THE International Monetary Fund (IMF), yesterday, said Nigeria is
expected to emerge from recession this year with an economic growth of 0.8
percent, but warned that
threats to recovery remained elevated, and that the
economy will not grow enough to reduce unemployment and poverty.
According to Guardian, the IMF,
therefore, advised the Federal Government to pursue a policy of fiscal
consolidation through higher non-oil revenues, to ensure stability in growth.
Nigeria slipped into a recession last year as low crude oil prices and
production slashed government revenues, caused dollar shortages and crippled
the nation’s economy. “Economic growth in Nigeria is expected to recover
slightly to 0.8 percent this year after the country slipped into its first
recession in more than two decades last year,” IMF said in the report.
The Fund said the government saw significant revenue shortfalls in the
first half of the year, with interest payments remaining as high as 40 percent
at end of June. It projected interest payments would rise further under current
economic policies. “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.
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,” IMF stated. In addition to a fiscal consolidation one
other major recommendations of the organisation after its staff team met
federal government officials to review the implementation of the present
administration’s reform programmes was that the Central Bank of Nigeria should
avoid direct funding of government. The IMF staff team led by Amine Mati
visited Nigeria from July 20-31, 2017 to discuss recent economic and financial
developments, as well as update macroeconomic projections. The Fund in a
statement, yesterday, also advised government to urgently act on coherent policies
capable of ensuring the speedy recovery of the economy. It said, “Acting on an
appropriate and coherent set of policies to enhance an economic recovery
remains urgent. This includes implementing immediately specific priorities that
will help achieve the goals of the ERGP. “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. 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 global financial body observed
that the nation’s economy was still facing challenges that required concerted
efforts by the federal government to return the economy to the path of growth.
It said “The economic backdrop remains challenging, despite some signs of
relief in the first half of 2017. Economic activity contracted in the first
quarter of the year by 0.6 percent, mainly as maintenance stoppages reduced oil
production. “However, 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. “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. “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).
“Faced with these challenges, the government has started implementing a
number of important measures. The Economic Recovery and Growth Plan (ERGP) is
driving the diversification strategy, and security in the Niger Delta improved
through strengthened engagement. 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.
“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.
“However, 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.”
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