August 2, 2017
By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-Global lender, the International Monetary Fund (IMF) said on Tuesday Nigeria’s economic backdrop remains challenging, despite some signs of relief in the first half (H1) of 2017.
According to the staff team led by Amine Mati, Nigeria’s economic activity contracted in the first quarter of the year by 0.6 percent, mainly as maintenance stoppages reduced oil production.
The IMF said following four quarters of negative growth, the non-oil economy grew by 0.6 percent (year-on-year), on the back of a rebound in manufacturing and continued strong performance in agriculture. “Various indicators suggest an uptick in activity in the second quarter of the year. Helped by favorable base effects, headline inflation decreased to 16.1 percent in June 2017, but remains high despite tight liquidity conditions,” the Fund noted.
The global financial institution reports that preliminary data for the first half of the year indicate significant revenue shortfalls, with the interest-payments to revenue ratio remaining high (40 percent at end-June) and projected to increase further under current policies.
Also, high domestic bond yields and tight liquidity continue to crowd out private sector credit. “Given Nigeria’s low growth environment and the banking system’s exposure to the oil and gas sector, non-performing loans increased from 6 percent in 2015 to 15 percent in March 2017 (8 percent after excluding the four undercapitalized banks),” the IMF added.
It noted that despite these challenges, Nigeria’s government is keen on implementing a number of important measures. “The Economic Recovery and Growth Plan (ERGP) are driving the diversification strategy, and security in the Niger Delta improved through strengthened engagement,” the Fund affirmed.
According to the global lender, the new Investor and Exporter FX window has provided impetus to portfolio inflows, helped increase reserves above $30 billion, and contributed to reducing the parallel market premium.
The IMF further affirmed that important steps have also been taken in implementing the power sector recovery plan, introducing a voluntary income and asset declaration program and moving forward the 60-day national action plan to improve the business environment.
“Progress is also ongoing within the oil and energy sector through implementation of a new funding mechanism for cash calls,” the IMF said.
Despite these, the IMF noted that near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated. “At 0.8 percent, growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty. Concerns about delays in policy implementation, a reversal of favorable external market conditions, possible shortfalls in agricultural and oil production, additional fiscal pressures, continued market segmentation in a foreign exchange market that remains dependent on central bank interventions, and banking system fragilities represent the main risks to the outlook,” the Fund noted.
It advised that Nigerian authorities should as a matter of urgency act on an appropriate and coherent set of policies to enhance an economic recovery.
The IMF urged Nigeria’s government to implement immediately specific priorities that will help achieve the goals of the ERGP and noted that in the near term, a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues would be needed to create space for infrastructure spending, social protection, and private sector credit.
The Fund said this should be simultaneously accompanied by a monetary policy that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural reforms. “Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy,” the IMF added.