The World Bank and our T-Pain reforms

Reading through the World Bank’s report on President Tinubu’s economic policies, I could not help but be reminded of a television interview by the late Senate President, Dr Chuba Okadigbo, during the long-drawn political drama that led to his impeachment in 2000. In the interview, Okadigbo berated his political nemesis at the time, then President […]

Reading through the World Bank’s report on President Tinubu’s economic policies, I could not help but be reminded of a television interview by the late Senate President, Dr Chuba Okadigbo, during the long-drawn political drama that led to his impeachment in 2000. In the interview, Okadigbo berated his political nemesis at the time, then President Olusegun Obasanjo, for accepting the World Bank and IMF economic doctrine hook line and sinker, and admonished the former president to let Nigeria think for itself and decide its own policy direction. Okadigbo said a lot more, but I will return to this shortly. For now, it is worth looking at the World Bank’s latest Nigeria Development Update in detail.

In summary, the report, titled “Staying the Course: Progress Amid Pressing Challenges” holds that the federal government’s key policies—fuel subsidy removal, naira devaluation, CBN’s monetary policy, and some tax and fiscal reforms—are impacting positively on the Nigerian economy in at least five areas. Therefore, the report says, there is a need for the government to deepen the “reforms” to enable Nigeria to reap the full benefits of these policies. These policies, the report says, have “sharply increased” the federal government’s revenues from 5.5 per cent  of GDP in the first half of 2023 (H1 2023) to 8.7 per  GDP for H1 2024, a significant increase of 3.2 per cent of GDP in revenues accruing to the government. These policies have also helped to rein in spiralling inflation, which fell for the first time in many months to 32.2 per cent  in August this year. Third, the government’s deficit financing through Ways and Means has now all but ended, with the fiscal deficit narrowing to 4.4 per cent in H1 2024, from 6.2 per cent  of GDP in H1 2023, thereby improving the country’s debt situation as against previous years.

Moreover, the report notes, Nigeria’s external reserves have risen from $32.9 billion at the end of 2023 to more than $38.5 billion by early this month (October 2024). All of these, according to the report, have meant that economic growth has remained resilient, if still precarious, with the real GDP growing to 2.9 per cent  in the first half of 2024, slightly higher (by 0.5%) than in H1 2023, before the reforms took effect. To the extent that a two-paragraph summary of a 66-page report can allow, these are the key “gains” to the economy from the government’s “bold” reforms, in what is effectively President Tinubu’s first full year in office.

We must appreciate and thank the World Bank for giving us some evidence-based overview of the whirlwind that has been the Nigerian economy since May 2023. We can now, at least, point to some results of the government’s “T-Pain” reform agenda in facts and figures, however briefly these are recounted here or in the report. Still, we must look at the report and engage with it with our own minds.

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First, the World Bank appears to have been rather liberal with the interpretation of its data, in some instances, quite troublingly so. For example, the report attributes the slight fall in the inflation rate in August directly to the CBN’s punishing squeezing of the monetary policy rate, but without establishing the causal link between the two. The CBN has been hiking the

monetary policy rate (MPR)—in effect, interest rates—continually for nearly three straight years, during which inflation still continued to rise. There is little reason, therefore, to suppose that tightening the MPR to 27.25 per cent  did the magic of reducing inflation in August this year, after all, inflation has been on an upward trend again since September and might continue to rise to the end of the year, given the latest increases and volatility in fuel prices.

It took four years under the Buhari government for inflation to rise from 11.40 per cent  in 2019 to 22.2 per cent  in April 2023. By contrast, it has taken the Tinubu government less than 18 months for inflation to rise by almost the same percentage points to 32.7 per cent in September 2024. The key difference between the two is the current government’s subsidy removal policy, which effectively removed the guardrails of price stability in this country, perhaps, forever. Petrol prices have jumped four times since May 29, 2023, reaching today’s historic high of N1,150—the amount I bought last week in Abuja—from just N195 less than 18 months ago. Therefore, as long as petrol prices remain this volatile and vulnerable to even the slightest external economic conditions, Nigeria’s inflation rate will probably not fall below the current levels of above 30 per cent any time soon, regardless of the CBN’s squeezing of the MPR.

Thus, to the extent that correlation is not causation, the World Bank cannot sanguinely claim that the government’s policies are helping to reduce inflation, just because of a fall in the rate for a single month. There are several other examples of this kind of overgeneralisation throughout the report, including the spike in external reserves, which I can guarantee will be depleted again as Nigeria approaches another election in just about two years.

Secondly, quantitative analyses of economic life are one thing, qualitative analyses of it yet another. The World Bank’s facts and figures on the government’s policies may indicate “progress” on paper, but Nigerians are experiencing things very differently from the report’s data.  You can do economics by abstracting real life into numbers and graphs, or you can do it by closely observing the lived experiences of actually existing people, after all, all facts, and all data are a product of selection. If you select a different set of data, you just might have a wholly different picture of things. As the report notes, more than 115 million Nigerians (51% of the population) now officially live in poverty, up from about 41 per cent or 89 million in 2019. How can the government’s policies be said to be working if more and more people are falling into poverty? What kind of “working” is that?

How can we say that the economy is working if people with diabetes or hypertension, in the millions in Nigeria, can no longer afford their subscription drugs? How can we say the policies are working if millions of Nigerians cannot even transport themselves to work? Or if private schools are near collapse throughout the country? What kind of “progress” are we talking about when most small businesses have seen their customer base depleted to a trickle? My point is that GDP data, cash reserves helping to oil the economy of other countries, and higher revenues to the government are not the only nor sufficient measures of good economic policy. Is there a “successful” surgery in which the patient dies?

Perhaps the most serious problem with the report lies in what it does not say. The report inadvertently compares the impacts of the government’s two major policies: fuel subsidy removal and naira devaluation. Almost all the “gains” of the reform agenda briefly mentioned above—expansion of fiscal space, significant increases in revenues and external reserves—resulted from the unification of the multiple exchange rates and consequent naira devaluation, not fuel subsidy removal which, instead, impacted most negatively on the real economy. The report shows clearly that the subsidies on the exchange rate, and the corrupt practices associated with it, were far more costly than the subsidies on petrol and that exchange rate unification alone would have improved the country’s fiscal space.

In other words, were the current government thinking for itself, as Okadigbo long admonished, it could catch two birds with one stone without inflicting T-Pain on Nigerians.