It is a great pleasure for me to participate in this conference at this momentous time, when Nigeria has created a new opportunity for economic progress, national harmony, and democracy. Hopes are high that Nigeria will recover the momentum of development and assume once again its leadership in Africa and among developing countries worldwide.
Let me pay tribute to the head of state, General Abdulsalam Abubakar, who has done so much to bring about this unique opportunity. His determination to begin the social, political, and economic transformation has laid a cornerstone on which the incoming government and the people of Nigeria can build in the months and years ahead. President-Elect Olusegun Obasanjo faces a formidable task. He knows that democracy and economic progress go hand in hand, that they can be naturally reinforcing, but that they are fragile and need to be backed by all forces in society. We wholeheartedly offer him and your country our full support as you design and implement a strategy for guiding the economy along a new path.
Domestic and external environment
There is no mistaking the sense of hope and expectation that exists today, in Nigeria and abroad. Equally impressive is the spirit of realism that exists in the face of the enormous challenges that confront Nigeria. I need hardly remind you of the difficulties, reflected so vividly in the level of real per capita income, lower now than three decades ago; in widespread poverty and regional inequality; and in declining health and education standards. This is a historic scandal indeed. All aspects of the economy—institutions, policies, and performance—need radical improvement. This difficult task is made more challenging by an external environment that is clearly not benign.
The global economy has faced setbacks in the past two years, notably in the international financial markets. Despite some positive developments, such as the continued strength of the United States and signs of recovery in Asia, many downside pressures remain. In particular, recent oil prices were at their lowest level for a generation, and the prospects for an immediate strong recovery are not promising.
The confidence of investors on whom Nigeria will need to rely in the years ahead has been undermined by the global crisis in emerging markets, the spread of armed conflict in Africa, and, in Nigeria, concerns based on many years of weak policy and governance.
Nigeria and the IMF at a glance
IMF member since March 30, 1961.
IMF quota: SDR 1.8 billion (about $2.4 billion), or 0.84 percent of total IMF quotas.
Voting power in the IMF: 0.84 percent of total (17,782 votes).
IMF Governor: Mallam Ismaila Usman, Minister of Finance.
Alternate Governor: Paul. A. Ogwuma, Governor of the Central Bank of Nigeria.
Executive Director in the IMF: José Pedro de Morais (Angola). He also represents Angola, Botswana, Burundi, Eritrea, Ethiopia, The Gambia, Kenya, Lesotho, Liberia, Malawi, Mozambique, Namibia, Sierra Leone, South Africa, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe.
Exchange rate arrangements: Effective January 1, 1999, the authorities abolished the official exchange rate (₦22 = US$1); all transactions now take place at market-based exchange rates in the Autonomous Foreign Exchange Market, established January 1995 (current exchange rate: ₦86 = US$1).
Although Nigeria has had three IMF Stand-By Arrangements since 1987, it has not drawn on IMF resources.
At the end of February, the IMF approved a staff-monitored program for Nigeria covering January 1-December 31, 1999, with the provision that the present transitional government recommend its continued implementation to the new government that will take office at the end of May. The objective of the staff-monitored program is to establish a track record of policy performance that could form the basis for possible discussions on a medium-term program supported by an IMF financial arrangement at a later stage.
Without good governance, countries are at greatly increased risk of economic instability and recession.
The domestic economic situation is extremely difficult. The external environment is not promising. But should we be pessimistic about Nigeria’s prospects? I believe not. I perceive at least four reasons for hope:
First, realism. A few weeks ago in the budget address, General Abubakar recognized just how great the challenges were. Second, Nigeria’s enormous potential—its people and their entrepreneurial spirit, the country’s natural resource base, and its agricultural potential—remains undiminished.
Third, the advent of a newly elected government offers a window of opportunity to begin to implement the programs and policies that will push the country along the path of recovery and development. The objectives that President-Elect Obasanjo has espoused—an open, fair, and transparent government in which the legislature and the judiciary will not be hindered in the discharge of their proper and constitutional duties—are formidable and deserve our support.
Fourth, the spirit of “Vision 2010” and the economic summit of November 1998 are impressive not only for their farsighted analysis and recommendations, but also for the active participation of the private and public sectors.
What should be done to establish sustainable, high-quality growth? Everyone—all political forces, the private sector, nongovernmental organizations, churches, and trade unions—must participate in the historic task of laying the foundation on which the Nigeria of the new century will grow and prosper for the benefit of all, particularly society’s poorest.
A strategy is needed to create an environment in which Nigerians feel secure in saving and investing in their own economy and where foreigners will feel comfortable in investing once again. Within this strategy, I see a few core elements: good governance, liberalizing the economy and integrating it with the rest of the world, and macroeconomic stabilization.
Good governance. The first element is good governance. I am referring to the integrity and soundness of the institutions of government, the administration, and the judiciary, but also of the corporate world and society at large, which should be held to equally high standards of conduct. The corruption that plagues Nigerian society is a symptom of a deep-rooted disease that you are determined to bring to an end. This formidable task means fundamental reform at all levels of the economy, society, and government. Let me suggest a few building blocks on which Nigeria can begin to construct a society characterized by good governance.
A democratically elected government. This has the support of the public to restructure social and economic institutions. It will be fully realized within the next two months.
Respect for the rule of law. This calls for a transparent legal framework and a strong, impartial judicial system that gives confidence to savers and investors that contracts are sacrosanct and will be enforced, that rights will be protected, and that property will be secure. I also support President-Elect Obasanjo’s call for an anti-corruption agency, which should be independent and be directed by a person of high repute.
A renewed emphasis on transparency and accountability in all aspects of economic life, both public and private. For the government, this means the prompt provision of accurate information about the economy and increasing transparency in its macroeconomic policy formulation. Checks and balances could be restored, for instance, by a stronger, independent office of the auditor general. Private and state corporations would have to comply with standards and codes of good practice in accounting, auditing, and corporate governance and with other legitimate demands of government, such as taxation and regulation. In return, the private sector should expect to face a level playing field.
A clear and unambiguous commitment to social equity. Opportunities for education and access to health care must be improved, and a social protection system should be built to support the most vulnerable during periods of economic stress and adjustment. Among the necessary efforts to improve the quality of public expenditure is greater scrutiny of large capital projects in the public sector. The concept of equity should also cover disparities among regions, such as those in the oil-producing areas. The different groups in society should not only receive fair treatment in the allocation of budgetary resources, but they should also be able to perceive that fair principles are used.
Our experience around the world, especially in the past two years of crisis in many emerging markets, underscores a basic point: without good governance, countries are at greatly increased risk of economic instability and recession.
Economic liberalization. The second element consists of the changes in economic structure and institutions that are needed to build a competitive and efficient economy that is open to the outside world. The private sector should be allowed to become the engine of growth through a diversification that also lessens Nigeria’s dependence on the oil sector for foreign exchange earnings and government revenues. The agenda is extensive.
Deregulation and privatization have been started, but more is needed to improve the quality of essential services, lower the costs of doing business in Nigeria, and free the energy and entrepreneurial drive of the private sector.
The trade and exchange systems must be liberalized to ensure that the private sector’s decisions are not based on distorted prices.
A sound financial sector will also be essential to Nigeria’s economic revival. Domestic financial institutions should be subject to the highest standards of governance and transparency and operate within a clearly defined framework of regulation and supervision.
All of these–particularly a robust financial system–are prerequisites for Nigeria’s fuller integration into the global economic and financial system.
Macroeconomic stabilization. The third element is to build the foundations of rapid, sustainable economic growth through firm, credible macroeconomic policies designed to establish and maintain stability. This task is made both more difficult and more crucial by the current state of the oil market. Low oil prices have cut deeply into government revenues so that, even with prudent expenditure management, the fiscal deficit has increased significantly. In these circumstances, a tight monetary policy will be central in maintaining stability and avoiding a return to high inflation, even if initially it gives rise to high interest rates.
What should be done, especially in the next few months, to build on the cornerstone that has been laid? Nigeria’s destiny lies in its own hands, and I know you all share that view. I shall not elaborate further on the agenda that lies ahead, but I can promise that the IMF is ready to work with the Nigerian authorities to design the more specific policies that will be needed. I am also confident that, once Nigeria has clearly begun to put its house in order, you will find support from the Nigerian people and from all your friends abroad.
Role of the international community. Let me direct a few words to the international community. This is a time of opportunity, a time for a New Deal. With resolute implementation of policies and the reestablish-ment of financial discipline, Nigeria has the potential to regain access to capital markets and attract new foreign direct investment. But such confidence building will take time and, for some years, will require significant external financial support. If Nigeria undertakes sustained reform by following through on the commitments it has already made in the framework of our “staff-monitored program,” this is a window of opportunity for Nigeria and for all of Africa. I invite donors and creditors to join with us in the IMF in extending new support, with as large a concessional component as possible.
It will also be necessary for Nigeria to normalize its relations with its international creditors, through the resolution of its external debt, and I anticipate that an approach to the Paris Club would be a part of the overall package. But, if discussions with the Paris Club are to succeed, then Nigeria will need to demonstrate its intention to develop a new kind of relationship with its creditors by rigorously and faithfully complying with the terms of the agreed arrangements. Although Nigeria’s debt burden is heavy, a resolution of its debt problem should be seen not as a panacea, but as an opportunity, accorded by the creditors, for Nigeria to rebuild itself. However, this opportunity will be lost unless it leads to a recovery of saving, private investment, and capital inflows.
IMF’s role. What will the IMF be able to do? We are willing to place the full range of our services and instruments at your disposal, policy advice to help design a program of economic reform, technical assistance and training to strengthen and rebuild the institutions of government, and financial assistance to reduce the severity and duration of the pain that may well lie ahead.
Already, the first steps have been taken. Just a few weeks ago, we were delighted to receive from the Nigerian authorities a memorandum describing a program of economic and financial policies that would be implemented in the coming months of the transition and that would be recommended to the incoming government. Let me clarify the nature of the program, which is perhaps less well known than many of our loan facilities.
A “staff-monitored program” is designed to establish a record of policy implementation and to signal to our Executive Board, and through it to the world at large, that Nigeria is committed to and capable of sustaining a certain policy course that the international community can and must support. The program is not associated at the beginning with financial assistance, but the IMF staff will monitor its implementation. If performance is satisfactory, we would be ready to transform it at Nigeria’s request into a multiyear loan arrangement, which would enable Nigeria to approach the Paris Club for resolution of its external debt. We will be working hard to support your efforts in this critical phase of what should become a true renaissance.
I know that neither you nor President-Elect Obasanjo harbors any illusions about the challenges in implementing the strategy on which you have embarked. But as the country takes its destiny firmly into its own hands, I have little doubt that the potential, the will, and the means exist to ensure, in President-Elect Obasanjo’s words, that “Nigeria will rise again.”
Photo Credits: Denio Zara and Padraic Hughes for the IMF, page 111.
With resolute implementation of policies and the reestablish-ment of financial discipline, Nigeria has the potential to regain access to capital markets and attract new foreign direct investment.