Ngozi’s second coming

Ngozi’s second coming
By Dapo Fafowora


Dr. Ngozi Okonjo- Iweala, a Managing Director at the World Bank, will return to Nigeria in August as the new Minister of Finance. It will be her second coming as Finance Minister. She was first appointed Minister of Finance in 2004 by ex-President Obasanjo after the resignation, on grounds of ill heath, of Adamu Ciroma. But she did not complete her term as Finance Minister. She was, instead, redeployed to the Foreign Ministry, a post that she was not familiar with and did not like. No reason was given at the time, or since, for her sudden transfer to the Foreign Ministry. It could have been due to irreconcilable differences between her and ex-President Obasanjo over economic and financial policy.
When she first arrived in the Finance Ministry in 2004, or thereabouts, the economic outlook was uncertain. Increased oil revenues had led to some recovery from the serious balance of payments difficulties that drove Nigeria to seek assistance in the 1980s from both the World Bank and the IMF. Nigeria had returned to fiscal and balance of payments equilibrium. It was beginning to pay its foreign bills. But the large foreign debt still constituted an albatross on the economy. Economic recovery was painfully slow, averaging only four per cent. Continuity in the structural adjustment policy was necessary to return public finances to full fiscal balance, essential for any meaningful and sustainable growth. Dr. Okonjo-Iweala achieved some success in this regard.
She had many critics as Finance Minister. Many thought she was too wedded in her reforms to the World Bank/IMF model. But it would be fair to acknowledge that she brought some stability to Nigeria’s public finance at the time. This is why she is being brought back into government by President Jonathan. Under her, public spending was brought under greater control. There was a massive realignment of recurrent and capital expenditure in favour of the latter. She also introduced a clear cut strategy and greater discipline on public spending, including well defined budgetary priorities and targets. Reforms in the public sector, which were intended to reduce cost of governance, led to massive and painful layoffs. The public service was cut down to size, but due to wasteful public spending the cost of governance continued to rise.
This financial orthodoxy pursued relentlessly by Mrs. Okonjo-Iweala was part of the World Bank’s financial agenda and strategy for poor countries. She applied the classic WB/IMF prescriptions mercilessly. Under her watch, international confidence in the Nigerian economy began to return gradually. Foreign investment in the economy increased significantly. The western economies, our creditors and major trading partners, were happy with the restructuring of the domestic economy and Okonjo-Iweala’s handling of it. It was what they had hoped for when she was appointed Finance Minister and she did not disappoint them. Of course, her financial and economic reforms were made easier by the surge in the oil income. This allowed the economy to regain fiscal balance and return to the path of modest growth that averaged about four per cent.
Our Western creditors were even happier when Okonjo- Iweala began tackling Nigeria’s debt problem. Through negotiations, Nigeria agreed to pay $12 billion, instead of the $18 billion which it was claimed she owed. This was considered a remarkable feat as, on the surface, Nigeria got its creditors to write off the balance of $6 billion. Ngozi was considered a financial wizard for pulling off the feat. Soon after, she returned to her job in Washington, having fallen out with ex-President Obasanjo. The debts are piling up again.
But since then, some doubts have been publicly expressed by many regarding the financial prudence of seeking to pay off our foreign debt in one fell swoop. To start with, it is argued that we may not have actually owed all of the $18 billion we were alleged to have owed our foreign debtors. Some of the alleged debts were phony. They could not really be verified. True, a foreign auditing firm was employed to verify the debts. But this firm relied mainly on debt records produced by our creditors. Local records were either incomplete or unreliable. Since we were anxious to finally resolve the debt issue, Nigeria readily accepted the report of the foreign firm regarding our total debts and agreed to pay $12 billion, with the balance of allegedly $6 billion written off.
It is questionable whether we should have agreed to pay off as much as $12 billion. Nigeria’s total GNP at the time was $4 billion per annum. So, what was paid our creditors represented three years of our total GNP. It was totally unprecedented in the history of the international financial system. This huge debt repayment left a huge gap in our investment funds and increased our financing gap. It accounts for the rapid decline in our infrastructure today. As far as is known, no other indebted country has been subjected to such a harsh treatment by its creditors. Certainly, not Brazil or Argentina, both of which owed far more than Nigeria. Contrast the way Nigeria was treated by its creditors with the way Greece, Ireland, and Spain are now being treated with kid gloves. The EU and the IMF are falling over themselves in offering financial bail outs on favourable terms to those countries to prevent them defaulting. Nigeria was never in any real danger of defaulting and owed far less than those countries.
Of course, there has since then been a change of policy and strategy in the World Bank’s approach to debt issues, particularly where poor countries are concerned. When I had lunch with her in Washington in January, 2009, in the company of Chief Emeka Anyaoku, Mrs. Okonjo-Iweala acknowledged that a comprehensive review of the debt issue had taken place in the World Bank and that poor countries could now expect to be treated less harshly. Since then, some African countries have obtained debt relief on more favourable terms than Nigeria.
When she returns as Finance Minister in August, she will find that Nigeria’s economic and financial conditions have changed. The challenges she will face this time will be vastly different from those she had to face in 2003. Deficit financing, most of it misdirected, has increased, undermining growth. Inflationary pressures are building up. But the medium-long term financial outlook appears better with the Nigerian economy projected to grow at about seven per cent from five per cent. At over $30 billion, the foreign reserves look healthy. With the political crisis in the Maghreb and Middle East, the surge in Nigeria’s oil revenue is likely to be maintained. But the economy remains very fragile. Foreign investment has reduced to a trickle. Many commercial banks are in danger of total collapse. Due to high production costs and falling demand, the manufacturing sector is in a steady decline. The small and medium scale enterprises, crucial for industrial growth, are also facing hard times due largely to difficulties in accessing bank loans for expansion and poor energy supply. Unemployment is rising at all levels. Job losses are rampart.
The biggest challenges Mrs. Ngozi-Okonjo-Iweala will face include those of re-introducing fiscal discipline in public finances, cutting the cost of government by reviewing the bloated public sector wages, particularly the jumbo pay of the legislators, realigning public spending in favour of capital rather than recurrent expenditure and introducing policy instruments that will curtail the fraud and corruption in public expenditure. She will be given a free hand to tackle these underlying but grave financial and economic challenges. But the President must set her clear targets. She will, of course, encounter stiff opposition from vested interests. Already, members of the House of Representatives have given notice that they will resist any cut in their pay. Her task is by no means easy. But she must remain undaunted and move speedily to meet these challenges headlong.

Culled from The Nation