Nigeria's Economic Ills Linked to Inconsistent Policy Implementation

• Author: Christine Hellemaa
• Position: IMF External Relations Department
• Pages: 88-89

Page 88

Nigeria's economic policy stance over the past two decades has been characterized by resistance to comprehensive structural adjustment. Much of the country's economic troubles-including debasement of its currency, high inflation, crippled domestic industry, high interest rates, high unemployment, and the spread of poverty-resulted from a combination of erratic macroeconomic policies, weak management of the country's rich natural resources, and inefficient public investments. For a brief period (1986-90), the government vigorously pursued a structural adjustment program, which brought about substantial economic growth and employment expansion. The program went off track by 1991, however, as the government abandoned its efforts to tighten financial policies in the face of mounting political pressures and the temporary surge in world oil prices. In 1995, the government initiated a partial deregulation of the economy, which yielded benefits on the inflation and exchange rate fronts. A new IMF Occasional Paper, Nigeria: Experience with Structural Adjustment, 1986-94, by Gary Moser, Scott Rogers, and Reinold van Til, analyzes the country's key economic policies and performance during 1980-94. It gives particular emphasis to the 1986-90 structural adjustment period.

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Policy Errors in the 1970s and 1980s

During the 1970s, Nigeria evolved from a poor agricultural economy into a relatively rich, oil-dominated one. Misdirected policies during this period, however, left Nigeria vulnerable. The government concentrated public investment in costly, often inappropriate, infrastructure projects with questionable rates of return; promoted inward-looking industrial policies that bred an uncompetitive manufacturing sector; and neglected the agricultural sector. Despite a dramatic rise in oil revenue, the government also failed to strengthen public finances, and expansionary financial policies contributed to an acceleration of inflation. An appreciating real effective exchange rate that followed the surge in oil prices toward the end of 1973 eroded the competitiveness of the nonoil tradable goods sector.

During the early 1980s, the collapse of world oil prices, together with a sharp decline in petroleum output resulting from a lowering of Nigeria's quota in OPEC (Organization of Petroleum Exporting Countries), severely weakened the country's precarious external and fiscal...