NIGERIA'S WEAK FISCAL POSITION REFLECTS INADEQUATE EXPENDITURE CONTROL - WORLD BANK

By Omoh Gabriel,  Business Editor
The World Bank Independent Evaluation group last week released it's impart assessment of the World Bank support for Nigeria during the global financial crisis. In this online interview with the group leader, Anjali Kumar, she bares her mind on the issue.

Excerpts:
How much was given to assist Nigeria during the global financial crisis?

The World Bank extended a loan of $500m for support to Nigeria during the global financial crisis

Were the funds well and properly utilized?
Nigeria faced serious fiscal issues at the onset of the crisis and the funds were given to Nigeria in the form of budgetary support to the government, for undertaking policy reforms, both in the areas of fiscal management and financial sector reform.

In terms of the content of policy reforms, there were some positive areas, however some other longer term opportunities for reform may not have been seized and overall, the program was moderately satisfactory in terms of its achievements.

In the fiscal area, while the 2009 Development Policy Credit aimed to help to maintain federal expenditures through conservative budgeting, in practice expenditures were maintained by releasing large amounts of savings from the excess crude account (stabilization fund).

The Bank program of support to the government contained no provisions for the protection of specific expenditure categories, including in the social sectors, or for re-prioritization of expenditure allocations within a tighter budget envelope.

Capital expenditure on labor-intensive projects, declined in 2009, although an increase was intended. Nigeria's weak fiscal position after the crisis may also have partly reflected insufficient measures to control expenditures afterwards.

In Nigeria the Bank's support could not help manage the budget's expansion resulting from the rebound in the price of oil after the crisis. However the program did support some important public financial management reforms - to improve cash management, upgrade public procurement regulations to the highest international standards, and improve transparency of contract awards.

While the crisis support loan did not contain the means to track the outcomes achieved, some of these reforms are being supported through a technical assistance lending operation which could help to serve this purpose.

In the financial sector, while Nigeria's banking crisis was large in scale, it largely reflected pre-existing vulnerabilities.

The Bank program supported the central bank's liquidity support policy, which had begun in September 2008 based on the information that the banks were solvent and well capitalized. However information on the banks was limited and as it turned out it was later revealed that the banks were largely insolvent and were intervened by the Central Bank, at a reported cost of over $3.9 billion.

The results of special audits, which began before the Bank's loan approval, but were not available to the Bank at the time of approval, may have suggested different policy measures. Although there was substantial prior Bank engagement in technical advice, primarily through a $900,000 grant, engagement was largely focused on the non-bank financial sector.

Lacking special audits, it is not clear that the Bank had an adequate basis of information and engagement with the banking system in Nigeria to have undertaken this part of the operation.

Was the assistance given to the Central Bank of Nigeria or to the banks?

World Bank support for all operations is extended through the channel of the Ministry of Finance.   The World Bank does not channel financial support directly to banks or to the Central Bank.

What was the form of management assistance, training or direct working relationship with the sector?

As mentioned, there was a technical assistance loan that accompanied the fast disbursing loan that provided a way to work directly with the sector in the aftermath of the crisis, in terms of fiscal management.

The Bank has also maintained a rich dialogue with the authorities in most if not all areas of the financial sector.

Which were the other countries that benefited from the assistance?

The evaluation estimates that in terms of fast disbursing loans targeted at fiscal reforms, there were loans to 48 countries over the period of the crisis. Across all sectors, the Bank extended loans to 117 countries over this period; many tied directly or indirectly to crisis needs.

IFC flows were they investment in banks, portfolio investment in real sector of the economy?

During the crisis September 2008 - November 2010, although IFC maintained a high level of net commitments to Nigeria (over $900 million), IFC's actions were defensive and it identified risks in the portfolio early on and took proactive measures to reduce its exposure to financial institutions that were not prudent in the management of risks. The actions were subsequently borne out by events.

What is your group assessment of the present situation in the Nigerian Financial services sector?

IEG's evaluation does not  cover the current situation of the Nigerian Financial services sector; it is limited only to the crisis response as such the Bank's operational divisions are the best placed to address this question.

Is the stress over in Nigeria financial sector?
The IEG report focuses on the financial stresses encountered over the period of the crisis and is not qualified to comment on the most recent situation or future outlook of Nigeria's financial sector.

Is the IEG satisfied with the outcome of WBG financial support for the sector?

IEG has rated the outcome of the loan, overall, as moderately satisfactory

Poverty is rising daily in Nigeria, is the effort of WBG in Nigeria in vain?

IEG's crisis response evaluation does not address overall poverty in Nigeria; however, it should be pointed out that the crisis support loan helped to maintain public budgetary expenditures during the crisis. This said, as the evaluation points out, more could have been done, in terms of the design of the Bank operation, to specifically protect pro-poor expenditures.