The visiting Managing Director of International Monetary Fund (IMF), Prof. Dominique Strauss-Kahn, has advised Nigeria to strike a balance between maintaining a healthy foreign reserves and spending on infrastructural development.
In an interview with THISDAY Board of Editors in Abuja yesterday, Strauss-Kahn said while the country has to invest in infrastructure in order to achieve its economic growth targets, the future must also be safeguarded.
�I agree that the country needs infrastructure for the economy to grow. You need to spend on power, transportation, no doubt about that. You have a lot of revenue coming from oil and gas. The question is not that you shouldn’t spend at all but you should spend in a way that would not put your future at risk by spending too much. When you have so many resources and make so much money, the mood would be to spend as much as you like. This is not helpful at all,” he said.
The IMF boss also said the recently passed 2008 budget that was blown up by the National Assembly may threaten the nation�s fiscal management.
Making this known at a workshop on �Globalisation and Revenue Mobilisation� and at a press conference to wrap up his maiden visit to Nigeria, he said one of the keys to the success of the country�s economic future was keeping up its sound fiscal policy. The workshop was attended by finance ministers from Nigeria, Ghana, Sierra Leone, The Gambia, Malawi, Rwanda, Namibia, Mozambique and Uganda.
Strauss-Kahn believes the 2008 budget, which was reviewed upward by the National assembly from N2.47 trillion to N2.898 trillion, in addition to the raising of the oil-price benchmark from $53.83 per barrel to $59 per barrel, threatens the country�s fiscal discipline.
Specifically, he said the issue of fiscal discipline is at stake with the necessity of having a high budget voted by the parliament.
He, however, said Nigeria is an example of fiscal management. �Resources from oil and other sources have been prudently managed in the last few years, in spite of challenges posed by them. African countries have to learn from Nigeria�s fiscal management,� he said.
While lamenting that Nigeria had in times past wasted the proceeds from oil boom, Strauss-Kahn noted that the adoption of an oil-based fiscal rule thereafter had ensured macroeconomic stability and prudent fiscal management.
The IMF boss, who confirmed that Africa was a majorbeneficiary of the increase in inflow of resources from rich and donor countries in the last few years, cautioned that resources from aids and capital inflow into Africa posed serious challenge to fiscal management. In 2006 alone, Africa recorded a capital inflow of $15 billion.
He also said, �The more the fiscal spending by governments, the more the risk to inflation and others.�
Later, at the press conference, Strauss-Kahn pointed out that, �in the contrast with the way that the previous oil boom has been managed, many authors have written on this explaining that the previous boom in oil prices has been wasted by Nigerian economy in the past, it is not the case for the current boom and I think that is the main symptom that the Nigerian economy has to build.�
Strauss-Kahn also pointed out that, it was �risky to rely too much or even more only on the energy sector and to build the future to be satisfied by the rate only owing to the energy sector, oil sector and more on the gas.�
He stressed the need for the Nigerian economy to be diversified, adding �it was necessary for Nigeria to have a more balanced growth. Of course, the highest possible benefits may be from the oil sector but there is the need to also develop the rest of the economy, namely agriculture and the rest of the industries.�
He said: �It is also necessary to have a balanced growth which would be very useful when the oil cycle would change, but it is also necessary because it is the only way to have jobs. The energy sector can produce a lot of value but it does not produce a lot of jobs and a country like Nigeria needs the creation of millions of jobs. This can only come from small enterprises, network of SMEs in the different industries and services and these things have to be built at the same time using the revenue from the oil sector.�
Strauss-Kahn congratulated President Yar�Adua for Nigeria�s strong macroeconomic performance under an economic programme guided by the National Economic Empowerment and development Strategy (NEEDS) and supported by the Fund�s policy support instrument (PSI).
The programme, he posited, �succeeded in balancing spending needs with macroeconomic stability and led to the introduction on Nigeria�s economic outlook, as well as the challenges ahead.�
Similarly, he welcomed Nigeria�s prudent policies and progress on her ambitious structural reform agenda, most notably the determined implantation of the oil price fiscal rule.
�These steps have been pivotal in delivering robust economic growth, lower inflation and significantly strengthened fiscal and external positions. Ongoing structural reforms are crucial to support private sector development and reduce poverty, as is investment in human development and infrastructure,� he noted.
The Fund�s boss said both himself and President Yar�Adua agreed that Nigeria�s key macroeconomic challenge is to manage the oil wealth.
Consequently, he maintained that for Nigeria to unleash its full potential as an emerging market with the ambition of achieving double-digit growth, the country needs to avoid oil-related boom-bust cycles, continue to implement prudent macroeconomic policies and strengthen bank supervision.
Earlier, the IMF boss during an interaction with some members of the House of Representatives in Abuja noted that one of the major hindrances against economic development of Africa�s economy particularly Nigeria, is the problem of fiscal responsibility.
Straus-Khan said the question of whether or not the revenue is being used to project the future is the main question at stake.
The IMF boss told the House that when he met with the economic team of the President yesterday morning, the discussions were centred on the issue of fiscal responsibility, which therefore makes it an issue that needed to be tackled to achieve meaningful results.
�I decided on my visit to Africa on behalf of the IMF because for us in the IMF, Africa is obviously one of the most important continents in the world. And Nigeria being the most populated country, but proudly one of the most important growing economies in the world, it is the future of the continent.
�I had the honour of meeting with the economic team this morning and had discussions on the issue of fiscal responsibility. So really, it is an issue,� he stressed.
Responding, Speaker of the House, Hon. Dimeji Bankole, however, told Strauss – Kahn that there are lots of politics going on in the IMF.
�You touched on something that is huge and massive. You are coming to a country that represents one in four in the sub Saharan Africa. If we solve the problem here, we have solved the problem in the west, central and eastern part of Africa.
�There is a lot of politics in IMF. You have a lot of interest in Africa. You don�t need to go far. I�m not quite sure what the IMF intends to do in this part of the world. I also do know that your interest in Africa has kind of improved the economic stability of Africa.
�That we mismanaged the oil boom of the 70s and early 90s as well is not an excuse. However, in the last four years the price of oil has risen from $30 to over $100 today. We have also been able to save some money and we have been able to increase the reserves. I think that has to do with sheer luck or common sense,� he added
Bankole, who met with the IMF boss at 12.30 pm in his conference room at the New House of Representatives complex, noted that Nigeria �had good managers in the last four years. A situation whereby we borrowed billions of dollars in the early 80s and paid about $35 billion four years ago, meant that may be our financial managers were not the best.�
He also told Strauss-Khan that it is also clear that these monies were lent to governments that had no legislature and therefore there was no way they could ask questions about the funds borrowed or lent. �And as they say absolute powers corrupts absolutely,� he stressed.
On the debt relief question, Bankole said: �Some started with debt forgiveness, which again was an insult. I know you don�t forgive debt. The fact that there are bad managers does not mean the whole world should be taking advantage of us.
�If we are the most corrupt four years ago, I wonder what could be said about Switzerland whose economy was built with funds from these so called corrupt nations. In the last four years, there were some kind of economic reforms and I realised it was actually economic restructuring. But if we were to take the required output to build the capacity of the legislature then we are the better for it.� Bankole said.
He also stressed the need for the IMF to help the House build its capacity.
Straus Khan also told the Speaker that the work of the IMF is to ensure development. �But you need to make it possible for us to know what is going on. We are willing to establish a relationship so that we will be able to help you find the best of what is coming. You need to build a healthy economy and democracy so that you can grow,� he said.
Feb282008