Nigeria needs structural and monetary
policy reforms to unlock potential according to IMF, Dec
2020
An International Monetary Fund (IMF)
staff team, led by Jesmin Rahman, has disclosed that
exchange rate and monetary policy reforms, increased
revenue mobilization, and structural reforms will help
to unlock Nigeria’s growth potential. It said “the
exchange rate and monetary policy reforms will help to
unlock Nigeria’s growth potentials”.
The team conducted a virtual mission from
October 30 to November 17, 2020, in the context of the
2020 Article IV Consultation with Nigeria. This is
according to the End-of-Mission press release on the
2020 Article IV Mission to Nigeria by International
Monetary Fund (IMF) staff, posted on the IMF website
yesterday, 11th December 2020. Considering that Real GDP
is contracting, inflation is increasing, and external
vulnerabilities remain large; the team, at the
conclusion of the mission, concluded that major policy
adjustments embracing broad market reforms are needed.
Considering that Real GDP is contracting,
inflation is increasing, and external vulnerabilities
remain large; the team, at the conclusion of the
mission, concluded that major policy adjustments
embracing broad market reforms are needed.
Issues highlighted by the team:
-
The COVID-19 global pandemic is
exacting a heavy toll on the Nigerian economy.
-
Low oil prices and sharp capital
outflows have significantly increased balance of
payments (BOP) pressures and together with the
pandemic-related lockdown, have led to a large
output contraction and increased unemployment.
-
Supply shortages have pushed up
headline inflation to a 30-month high.
-
The outlook is challenging under
current policies. The Federal Government adopted a
revised budget in July, which removed fuel subsidies
and prioritized spending to make room for a support
package including higher subsidies on CBN credit
intervention facilities and regulatory forbearance
measures to ease debt service in affected sectors.
-
The authorities have also taken
courageous steps to remove costly and untargeted
subsidies in the power sector, which were largely
benefiting better-off households.
What they are suggesting:
-
Major policy adjustments embracing
broad market and exchange rate reforms are needed to
address recurrent BOP pressures and raise the
medium-term growth path.
-
A durable solution to Nigeria’s
recurrent BOP problems requires re-calibrating
exchange rate policies to reduce BOP risks, instil
market confidence and facilitate private sector
planning.
-
Significant revenue mobilization –
including through tax policy and administration
improvements is required to create space for higher
social spending and reduce fiscal risks and debt
vulnerabilities.
-
The mission noted this year’s reduced
dependence on central bank financing of the budget
and recommended its complete removal in the medium
term.
-
Further steps are needed to ensure
more consistent access to the Transparency Portal
and publication of contract details relating to
beneficiary ownership.
-
There might be a need to withdraw
liquidity or raise rates if BOP and inflationary
pressures intensify.
-
While the banking sector has been
resilient, thanks to the ample pre-crisis buffers,
the mission recommended vigilance and corrective
actions to prevent an increase in financial
stability risks arising inter alia from increasing
non-performing loans.
-
On the structural front, the approval
of the power sector recovery program financing plan,
the ratification of the African Continental Free
Trade Area (AfCFTA), and the completion of key road
projects are positive steps. Going forward, the
mission recommended decisive actions to tackle
governance weaknesses and implement regulatory and
trade-enabling reforms, including the lifting of
trade restrictions, to unlock Nigeria’s strong
growth potential.
What you should know:
-
The International Monetary Fund, IMF,
promotes international financial stability and
monetary cooperation. It also facilitates
international trade, promotes employment and
sustainable economic growth, and helps to reduce
global poverty.
-
The IMF’s primary mission is to
ensure the stability of the international monetary
system – the system of exchange rates and
international payments that enables countries and
their citizens to transact with each other.
-
The IMF End-of-Mission press releases
include statements of IMF staff teams that convey
preliminary findings after a visit to a country. The
views expressed in this statement are those of the
IMF staff and do not necessarily represent the views
of the IMF’s Executive Board. Based on the
preliminary findings of this mission, staff will
prepare a report that, subject to management
approval, will be presented to the IMF’s Executive
Board for discussion and decision.
-
Inflation is projected to remain in
double-digits and above the Central Bank of
Nigeria’s (CBN) target range.
-
Fiscal deficits are projected to
remain elevated in the medium term.
