By Abdulquddus OKELE InvestAdvocate
Lagos INVESTADVOCATE)- Global financial institution, the International Monetary Fund (IMF) on Wednesday said Nigeria’s Economic growth reached 0.8 percent in 2017, driven mainly by recovering oil production, this is coming on the heels of the just concluded Article IV consultation with Nigeria.
The IMF said 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,” the Fund added.
According to the IMF, reforms under the government’s Economic Recovery and Growth Plan (ERGP) have resulted in significant strides in strengthening the business environment and steps to improve governance.
But noted 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,’ the global lender affirmed.
The IMF said 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.
The global financial institution said Nigeria’s improved outlook for oil prices is expected to provide welcome relief from pressures on external and fiscal accounts, and growth would pick up to 2.1 percent in 2018, helped by the full year impact of greater foreign exchange availability and recovering oil production.
“Renewed import growth would reduce gross reserves despite continued access to international markets. After arrears clearance in 2018, the fiscal deficit would narrow, and public debt levels would remain relatively low, but the interest payments-to-Federal Government revenue ratio would remain high,” the IMF affirmed.
The Fund says that risks are balanced; suggesting that lower oil prices and tighter external market conditions are the main downside risks. ”Domestic risks include heightened security tensions, delayed fiscal policy response, and weak implementation of structural reforms. Stress scenarios highlight sensitivity of external and public debt, particularly to oil exports and naira depreciation. Faster than expected implementation of infrastructure projects are an upside risk. A further uptick in international oil prices would provide positive spillovers into the non-oil economy,’ the IMF noted.
The global lender also confirmed Nigeria’s exit from recession and the strong recovery in foreign exchange reserves, helped by rising oil prices and new foreign exchange measures; while commending the progress in implementing the ERGP, including the start of a convergence in foreign exchange windows, tight monetary policy, improvements in tax administration, and significant strides in improving the business environment.
Despite Nigeria’s exit from recession, the IMF noted that important challenges remain, as growth in the non-oil, non-agricultural sector has not picked up; inflation remains high and sticky; unemployment is rising; and poverty is high.
According to the Fund, to address these vulnerabilities, comprehensive and coherent policy actions remain urgent.
The IMF recommended 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.
In addition to ongoing efforts to improve tax administration, the global lender underlined the need for more ambitious tax policy measures, including through reforming the value-added tax, increasing excises, and rationalizing tax incentives.
“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,” the IMF said.
Click here to download IMF staff report on Nigeria
Click here to download PDF copy of IMF’s Nigeria selected issues report