Nigeria came full circle in April 2015 when it elected Muhammudu Buhari as president, turning in mid-crisis to a former military ruler now convinced of the merits of democracy. Soon after his election, the tortuous course of the relationship Nigeria had embarked upon with the International Monetary Fund (IMF) in the 1980s, during Buhari’s first spell in charge, looked set for a reprise.
A cycle recurs roughly every ten years in Nigeria. Oil prices weaken or crash whilst the president spends recklessly to try and hold on to power. He is dislodged and a new president declares the treasury empty and holds talks with the IMF. No deal is agreed, but the World Bank and other donors offer bigger loans on less strict conditions. The oil price picks up – and it’s “business as usual” till the next crash. Successive governments have had just enough oil money in times of crisis to say “no thanks” to the IMF’s cash and policies, and to win public acclaim for standing up to it.
IMF policy prescriptions and oversight can affront national pride, especially that of Nigerians. Allowing the IMF to scrutinise the national accounts also threatens the ruling elite, which is reliant on control of the country’s resources. Nigeria’s accounting for its vast oil revenue and expenditure is at best, and by design, opaque.
Crusade against corruption
Buhari first came to power on New Year’s Eve 1983, leading a military coup to purge the corruption that had ruined the country under civilian government. Depicted as a harsh man of integrity, he set out to fight a war against “indiscipline” that would restore Nigeria to its rightful path of progress. With a mountain of unpaid debts to service and repay following the oil price decline in the early 1980s, the IMF offered financial assistance and debt rescheduling if the government agreed to a Structural Adjustment Programme (SAP). This included reducing the role of the state in the economy, cutting trade protectionism and devaluing the naira (then pegged at ₦1: US$1, today’s official rate ₦282.50: US$1).
The demands of international capitalism were anathema to Buhari, a patriotic soldier of post-colonial Africa. He honoured the nation’s debts, but refused to devalue the currency. The economy continued to deteriorate. By 1985, people were tired of penury and of his autocratic conduct. Other senior army officers, who were under suspicion for corruption, toppled the incorruptible leader in August and quickly re-opened talks with the IMF and World Bank.
The bloodless coup was led by a populist with a very different style to Buhari’s. General Ibrahim Babangida knew how to get the public on his side, but talked much less about corruption. He was soon to be nicknamed “Maradona” for doing in politics what the famous Argentine footballer did on the pitch – dribbling the ball effortlessly past a trail of bewildered opponents.
From a “home-grown” SAP to debt relief
When the oil price crashed in 1986, Babangida knew that if he was to revive the economy and stay in power, he would need external support: almost half of Nigeria’s export earnings were being used to service its foreign debt. However he also spotted how to make a SAP work in his favour. Mixing promises of elections to restore democracy with steps towards economic recovery, he conducted a national debate on whether to accept the IMF’s economic liberalisation in return for debt rescheduling and fresh credit. Having swung public opinion behind him, he turned down the offer of an IMF loan – but commenced a home-grown SAP in June 1986. The public applauded Babangida’s nationalism.
Nigeria’s SAP was funded and supervised by the World Bank, whose intrusiveness and oversight of government finances, the area most in need of reform, would – Babangida knew – be less severe and conditional than that of the IMF. Debts were rescheduled, concessional finance flowed in and reforms began: devaluation, loosening import bans, abolishing state marketing boards and licensing new banks.
As the cuts began to bite, jobs were lost, the currency continued to fall, and the slogan “SAP saps Nigerians” became familiar. Babangida blamed its failure on the World Bank and IMF, even though there was no IMF programme. He clung on to power until 1993 when, after several delays and cancellations of elections, he was forced out by another military coup.
Crucially, Nigeria’s home-grown SAP did not require the government to account for its share of oil export revenue, some of which went straight into offshore accounts “dedicated” to key projects. Structural adjustment was used to keep Babangida in power and his backers sweet. The leakage accelerated as the oil price soared in the early 1990s and debt payments eased.
General Sani Abacha, who seized power three months after Babangida gave way to an interim government, had no time for Bretton Woods-style reforms and abandoned any pretence of adherence to structural adjustment in 1994. The looting of the public purse continued and the debts piled up – but so did the oil price continue ever upwards. A reckoning was deferred.
At the end of 1996, oil prices commenced a sharp, two-year decline. After Abacha’s sudden death in 1998, the army finally went back to barracks and an elected government took office just as the oil price bottomed. Six years later, and again flush with oil money, the government agreed a deal with the Paris Club of lenders: in return for a payment of US$12.4 billion, Nigeria’s remaining US$30 billion of foreign debt was written off.
The IMF played a prominent role in broking the 2005 Paris Club deal and the following year the Fund announced that Nigeria had become the first country to benefit from its new Policy Support Instrument (PSI). This was designed for low-income countries that “may not need IMF financial assistance but that still seek close co-operation with the IMF in the preparation and endorsement of their economic policy frameworks”. With inflation under control, non-oil growth picking up and Ngozi Okonjo-Iweala, the former World Bank vice-president for Africa as finance minister, Nigeria had successfully pressed the “reset” button. During three decades of escalating debts and economic turmoil, the country had not borrowed a cent from the IMF.
In 2015, Buhari, a convert to the concept of representative government, became president for the second time. Once again, he inherited an economy in crisis. His views on the economy have evolved less than his politics. Having rejected structural adjustment policies thirty years earlier – because he believed they were morally wrong and economically flawed – it came as no surprise when he again refused to accept the IMF’s advice to devalue the naira. Convinced that devaluation would only make the country poorer, he imposed foreign exchange controls. Pressure on the naira increased as the economy headed towards recession, currency reserves plunged and investment collapsed. Prices soared and there were shortages everywhere, evoking memories of the 1980s.
“I hear your cries, share your pains”, Buhari told the nation as he signed a ₦6.06 trillion expansionary budget in May 2016. But with an overvalued exchange rate, there were no creditors to fund the budget. In mid-June, the central bank announced a policy reversal with a “managed float” of the naira. If this functions properly, the World Bank and African Development Bank are expected to provide about US$3 billion in budget support to prevent the economy sliding into recession. A similar amount is to be raised from global financial markets.
Creditors will require Nigeria to have the IMF’s backing and to adopt – or at least say it will adopt – credible economic policies; but as in the 1980s there will be no IMF programme. The government retains control of a big share of the oil and gas industry, still the nation’s only substantial export and forex earner. Concessional funding will roll in and the oil price is forecast to recover further – eventually. Provided it does, and their debts are serviced, do lenders care if oil revenues continue to be wasted? Or if Buhari’s government repeats the mistakes of its predecessors? Much has changed for the better since the days of military rule and the crackdown on government theft is music to the IMF’s ears. Sections of its recent Article 4 consultation statement echo the rhetoric of Buhari’s election campaign in 2015.
“Our own local remedy”
When it comes to solutions to Nigeria’s economic and structural ills, there is less agreement. At the spring meetings of the IMF and World Bank, Finance Minister Kemi Adeosun declared that “Nigeria is not sick and even if we are, we have our own local remedy”. In the IMF’s view “immediate fiscal adjustment is unavoidable”, whereas the 2016 budget envisages a record deficit. The IMF proposes a “depoliticized [author’s italics] budget rule that could provide… long-term sustainability and the preservation of oil wealth, while limiting the effect of oil price volatility”. To this, the response is likely to be akin to St Augustine’s promise to be good: great idea, but not just yet…