In their book ‘Why Nations Fail’, Daron Acemoglu and James A. Robinson recount how, in the late 1960s, Kofi Busia became the President of Ghana after the ousting of Kwame Nkrumah.
Despite being from the opposition, Busia continued many of Nkrumah’s policies, including price controls that benefited urban constituencies and powerful groups, while harming agriculture.
These controls kept food prices low in cities and generated government revenue but were ultimately unsustainable.
Over time, Ghana faced balance of payments crises and foreign exchange shortages.
To address these issues, on December 27, 1971, Busia signed an agreement with the IMF, which included a significant devaluation of the Ghanaian currency.
Under pressure from international institutions to implement these reforms, Busia made a risky political move, fully aware of the potential backlash.
The immediate result was widespread rioting and unrest in Accra, Ghana’s capital.
The unrest escalated, leading to Busia’s overthrow by the military, led by Lieutenant Colonel Acheampong. In response, Acheampong reversed the devaluation, undoing Busia’s agreement with the IMF.
While Busia’s decision to devalue the currency was seen as necessary for economic stability, it ultimately led to his political downfall by provoking mass protests and military intervention.
Kenya’s recent IMF fallout
The most recent fallout from the IMF’s policy recommendations was the violent protests in Kenya, which claimed at least 50 lives. President William Ruto’s attempt to introduce tax hikes was a direct result of conditions set by the IMF for new loan requests.
Although the deadly protests forced Ruto to withdraw the tax bill, many innocent young people lost their lives in violent clashes with security forces.
Karl Marx once said that history repeats itself, first as a farce and then as a tragedy. In this instance, history has repeated itself not only in Ghana, where the IMF had to bail out the country after it defaulted on its Eurobond recently but also in Nigeria, where we are witnessing a déjà vu of the catastrophic 1986 Structural Adjustment Programme (SAP).
Much like the IMF-backed SAP in 1986, the current reforms in Nigeria, also supported by the IMF, have left a bitter taste in the mouths of many, with the economy reeling in stagflation and widespread social discontent.
Structural challenges of IMF policies
The IMF itself has admitted that the reforms have not yielded the desired outcomes. In its latest economic outlook for Sub-Saharan Africa, the Fund noted that the ongoing reforms have yet to deliver meaningful results. Among the reasons cited were Nigeria’s struggles with exchange rate stability, the growing fiscal burden from mounting debt, and revenue shortages.
The IMF has downgraded its growth forecast for the country from 3.1% to 2.9%, signalling its grim assessment of the situation.
Despite this, Nigeria’s President Bola Ahmed Tinubu continues to assure the Managing Director of the IMF, Kristalina Georgieva, whom he met on the sidelines of the G20 summit in Brazil, that the reforms are producing positive results.
He has promised to continue prioritizing the welfare of the poor and vulnerable, alongside additional tax reforms. However, more than 129 million Nigerians now live below the poverty line as a result of these reforms.
The currency devaluation and rampant inflation have decimated the so-called middle class. Tinubu’s statements reflect a denial of the negative impact of the ongoing reforms, underscoring why these policies might never yield the desired outcome.
A genuine recognition of the current impact of these reforms is essential for reassessing the policies that underpin them. This re-evaluation is crucial for making necessary adjustments and gaining the public support required for meaningful change.
Even if the reforms were adjusted, I fear that IMF-backed reforms will never guarantee meaningful and sustainable growth for Nigeria. This is primarily because the IMF’s policies often fail to align with the socio-economic realities of the country. For example, the IMF often requires countries to reduce public spending and increase revenue through tax reforms.
This is exactly the path the current Nigerian government is following. By removing subsidies on petrol and electricity, and implementing tax reforms, the government has reduced public spending and increased revenue.
As of Q2 2024, the revenue available for sharing by Nigeria’s three tiers of government rose to 6.28 trillion Naira. However, there is little to show for this extra revenue across all levels of government except for more debt due to weak and corrupt institutions.
What has essentially happened is that the government has stripped away the benefits that people enjoyed in the form of petrol and electricity subsidies, but this has not translated into more investments in public services such as transportation, health, or education.
Moreover, while the IMF emphasizes market efficiency as a driver of growth, it rarely takes into account the historical structural weaknesses of political and economic institutions in African countries. Political and economic institutions in many African nations, including Nigeria, are fundamentally exclusive. In these systems, the ruling political party often controls state resources, funnelling them to its own supporters and cronies.
Consequently, the beneficiaries of any reforms, including those backed by the IMF, are typically political loyalists, a small fraction of the population.
A call for political reform
For economic reforms to have a meaningful impact on a large scale, they must be inclusive. Although the IMF believes that market reforms can lead to inclusive growth, the political institutions in Nigeria and much of Africa are not equipped to deliver such outcomes.
No matter how much more pain the Nigerian people endure due to the ongoing reforms, I fear that nothing substantial will come of it.
It may be time for international institutions like the IMF and the World Bank to shift their focus. Rather than simply advocating for economic reforms, they should devote more resources to supporting political reforms.
Strengthening electoral laws, promoting free and transparent elections, and enhancing local laws to improve the rule of law and human rights protections are essential steps in ensuring the election of competent political leadership.
Such leadership is crucial for implementing the kind of market reforms the IMF desires.
Until these political reforms are in place, the IMF is unlikely to achieve meaningful progress in Nigeria or other African nations.
The path forward requires a comprehensive approach—one that aligns economic reforms with the necessary political and institutional changes to create an environment conducive to sustainable growth. Only then can the people truly benefit from the policies that international institutions seek to promote.
