Finance ministers from various Commonwealth countries have called for a systemic reform of the global financial architecture to enhance access to development financing for vulnerable countries.
The choice of Nigeria comes as the country insists on pushing through with the disbursement of the $800million World Bank loan to cushion the effects of fuel subsidy removal amid growing criticisms and scepticisms on modalities, the Nigerian Government is pushing .
Indeed, the government said it has opened a register of the most vulnerable in the society, who would benefit from cash transfers of N5,000 monthly per household for a period of six months.
Besides, the government said, according to a report on Sustainable Economy, it has also approached the National Assembly to approve both the loan and the social register, to commence electronic transfers of the funds once the subsidies have been removed.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, disclosed at the weekend at a press briefing on the sidelines of the International Monetary Fund IMF/World Bank Spring Meetings in Washington DC.
Ahmed, however, could not explain the modalities or criteria used in determining “the most vulnerable in the society,” which has been widely criticised to favour mostly the northern region at the expense of the south.
All that the Minister could say was that “This effort is led by the Ministry of Humanitarian Affairs, Disaster Management, and Social Development.”
“They developed that register with the support of the World Bank. The register has about 10 million households and that’s an equivalent of 50 million Nigerians,” she added.
Meantime, the ministers of the Commonwealth agreed for India to be the chair and Nigeria to be the deputy chair of the Finance Ministers Working Group for a Commonwealth Call for Reform of the Global Financial Architecture
Their collective call for reform came at the Commonwealth Finance Ministers High-Level Working Group Meeting in Washington D.C. on 14 April 2023.
At the inaugural Commonwealth Finance Ministers High-Level Working Group Meeting held on the margins of the 2023 World Bank Group and International Monetary Fund (IMF) Spring Meetings, finance ministers discussed national fiscal policies, measures for financial sustainability, eligibility criteria for development finance and potential reforms required for a more equitable financial architecture.
In their call, ministers stressed that any reforms must increase funding and consider the realities of vulnerability when allocating support to help vulnerable countries invest in resilience and achieve sustainable development.
In her opening remarks, the Commonwealth Secretary-General, the Rt Hon Patricia Scotland KC said: “Our world faces overlapping, interlinked and accelerating economic, security and environmental challenges. They entwine and accelerate to amplify existing inequalities, threatening stability, resilience and development prospects.
“The need for ambitious, systemic change has never been greater. As the Commonwealth family, representing one-third of humanity, we are joining forces to call for reform of the global financial system to deliver an architecture that is multi-dimensional, fit-for-purpose and adaptive to emerging and existing challenges, with a view to building long-term resilience and achieving sustainable development.”
She continued: “To create meaningful change, the global financial system must take into account the realities of vulnerability when allocating support to developing countries.”
In this regard, Secretary-General Scotland highlighted that the Commonwealth’s Universal Vulnerability Index provides a solid basis to better target support for those who need it the most.
Delivering a keynote address at the working group meeting, the Prime Minister of Barbados, the Hon Mia Mottley, said: “One sure thing is that the status quo is not working for us. The continued discriminatory treatment between the global north and the global south really cannot continue, especially in a poly-crisis … The time is now for action and to ensure that the global financial system is fit for purpose.”
The working group meeting also gave ministers an opportunity to focus on the urgent need to influence the global financial architecture, which is still underpinned by fiscal rules and conditions deemed unfit to meet the needs of the current global economic landscape and overlapping challenges.
Eligibility criteria for accessing concessional finance are based on sole metrics of gross national income (GNI) per capita, which mostly disregards national vulnerabilities. However, recent overlapping crises have exposed and provided evidence of countries’ susceptibility to external shocks. The traditional rules and governing conditions for access to international development finance are no longer relevant in this era of interlocked and overlapping crises.
The Commonwealth Secretariat paper entitled ‘Fiscal Policy Options for Resilient and Sustainable Development’ considers the multi-dimensional vulnerabilities and socio-economic development challenges faced by countries and recommends several fiscal and policy reforms to facilitate more resilient and sustainable development outcomes.
Speaking at the meeting, Dr Ruth Kattumuri, Senior Director of the Commonwealth Secretariat’s Economic, Youth and Sustainable Development Directorate, said:
“Collaboration among Commonwealth countries [through this group] would enable knowledge exchange, and facilitate data sharing, research and toolkits, including use of Environmental, Social and Governance (ESG) practices to monitor and accelerate progress on sustainable investing toward enabling an environmentally responsible economy and society, together with protecting our planet.”
On why the Nigerian government is acquiring the $800m loan first before seeking approval, the Minister of Finance, Ahmed said: “We needed to have this ready because when the government eventually removes the fuel subsidy, there will be an immediate transport palliative that will be provided to the most vulnerable members of our society who have been identified, registered, and now contained in our national social register.”
However, labour unions and the organised private sector (OPS) have criticised the additional borrowing, saying it is shrouded in mystery and may be another conduit for self-enrichment by government officials as have been the case with such palliatives in the past.
Whether the N5,000 cash transfer will be adequate enough, she said: “whether this is enough is an assessment that we are undertaking with the transition team. If it’s not enough, the country has to raise additional resources to be able to cover more people, extend the period or increase the amount; whichever is finally negotiated upon.”
“When the subsidy is removed, there would be additional revenue that would now accrue to the Federation account. One of the things we are working on is how to use this incremental revenue; the money belongs to the federal, state, and local governments,” she added.
Debt sustainability
Regarding Nigeria’s debt sustainability, which is also a source of concern for the IMF and World Bank, Ahmed noted that the issue does not only concern Nigeria alone, but other debtor nations.
Nevertheless, she believes something will be worked out based on discussions among debtor nations, creditors, credit rating agencies and the multilateral development banks.
She continued: “Debt was one of the main things that were discussed throughout the sessions at the World Bank. It is an issue for most developing countries. Today as we speak, because of high inflation globally and the continuous quantitative easing central banks are undertaking, interest rates continue to rise.
“So, if you have taken a foreign debt, your cost of debt just rises without you doing anything. So, we all have these challenges such that what you have planned in the budget and provided for just keeps changing because interest rates keep changing.
“So, it is a global problem, there hasn’t been a specific landing, but it is a lot of consideration that globally there must be some initiatives that would improve the fiscal space of countries that have high debt burden including things like debt standstill or the freezing interest rate at some point and several options that are being discussed but there has to be an agreement on what to do.”
▪︎ Additional report by Sustainable Economy