Nigeria must tackle structural, policy challenges to stimulate growth – IMF

…Wants CBN to stop forex intervention

Mathew Dadiya, Abuja

The International Monetary Fund (IMF) has warned that Nigeria’s medium-term outlook remains muted, with risks tilted to the downside, advising that long-standing structural and policy challenges need to be tackled more decisively to reduce vulnerabilities, raise per capita growth, and bring down poverty.

However, the IMF noted that Nigeria’s economy is recovering with real GDP increased by 1.9 per cent in 2018, up from 0.8 per cent in 2017.

This, the Fund observed was driven mostly on the back of improvements in manufacturing and services, supported by spillovers from higher oil prices, ongoing convergence in exchange rates and strides to improve the business environment.

The IMF stated this on Wednesday in a report released by its Executive Board when they concluded the Article IV consultation with Nigeria.

According to the Fund, persisting structural and policy challenges continue to constrain growth to levels below those needed to reduce vulnerabilities, lessen poverty and improve weak human development outcomes, such as in health and education.

It further noted that a large infrastructure gap, low revenue mobilisation, governance and institutional weaknesses, continued foreign exchange restrictions, and banking sector vulnerabilities are dampening long-term foreign and domestic investment as well as keeping the economy reliant on volatile oil prices and production.

The Fund, therefore, urged the Nigerian authorities to redouble their reform efforts and supported their intention to accelerate implementation of their Economic Recovery and Growth Plan.

It also emphasised the need for revenue-based consolidation to lower the ratio of interest payments to revenue and make room for priority expenditure.

While welcoming the federal Government’s tax reform plan to increase non-oil revenue, including through tax policy and administration measures, the IMF stressed the importance of strengthening domestic revenue mobilisation, including through additional excises, a comprehensive VAT reform, and elimination of tax incentives.

Securing oil revenues through reforms of state-owned enterprises and measures to improve the governance of the oil sector will also be crucial, the IMF stated.

Also, the Fund urged the Central Bank of Nigeria (CBN) to stop its direct intervention in the economy and focus on its price stability mandate.

With inflation still above the central bank target, the IMF generally considered that a tight monetary policy stance is appropriate.

They encouraged the Nigerian authorities to enhance transparency and communication and to improve the monetary policy framework, including by using more traditional methods, such as raising the monetary policy rate or cash reserve requirements.

Monetary policy focused on exchange rate stability would help contain inflation but worsen competitiveness if greater flexibility is not accommodated when needed, the Fund advised.

“High financing costs, on the back of little fiscal adjustment, would continue to constrain private sector credit, and the interest-to-revenue ratio would remain high.

“Risks are moderately tilted downwards. On the upside, oil prices could rise, prompted by global political disruptions or supply bottlenecks.

Bold reform efforts, following the election cycle, could boost confidence and investments, especially given relatively conservative baseline projections.

On the downside, additional delays in reform implementation, a persistent fall in oil prices, reduced oil production, increased security tensions, or tighter global financial market conditions could undermine growth, provoke a market sell-off, and put additional pressure on reserves and/or the exchange rate.” the IMF said.

The International Monetary Fund commended the Nigerian government for the improvements in the quality and availability of economic statistics and encouraged continued efforts to address remaining gaps, including through regular funding.

The Fund also recommended increasing funding for health and education, noting that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space.

The IMF recommended stronger coordination for more effective public debt and cash management.