Some pundits have complained that the World Bank and the International Monetary Fund (IMF) have a penchant for speaking with two sides of the mouth.
Two months ago the two lenders were full of praise for the President Bola Ahmed Tinubu administration for the boldness and courage to initiate radical economic reforms that his predecessors treated as “no-go-areas”.
The two Breton Woods institutions noted that the Tinubu administration’s decision to withdraw petrol subsidy and unify the exchange rate of the naira were restoring foreign direct investors’ confidence to the economy.
The World Bank and IMF were not alone in their accolades for the Tinubu administration’s economic reforms. Fitch, a leading global economy rating institution, inched up its rating of Nigeria on the basis of the commendable returns from the reforms embarked upon by the Tinubu administration.
Pundits who agreed with the World Bank and IMF assessment of the Tinubu government’s reforms were disappointed last week when the two institutions blamed Tinubu for presiding over an administration that has made Nigeria the world headquarters of poverty.
Last week the World Bank and IMF argued vehemently that Tinubu’s reforms have pushed millions of Nigerians into abject poverty and that at the current rate of development, the poverty rate in Nigeria will rise by 3.6 per cent by 2027.
Ironically, the two lenders of last resort blamed the same policies that they recently acclaimed for restoring foreign direct investors’ confidence in the economy for driving 106 million Nigerians into abject poverty.
The World Bank and IMF are not presenting misleading information on the rate of poverty in Nigeria. They are either not telling lies about the cause of poverty in Nigeria. However, one aspect of the World Bank’s conclusion drawn in a statement after the Spring Meeting of the two organisations is not exactly accurate.
The Tinubu administration did not make Nigeria the world headquarters of abject poverty as suggested by the World Bank.
Nigeria snatched that inglorious toga from India on June 25, 2018. That was when an institution named World Poverty Clock announced that Nigeria had overtaken India in poverty rate. Nigeria had 87 million extreme poor people while India trailed with 73 million.
Nigeria has kept that ignoble record for almost seven years now, except for a brief period in 2022 when India returned to the reprehensible posture.
However, there are fears that the World Bank and IMF might have grossly underestimated the poverty rate in Nigeria. Pundits estimate that 140 million Nigerians (not 106 million as recorded by the World Bank) are toiling below extreme poverty line.
Besides, the Tinubu administration did not preside over a system that made Nigeria the world headquarters of abject poverty. It inherited the phenomenon from its predecessor.
Like the World Bank and IMF accurately acknowledged, the withdrawal of petrol subsidy has freed enormous financial resources for government services.
Before the terse announcement in the presidential acceptance speech on May 29, 2023, unceremoniously heralding the withdrawal of petrol subsidy, the three tiers of government were on monthly basis sharing anything between N600 billion and N700 billion from the federation account.
Now they share a minimum of N1.4 trillion. Petrol subsidy withdrawal has raised government revenue by 100 per cent. It is difficult to defend the economic hardship in the land in view of the huge sum available to the government.
Ironically, like the IMF strangely noted some weeks ago, the withdrawal of petrol subsidy has only worsened the poverty in the land as it torched off spiraling inflation.
Exchange rate unification which the World Bank unreservedly recommended as a way of strengthening the naira has turned out to be an albatross.
The Central Bank of Nigeria (CBN) failed to monitor the use of foreign exchange allocated to banks, thus giving bank managers the freedom to hoard forex and sell it at outrageous margin to bureau de change (BDC) operators who in turn fleece genuine forex users.
The profligate use of forex by banks and BDC operators led to round-tripping and speculative biddings that plunge the exchange rate of the naira to the abyss.
The disorderly retreat of the naira in the foreign exchange market has led to the loss of 60 per cent of its purchasing power in the last two years.
Like the World Bank complained about in its recent statement after the Spring Meeting in Washington DC, the poverty situation will worsen in the next two years if the situation is not reversed.
The CBN can stabilise the exchange rate of the naira if it compels banks to account for the foreign exchange allocated to them.
Nigeria and four other countries account for 50 per cent of the 560 million people toiling under extreme poverty in sub-Saharan Africa. That trend must be reversed.
Nigeria’s poverty crisis is aggravated by the absence of social security. Argentina, one of Latin America’s three leading economies, had a more grievous economic crisis in 2023 than Nigeria.
Nigeria’s inflation rate has never crossed the 40 per cent mark since the economic turbulence of the last two years. Argentina’s inflation rate was above 115 per cent at the critical point. Yet, the country’s poverty rate was manageable because it has a robust social security system that allows the unemployed to absorb the external shocks with minimum destabilisation.
Nigerians have no such economic shock absorber. When the federal government announced plans to advance cash stipends to poor families, pundits were worried that government lacked the data base to execute the project.
The federal government must set up a social security system as a matter of urgency to pre-empt the dangerous relapse into abject poverty in 2027 as predicted by the World Bank.
The despicable depreciation of the naira must be halted. The high lending rate, engendered by CBN misplaced fight against inflation, is perhaps the cheapest factor to tackle among the myriads of problems fueling inflation and worsening poverty rate.
CBN must be ordered to ease its merciless grip on lending rates.