By Ugonnabo Ngwu
The International Monetary Fund, IMF, on Wednesday warned that the Nigerian economy remains vulnerable despite a gradual exit from recession.
The Bretton Woods institution based its concerns are on the ground that the witnessed economic growth is still largely driven by the by oil revenues and gains from agriculture.
In a report released in Washington DC by its Executive Board after the conclusion of Article IV Consultation with Nigeria, IMF lauded the West African country’s strong recovery in foreign exchange reserves.
The economy expanded with an estimated 1.92 per cent in the third quarter of 2017 and 0.83 per cent for the entire year, but the Fund is worried that the improvements were yet to boost non-oil, non-agricultural activity.
“The Nigerian economy is slowly exiting recession but remains vulnerable,” the Bretton Woods institution said while acknowledging that rising oil prices, new foreign exchange, forex, measures, attractive yields on government securities, and a tighter monetary policy have contributed to better FX availability, increased reserves to a four-year high, and contained inflationary pressures.
IMF also observed that economic growth in the third quarter of 2017 was positive for the second consecutive quarter, driven mainly by recovering oil production.
“However, these improvements have not yet boosted non-oil non-agricultural activity, brought inflation closer 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.”
“The directors noted, however, that important challenges remain.
While noting that growth in the non-oil, non-agricultural sector has not picked up, the directors stressed that comprehensive and coherent policy actions are urgently needed to address the vulnerabilities.
“The directors emphasised the need for a growth-friendly fiscal adjustment to reduce the ratio of interest payments to revenue, to a more sustainable level and prioritise social and infrastructure spending,” the report said.
In addition to ongoing efforts to improve tax administration, IMF said there was the need for more ambitious tax policy measures, including reforming the value added tax, increasing excises and rationalising tax incentives.
“The implementation of an automatic fuel price setting mechanism, sound cash and debt management and improved transparency in the oil sector is imperative.
“There is need to also increase monitoring of the fiscal position of state and local governments and substantially scaled-up social safety nets,” the Fund said.
The IMF commended the Central Bank of Nigeria’s tightening Monetary Policy in 2017, which they advised should continue until inflation is within the single digit target range.
According to the report, a number of the IMF Directors called for a higher monetary policy rate, a symmetric application of reserve requirements and no direct Central Bank financing of the economy.
“A few of the IMF Directors also advised the Federal Government to fast-track the confirmation of the appointments of the central bank’s board of directors and members of the monetary policy committee.
“The directors emphasised 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 and investing in infrastructure will accelerate growth in the country.
“They also advised that the government should strengthen anti-corruption and transparency initiative, while implementing the financial inclusion and gender strategies,” the report said.
- The IMF commended Nigeria on the continued improvement in the quality and availability of economic statistics and encouraged further efforts to address remaining gaps.