling our country out of the abyss of debt and the hole of despondency into which more citizens of our country numbering up to 130 million of 200 million have descended, the president has also set up a tax advisory council with PwC team lead for West Africa ,Taiwo Oyedele as chairman.

The mandate of the council comprising of other eminent tax experts is to seek ways and means of optimally harnessing in a win-win manner the untapped tax resources in our country presently not captured by the existing system.

That is with a view to enabling the administration carry out the onerous task of pulling out our country from the economic doldrums in which it is currently wallowing as a consequence of eight (8) years of monumental sociopolitical and economic mismanagement by the predecessor government.

It is undeniable that it is a consequence of the unmitigated disastrous socioeconomic and political leadership of our country by the outgone regime that Nigerian masses are being characterized as multi dimensionally poor people.

That is even as an additional four million,one hundred thousand (4.1m) are adjudged by the world bank as having joined the ranks of the indigent,since the withdrawal of subsidies on petrol and the naira exchange rate unification on 29 May when President Tinubu mounted the throne of leadership in Aso Rock Villa .

With the threat of an additional seven million (7m) joining in the inglorious poverty club,which is a figure that the world bank is projecting would likely be the aftermath of the removal of subsidies on petrol and naira by this year end,if palliatives are not rolled out to cushion the harsh effects of the policies aimed at preventing our country from falling into a looming debt trap, it is not an understatement to emphasize that there is an urgent need to make haste in providing buffers.

That is probably what justifies and is driving President Tinubu’s request for N500 billion from the supplementary appropriation act 2022 currently before HoRs, but which the Nigerian Labor Congress, NLC is kicking against because it believes it is inadequate to support the 300% salary increase that it is demanding.

After breaking the somewhat forty (40) years jinx of operating an economy that has been bearing the debilitating burden of petrol and naira subsidy which the multilateral and international financial institutions-World Bank,IMF and even investment bank JP Morgan as well as other multilateral financial organizations have been demanding that Nigeria should remove to free up the economy via major policy reforms as far back as president Buhari’s first coming as military dictator (1984-85),it would not surprise me if the aforementioned global financial agencies are already wooing Nigeria with loan offers.

That would be more so because the ongoing reforms have been voluntary as opposed to being imposed.

As such ,despite Nigeria’s estimated N50 trillion external loan exposure,she may be able to obtain international loans on favorable terms simply because the country with its humongous potentials(population in excess of 200m and the largest in Africa) with a significant and reasonable purchasing power as well as virile middle class comprising of 60% youth demographics that are very creative,Nigeria is currently the toast of the investors globe wide.