The Role of IMF and Structural Adjustment in Nigeria

Chapter One

1.1 Introduction

Nigeria with a population about 120 million is Africa most populous country and the continent’s third largest economy. Oil dominates the economy, accounting for about 80 percent of federal government revenues and 95 percent of foreign exchange earnings. With a continuously declining per capital income comparatively unfavorable social indicators, Nigeria is one of the poorest oil producing countries.

Since its independence in 1960, the country has undergone major political and economic changes. It has attempted to forge a unified nation out of diverse regional, ethnic and religious groups through a federal structure of government, whose leadership has changed no less than eleven times, mostly through military coups.

During the 1970s Nigeria evolved from a poor agricultural economy into relatively rich oil dominated one.

The economic policy orientation during 1970s left the country ill prepared for the eventual collapse of oil prices in the first half of 1980s. Public investment was concentrated in costly and often inappropriate infrastructure projects with questionable rates of return and sizeable recurrent cost implications, while the agricultural sector was largely neglected. Nigeria industrial policy was inward-looking, with a heavy emphasis on protection and government control which bread an uncompetitive manufacturing sector. Nevertheless, Nigeria economy has remained dominant in Africa.

To reverse the worsening economic fortunes in terms of declining growth, increasing unemployment a galloping, inflation, high incidence of poverty worsening balance of payment conditions debilitating debt burden and increasing unsustainable fiscal deficits among others, government embarked on austerely measures 1982. Arising from the minimal an extensive structural adjustment programme was put in place in 1986 with emphasis on expenditure switching policies as well as using the private sectors as the engine of growth of the economy via commercialization and privatization of government owned enterprise. Though some benefits where achieved at the initial stage, such benefits could not trickle down the poor. Rather the incidence of poverty keeps on increasing as such, resistance camp up from many stakeholders, particularly the civil servant, labor unions and organized private sectors as the engine of growth the economy.

1.2 International Monetary Fund

The International Monetary Fund (IMF) Is an organization of 190 countries, working to foster global monetary cooperation, secure financial stability. Facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Created in 1945, the IMF is governed by accountable to the 190 countries that make up its near global memebership.

The IMF’s primary purpose is to ensure the stability of the international monetary system.

The system of exchange rates and international payment that enables countries (and their citizen) to transact with each other. The fund mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability. For instance IMF assisted 76 countries during the pandemic.

To give confidence to members by making the general resource of the IMF temporarily available to them under adequate safeguards thus providing them with opportunity to correct maladjustment in their balance of payment without resorting measuring destructive of national or international prosperity and.

To shorten the duration and lessen the degree of disequilibrium in the international.

1.3 Structural adjustment

What is structural adjustment?

Structural adjustment programs (SAPs) consist of loan (structural adjustment loan). (Sals) provided by the international money fund (IMF) and World Bank (WB) to countries that experience economic crises.

Their purpose is to adjust the country’s economic structure, improve international competitiveness, and restore its balance of payment.

The IMF and World Bank (two Breton woods institutions) require borrowing countries to implement certain policies in order to obtaithen new loans or to lower interest rates on existing ones). These policies are typically contrived around increased privatization. Liberalizing trade and foreign investment and balancing government deficit. The conditionally causes attaches to the loans have been criticized because of their effects on the social sector.

SAPS are created with the state goals of reducing the borrowing country fiscal imbalances in the short and medium term growth. By requiring programs and policy, SAPS are supposedly intended to balance the government budget, reduce inflation and stimulate economic growth.

The liberalization of trade, privatization and the reduction of barriers to foreign capital would allow for increased investment production and trade, boosting the recipient’s economy.

Countries that fail to enact these programmes maybe subject to severe fiscal discipline.

Critics argue that the financial threats to poor countries amount to blackmail and that poor nations have no choice but to comply.

Chapter Two

2.1 Roles of IMF and Structural Adjustment

One of the responsibilities of the international monetary fund in promoting international monetary cooperation is the provision of financial support to the adjustment program of countries suffering external payments difficulties. The IMF’s loans are not specific development projects but represent general balance of payments financing.

Resources are provided in support of macroeconomic adjustment and structural reform programs under stand by arrangements generally covering one or two years, and the IMF support comprehensive macroeconomic and structural adjustment program under three year extended arrangements (which under certain circumstances can be lengthened to a fourth year). The rate of interest on these resources is market related, the repayment period is generally three to five years for resources borrowed under standby arrangement up to ten years for extended arrangements.

In addition under the Structural Adjustment Facility and Enhanced Structural Adjustment Facility (SAF/ESAF). The IMF administers concessional loans to low-income developing countries is support of three year structural adjustment programs. (Under the ESAF, arrangements can be extended by a fourth year). The rate of change on these loans is 0.5 percent a year and the repayment periods is up to ten years.

The IMF also makes resources available to members under the compensatory and Contingency Financing acility (CFF) to compensate for temporary shortfalls in exports of goods and services to help members face unexpected changes in the external economic environment and on a temporary basis in the wake of the recent middle East crisis, to compensate for temporary increase in oil import costs. Finally, since 1989, the IMF has provided financial support to countries agreeing to debt reduction operations with commercial bank creditors, in association with standby and extended arrangements.

As more countries as adopting macroeconomic adjustment and structural reform programs, the IMF is involved in leading to a record number of countries. At present, the IMF has arrangements with almost 50 members countries (about one third of the total membership) representing commitments of about $22 billion. In additions on adjustment programs that could be supported by the IMF are being held with 15-20 other countries total outstanding IMF credit now amount to about $34 billion.

In addition to supporting adjustment through the provision financing, the IMF aims to improve the working of the international monetary system through its surveillance function. This involves regular visits by IMF staff to all member countries for discussion of economic policy with government officials usually on annual basis. This is followed by a staff report on economic conditions in the country and a full discussion of the member country’s economic policy in IMF Executive Board.

The IMF also examines how economic policies in individual countries interact to affect the smooth functioning of the world economy. This analysis forms parts of the world economic outlook exercise which is conducted twice a year. In addition, for meeting of the finance ministers and other officials of the seven largest industrial countries (the group of seven), the IMF analyze the progress being made in reducing economic imbalances among the industrial countries and suggests policy adaptations that may required.

Finally, the IMF helps member countries improve policy design through the provision of technical assistance. Earlier in the IMFs history, such advice was limited to banking and monetary matters.

2.2 Objectives of SAP in Nigeria

The restructuring and diversification of the economy productive base in order to reduce the country’s dependency on the imports and oil sector.

Promotion of the economic growth without inflation.

Reduction of inflation to 9% yearly.

Achievement of a GDP growth of 3.4 in the n)ext two years.

2.3 The Role of Structural Adjustment Program during Ibrahim Babangida Regime

In this section, we attempt to provide a general historical background to the SAP in Nigeria. The Nigeria economy has been experiencing a very profound crisis since the early 1980s. The crisis manifests itself in the unprecedented level of mass unemployment, declining real wages, spiraling inflation, growing capacity underutilization and increased indebtedness. These have led to a catastrophic fall in the already miserable living conditions of the majority of the working classes and other poor sections of the society. Of course the nature and dimension of the crisis, and the various policies preferred by successive regime to attenuate it have varied.

The collapse of oil price in 1978 and early 1980s showed the weakness of the economy.

The industries experiences severe shortage of raw materials, spare parts and other input. The external from #2 billion in 1979 to #12.8 billion in 1981 to #14.7 in 1982 (nec 1983).

The role of SAP in manufacturing sector. The SAP itself is anchored on the premised that the manufacturing sector needs a fundamental restructuring to correct the distortions.

From 1973 to 1985 there was negative growth in Nigeria with the real GDP growth rate averaging 15% per year (Adebiyi 2001). This scenario gave Nigeria impetus to adopt SAP in 1986. In the pre SAP era, the economy was financially represent repressed however; the adoption of SAP under the General Ibrahim Babangida signaled the end of financial repressive policies in Nigeria. SAP brought forth a series of economic reform aimed at fostering sustainable economic growth.

Ogbonna (2012) evaluated the result of SAP on the Nigeria economy. The period under review was divided into Pre. SAP 1960-1985 during SAP 1986-2008). Applying the error correction data.

For the first couple of years SAP did its job Nigeria economy returned to the right track agriculture flourished once again, and the country became less dependent on imported goods in the years that SAP had been active. GDP rose to the 5% mark. Agricultural and related industries as well as textile industry particularly benefited from the new policy.

Nevertheless, SAP was not benefitting everyone while the rural classes and farmers rose from the ashes, Nigerian middles class and civil servants dropped back down. In order to keep the fiscal policy in check government reduced expenditures on the social infrastructure. This meant that people’s wages grew much slower and their living standards worsened.

SAP played it roles but it was incredibly slow. The per capital income was rising 2% per year. This meant that it would take at least thirty years for the economy to reach its 1980 level.

Naira depreciated up to 80% against U.S dollar. The inflation level barely improved. At the same time, people started to notice the corruption of their government.

Chapter Three

Conclusion

In conclusion IMF and Structural adjustment in Nigeria played a different roles with various sectors like the agricultural sectors performed better while some manufactured firms suffered because production, employment and capacity utilization rates remained very low with insignificant levels of domestic sourcing of raw material.

The SAP is far from enhancing industrial self reliance, it in fact diminishes the prospect of self sustaining, resourced based industrialization.

Reference

Abba A al 1985, Nigeria Economic Crisis causes and Solution. Gaskiya corporation, zaria.

Bello Walden, 2003. Deglobalization Ideas for a New World Economy (Global issues). Zed Books. P. 43