Nigeria’s Minister of Finance, Budget and National Planning, Mrs Zainab Shamsuna Ahmed is at the dusk in her five-year long service to her country, as the President Muhammadu Buhari’s administration, which she has diligently served in these challenging period, winds down in a few days.
This, however, does not stop her from reminiscing about the turbulent but exciting adventure her stint as the nation’s chief fiscal policymaker and coordinator of the economic team has turned out to be.
And she really has a whole lot of reflecting to do, having been in office when two of world’s scariest economy-damaging phenomena came calling: the COVID-19 pandemic and Russia’s surprise invasion of Ukraine.
Mrs Ahmed is a proud holder of the African Bankers’ Finance Minister of the Year Award (2020) on account of her Ministry’s effort to keep Nigeria on the path of growth in spite of the challenging circumstances through a set of difficult reforms while fruitfully engaging international partners.
A couple of years after receiving that honour, PricewaterhouseCoopers reckoned that Nigeria’s economy, which she superintended under President Buhari, could shoot up to the 14th position by 2050 on the global GDP table, if the country remained on the reform trajectory initiated by Mrs Ahmed’s Ministry.
The interview excerpted hereunder gives a great insight into some of the hard reform choices that constructed the undercarriage on which analysts and economy-watchers rate Buharinomics, Nigeria’s economic blueprint in the past eight years.
A smooth conversationalist, Mrs Ahmed glibly provides facts and figures as well as rationale behind the reform policies the Buhari administration pushed through the National Assembly to set off the realization of the development ideals enunciated, not just in the short term but in the ambitious Nigeria Agenda 2050.
She starts off with what may be Nigeria’s most controversial policy issue today: lingering worries over a definite time for the removal of Nigeria’s economy-crippling petrol subsidy, and then deftly moves on to issues in the international economic and financial arena, with particular focus on their impact on Nigeria’s, nay Sub-Saharan Africa’s economy.
As the Buhari administration which you serve winds down, perhaps the most confusing policy directive that may mar its tenure is the confusion over fuel subsidy removal which was initially billed to happen January this year, 2023, but was moved to June. Now we hear that even this new date may also be disregarded by the in-coming government. What is really the position of things?
It really would have been the ideal thing to get rid of the subsidy by the original June, 1, 2023 date, all things being equal, had we put all factors at play into consideration. For some time now, we have all known that fuel subsidy was unsustainable, since it hurts the economy. Unfortunately, we have had to resort to borrowing to buy refined petroleum products, even as we struggled with insufficient revenues to cater to the increasing needs of government in our expanding economy. It is just so unfortunate that Nigeria’s peculiar circumstances demanded that we took a new look at the removal schedule.
Recall that we had to shelve the subsidy removal policy in the terrible days of the COVID-19 pandemic, which were made even worse by spiking inflation and other distortions in the economy. The government, at that time, rightly thought that removal of the subsidy would have increased the rising cost-of-living burden on the citizens. The President did not want to contemplate a situation where policy measures further pauperize citizens. So, the decision reached in June 2022 was to extend the period by 18 months, beginning from January 2022, such that June 2023 would make an effective exit date.
The good thing is, we hear a consistent message that everybody is saying that this thing needs to go. It is not serving the majority of Nigerians. What would have been fairer or safer was for the current administration to, maybe at the beginning of the second quarter of this year, started removing the fuel subsidy, because it is more expedient if you remove it gradually, than to wait and move it all in one big swoop. So, the idea for us was that the subsidy costs should not exceed the allocated N3.23 trillion in the budget at the terminal date of June this year, whether it was achieved piece-meal or at one go.
Now that we hear that even the subsidy may continue beyond June 2023, what are we to expect?
The government agreed to form an expanded committee to look at the process for the removal, determining the exact time and the measures to provide support to the poor and the vulnerable without prejudice to ensuring that there is sufficient supply of petroleum products. The committee is currently working with representatives of the states, and it also will have to engage with Labour, without leaving out petroleum marketers.
The immediate committee comprises the Ministry of Petroleum Resources, the Nigerian National Petroleum Company (NNPC) Limited, the downstream upstream regulator, as well as the Ministry of Finance, Budget andNational Planning. So, there will be an expanded committee that it is not just a few people’s thoughts that will guide the process, but that there is sufficient consultation taking inputs from key stakeholders into the measures that need to be taken.
Are you saying fuel subsidy removal has been put on hold? You said the National Economic Council agreed that the timing for removal of the subsidy should not be now. What does that mean?
Yes, I did. What I said is that it is not going to be removed now, which means it will not be done away with before the transition to a new administration is completed. But we have two laws that have inadvertently made the provision that we should exit by June. So, if the committee, which will include the representatives of the incoming administration determines that the removal can be done by June, then the work plan will be designed to exit as at June. But if the determination is that the period should be extended, it will mean that as a country, we will have to review the Appropriation Act for example, because the 2023 budget only provides funds for the subsidy scheme upto June this year.
If we are extending beyond June, it means we have to revisit the Appropriation Act or amend the Petroleum Industry Act (PIA). These are the reasons we had to do this consultation.We would like to get inputs from others; they are going to provide us their representatives to work together with us, to have a defined process that will take us towards the removal. But one thing that is clear is that everybody agrees that the subsidy should be removed very quickly, because it is not only inefficient; but also not sustainable.
Did the National Economic Council also discuss the $800 million World Bank loan you said would be for palliatives to cushion the effects of the removal of the subsidy?
On the issue of the $800 million, again, that is a matter of discussion. The states may want to have their own designed programmes, while the Federal Government may want to do something different. So, we have to discuss how to utilise that, and that is one thing that has been presented to the National Economic Council.
What would you say about the current global economic recession forecast?
Although the projected global economic recession for 2023 is a cause for worry, we have about $34 billion in the nation’s foreign reserves.So, the projected headwinds should not pose much threat to Nigeria. From the World Bank and the International Monetary Fund (IMF) reports and other forecasts, it is almost certain that there will be a global recession; how it will affect the globe, of course, will be different from sub-region to sub-region. But clearly, there is going to be a decline in growth on a general basis. Even China is projected to see a reduction in growth, partly because of the sustained economic impact of the COVID-19 pandemic. We have seen the resurgence of COVID-19 in some developed economies, especially China, as well as the worldwide effect of the Russia-Ukraine war. The quantitative easing that is implemented by central banks across the world also contributes to high interest rate, resulting in high inflation rate, which means people’s spending power is weakened as a result. So, there are all indications that there will be a global recession.
How does Nigeria intend to weather the coming headwinds, especially with depleted foreign reserves?
Nigeria has enough foreign reserves as it did around the year 2008, when it had reserves of over $60 billion. While it is significantly lower today at $34 billion, it will be enough to sustain imports for six months. That is still a healthy stash. It means that we can withstand another global shock, if we are able to carry through a coordinated response between the monetary, fiscal as well as trade authorities. We have learnt a lot from the experience that we went through during the COVID-19 pandemic. And it showed that when we plan as one, we can actually withstand the shocks.
The last recession in Nigeria was short-lived because of the coordinated response, which had not just the government, but also the private sector contributing to the efforts, including scaling back on some categories of government spending. President Buhari has laid a solid foundation in terms of infrastructural growth even as the non-oil sector outperformed the cash cow, crude oil, by a wide margin, a testimony to the efforts of the current administration to diversify the economy.
Well, I will say that if you look at the numbers, the performance of the 2022 budget, you will see that oil and gas sector’s contribution was about 35 percent, while the non-oil sector had the largest contribution. The non-oil sector contribution outperformed the budget by a very large proportion. For example, company income tax outperformed the budget by 158 percent. So, there are some foundational measures that have been taken that have enabled the non-oil sector revenue to grow on a consistent basis and not just by a little bit but quite significantly. And secondly, the oil sector’s contribution that was minimal in 2022, is looking good to pick up in 2023.
The measures that the government has taken as well as the combined efforts of security and intelligence agencies have resulted in improved production from the oil and gas sector. And it looks like it will continue as well. Most of the fields that were previously not producing at the levels that they were supposed to produce can now produce at maximum capacity. Oil price at the international market is still at a very reasonably high level, and we are doing a lot to encourage investments in gas. So, there will be new and incremental streams that will come also from the gas sector. We must not forget that we introduced some new excise duties and taxes, the full effect of which we will see in 2023.
What can the government do to improve revenue?
We have to improve on our revenue so that the revenue-to-debt service ratio improves. Again, we have had to borrow to be able to invest in our infrastructure. When this administration started, we had an infrastructure stock of about 22 percent. We have been able to move that to 35 percent. These are investments that are required to grow the economy on a sustainable basis. Note that we have been faced with two recessions, which made us to take an expansionary stand to spend our way out of recession. Can you contemplate what would have happened had we not taken that approach?
How do you assess the issue of development in the Sub-Saharan Africa?
The hikes in interest rates and the associated US dollar appreciation in the context of policy normalization in advanced economies has led to tighter financial conditions, thereby compounding debt vulnerabilities in low-income countries (LICs). In the short-term, high energy, food, and fertilizer prices pose significant risks to living standards and social cohesion in vulnerable countries including those in sub-Saharan Africa.
Therefore, an optimal mix of monetary, financial, fiscal, and structural measures was needed to bring down inflation, while also supporting vulnerable segments of the population, and safeguarding growth recovery.
Multilateral solutions are important to support the free flow of trade and capital. We, therefore, view multilateral actions as critical to remove export and import restrictions that allow free trade of grains and fertilizer from surplus regions and associated payments, and encourage their continuation. This will help to curb extreme welfare impacts and prevent prevailing food shortages from becoming entrenched. Similarly, the removal of trade restrictions on medicines would be important to enable countries in sub-Saharan Africa to reach their COVID-19 vaccination targets. In the sub-Saharan Africa, real GDP growth was projected to slow down in 2022 amidst high food and fuel import prices, capital flow reversals, public debt vulnerabilities, rising inflation, and frequent climate shocks. The broad-based increase in inflation occasioned by higher energy, fertilizer, and food prices has generated dire consequences for the most vulnerable populations, particularly in sub-Saharan Africa.
How are soaring inflation and associated food security risks amplified by climate change?
Rising inflation and associated food security risks amplified by climate change most definitely raised the risk of social and political tensions that have already crystallised in some countries. It is really tragic that at the same time, fiscal policy space diminished amidst high debt service payments and debt sustainability concerns. In this setting, coordinated global policies – especially monetary policies – could help to manage inflation expectations and contain negative spillovers to the region.
At the country level, public finances need to be consolidated within credible medium-term fiscal frameworks and the pace of monetary tightening ought to be carefully calibrated to prevent inflation expectations de-anchoring while safeguarding growth.
Importantly, the IMF’s support through timely policy advice, surveillance, lending, and capacity development (CD), should be important to help countries address these challenges. We welcome the Managing Director’s Global Policy Agenda (GPA) and in particular, the call for the membership to urgently coordinate policies and act cooperatively to resolve shared global challenges. The GPA’s priorities on strengthening multilateral cooperation and avoiding fragmentation were well aligned with the current context outlined in the flagship reports. To this end, we supported the GPA’s emphasis on adapting the lending toolkit, tackling rising debt vulnerabilities through improved debt transparency and an effective debt resolution framework, and intensifying the fight against inflation. We also welcome IMF strategies on gender, digital money, fragile and conflict affected states, and climate change (including resilience and adaptation), given their potential to help overcome structural impediments and support recovery.
We look forward to the timely implementation of these strategies and deepening the Fund’s engagement with the membership on these emerging macro-critical issues. We welcome continued efforts to adapt the Fund’s lending toolkit to the rapidly evolving needs of the diverse membership. The newly approved Food Shock Window in the emergency financing facilities has an important role to play in helping countries tackle the food supply and food and fertilizer price crisis. We encourage the Fund to ensure that all vulnerable countries facing acute food security risks are able to access the window. Beyond the short-term, we look forward to the full operationalization of the Resilience and Sustainability Trust (RST).
We also regard the RST as an essential addition to the Fund’s lending toolkit. Going forward, we also stressed the need for intensified efforts to replenish the CCRT, PRGT subsidy (and loan) resources, and to meet the RST funding targets through the fulfillment of pledges made to re-channel Special Drawing Rights(SDRs). We support faster and effective debt resolution for all countries in need. We welcome the progress made on debt restructuring for Zambia and encourage timely delivery of relief, while positively noting work underway to resolve Ethiopia’s debt. That said, strengthening the efficiency of the G20 Common Framework remains critical, with clearly laid out timelines for key milestones essential to pave the way for timely Fund engagement.
What would you say concerning the ongoing complementary work on the Multi-Pronged Approach to debt vulnerabilities, and on promoting data and debt transparency?
Just as I have been saying, we support the ongoing complementary work on the Multi-Pronged Approach to debt vulnerabilities, and on promoting data and debt transparency, as this underpins smoother debt resolution. In addition, we welcome recent reviews of Fund policies on sovereign arrears that better reflect changes in the creditor landscape and help ensure that the IMF can continue to provide critical financial support to affected member countries, making good-faith efforts to resolve their debt burdens. We also urge the Fund to provide technical support in critical areas such as revenue and expenditure policy, governance and financial safeguards, public financial management, and debt management. With respect to revenues, we underline the need to tackle the long-standing challenge of illicit financial flows and ensuring a fair international corporate tax system that benefits developing countries.
We call for continued improvements, and implementation of the next phase of the framework for international corporate tax reform, focused on developing countries. Reforming international taxation rules and ensuring that multinational enterprises pay a fair share of tax wherever they operate remains a pressing need for developing countries. The Fund’s bilateral and multilateral surveillance remains key in helping countries to navigate both fiscal and monetary pressures simultaneously, as they work to overcome overlapping challenges, including the effects of monetary policy normalisation. We note the adverse effects of tightening global financial conditions on portfolio flows, reserve buffers, and currency movements.
We, therefore, call for the Fund support in facilitating the application of the Integrated Policy Framework (IPF) and the updated Institutional View (IV) on the Liberalisation and Management of Capital Flows as needed, to help manage volatile capital flows and moderate financial stability risks. Furthermore, we stress the need for the Fund policy guidance to formulate measures to mitigate the growing risk of sovereign debt defaults in frontier markets. In this connection, as we work to engage proactively with creditors to forestall defaults and sustain market access for Emerging and Frontier markets, we seek analysis that quantifies and illustrates to private and public creditors, the benefits of pre-emptive debt restructurings and the costs to everyone if delayed restructurings result in default. Sub-Sahara Africa continues to bear the brunt of climate shocks that threaten to reverse hard-won development gains and undermine food production. We call for global efforts, especially by the largest emitters, to meet carbon emission targets and avert catastrophic climate events in the future. We look forward to concrete proposals and commitments from the forth coming Conference of the Parties (COP28) in Dubai, United Arab Emirate(UAE).
Given limited fiscal space, it will be important to strengthen access to concessional-official and private finance for climate mitigation and adaptation, particularly in the sub-Saharan Africa region, while filling the information gap. Innovative financing instruments, including green bonds and debt-for-climate swaps, should be actively explored to help close climate financing gaps. As global emissions are not the same across regions and countries, this necessitates a fair and just climate transition which includes aligning environmental policies with labour market policies to foster re-allocation towards green job opportunities in low-emission, high unemployment regions, such as the sub-Saharan Africa. To this end, technical support will be critical to ensure that transition risks are balanced as Low-Income Countries and Emerging Markets and Developing Economies seek to comply with international climate standards while supporting growth objectives.
We reiterate our longstanding call for the IMF to prioritise staff diversity and achieve set benchmarks in a timely manner. While we continue to seek a review of the low benchmarks set for the sub-Saharan Africa, every effort must be made to meet current benchmarks for qualified staff from underrepresented regions. Particular attention should also be given to internal progression of the sub-Saharan Africa staff to senior levels in the Fund. Promotion of gender-diversity should also remain a priority. We urge the IMF to take advantage of the growing work in critical emerging four areas to accelerate achievement of diversity and inclusion benchmarks and avoid reversal of progress achieved thus far.
Concrete plans are also needed to attract, retain, and develop diverse talents that reflect the Fund’s near-universal membership. This in turn will help to re-establish the Fund’s position as a trusted advisor. Considering projected frequent and large global shocks, the adequacy of Fund resources over the medium term remains crucial to enable the IMF to play its global stability enhancing role. In this context, an adequately resourced and quota-based IMF that effectively plays its crisis management role and preserves its position at the center of the Global Financial Safety Net is critical. We, therefore, call for the timely conclusion of the 16th General Review of Quotas (GRQ) no later than December 15, 2023. In addition, we call for measures to preserve or enhance both the voice and representation of poor members. Furthermore, we echo our call for a third chair for the sub-Saharan Africa on the IMF Board, in line with the governance reforms agreed in 2010.