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By Bukola Olasanmi
The International Monetary Fund (IMF) has urged the Nigerian government to embrace fiscal adjustment that will promote economic growth and sustains development.
The Executive Board of the IMF emphasized the need for a growth‑friendly fiscal adjustment, which frontloads non‑oil revenue mobilization and rationalizes current expenditure to reduce the ratio of interest payments to revenue to a more sustainable level and create space for priority social and infrastructure spending by the Nigerian government.
These were part of the recommendations of the board at the conclusion of it its 2018, Article IV consultation with Nigeria, otherwise known as country surveillance.
Country surveillance is an ongoing process that culminates in regular (usually annual) comprehensive consultations with individual member countries, with discussions in between as needed.
The consultations are known as “Article IV consultations” because they are required by Article IV of the IMF’s Articles of Agreement. During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.
IMF staff missions also often meet with parliamentarians and representatives of businesses, labour unions, and civil society. The Directors stressed that rising banking sector risks should be contained.
They welcomed the central bank’s commitment to help increase capital buffers by stopping dividend payments by weak banks. They also called for an asset quality review to identify any potential capital need.
They noted that an enhanced risk‑based banking supervision, strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks. In addition to ongoing efforts to improve tax administration, the Directors underlined the need for more ambitious tax policy measures, including through reforming the value-added tax, increasing excises, and rationalizing tax incentives.
According to them, the implementation of an automatic fuel price setting mechanism, sound cash and debt management, improved transparency in the oil sector, increased monitoring of the fiscal position of state and local governments, and substantially scaled-up social safety nets should support the adjustment.
They also commended the central bank’s tightening bias in 2017, which should continue until inflation is within the single digit target range.
They recommended continued strengthening of the monetary policy framework and its transparency, with a number of Directors urging consideration of a higher monetary policy rate, a symmetric application of reserve requirements, and no direct central bank financing of the economy.
A few Directors urged confirmation of the appointments of the central bank’s board of directors and members of the monetary policy committee.
The Directors further commended the recent foreign exchange measures and recent efforts to strengthen external buffers to mitigate risks from capital flow reversals.
They welcomed the authorities’ commitment to unify the exchange rate and urged additional actions to remove remaining restrictions and multiple exchange rate practices.
They also emphasized that structural reform implementation should continue to lay the foundation for a diversified private sector‑led economy.
They noted that, building on recent improvements in the business environment, implementing the power sector recovery plan, investing in infrastructure, accelerating efforts to strengthen anti‑corruption and transparency initiatives, and updating and implementing the financial inclusion and gender strategies remain essential.
They welcomed the continued improvement in the quality and availability of economic statistics and encouraged further efforts to address remaining gaps. According to the country staff appraisal, the Nigerian economy is exiting recession but remains vulnerable.
New foreign exchange measures, rising oil prices, attractive yields on government securities, and a tighter monetary policy have contributed to better foreign exchange availability, increased reserves to a four-year high, and contained inflationary pressures.
It added that reforms under the government’s Economic Recovery and Growth Plan have resulted in significant strides in strengthening the business environment and steps to improve governance.
It noted however, that all these factors have not yet boosted non-oil, non-agricultural activity, brought inflation close to the target range, contained banking sector vulnerabilities, or reduced unemployment.
A higher fiscal deficit driven by weak revenue mobilization amidst still tight domestic financing conditions has raised bond yields, and crowded out private sector credit.
It also stated that higher oil prices are supporting the near-term projections, but medium-term projections indicate that growth would remain relatively flat, with continuing declines in per capita real GDP under unchanged policies.
It is expected that the next Article IV consultation with Nigeria will take place on the standard 12‑month cycle.