The International Monetary Fund has predicted that the Nigerian economy
will be out of recession this year with growth of 0.8 per cent though it says
risks to the recovery
remain high.
It, however, said the growth would not be sufficient to reduce
unemployment and poverty in the country.
It said its staff team, led by the Senior Resident Representative and
Mission Chief for Nigeria, Mr. Amine Mati, visited the country from July 20 to
31 to discuss recent economic and financial developments, update macroeconomic
projections, and review reform implementation.
After shrinking by 1.5 per cent in 2016, the nation’s economy contracted
by 0.52 per cent in the first quarter of this year, which is the fifth
consecutive quarter of contraction.
According to Mati, the economic backdrop remains challenging despite some
signs of relief in the first half of 2017.
He said following four quarters of negative growth, the non-oil economy
grew by 0.6 per cent (year-on-year) on the back of a rebound in manufacturing
and continued strong performance in agriculture.
He stated that various indicators suggested an uptick in activity in the
second quarter of the year, adding that the headline inflation, which decreased
to 16.1 per cent in June, remained high despite tight liquidity conditions.
Mati said, “Preliminary data for the first half of the year indicate
significant revenue shortfalls, with the interest-payments to revenue ratio
remaining high (40 per cent 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 six per cent in
2015 to 15 per cent in March 2017 (eight per cent after excluding the four
undercapitalised banks).”
He noted that the government had started implementing a number of
important measures, with the Economic Recovery and Growth Plan driving the
diversification strategy, and security in the Niger Delta improved through
strengthened engagement.
He said the new Investor and Exporter FX window of the Central Bank of
Nigeria had provided impetus to portfolio inflows, helped increase reserves
above $30bn, and contributed to reducing the parallel market premium.
Mati added, “However, near-term vulnerabilities and risks to economic
recovery and macroeconomic and financial stability remain elevated.
“Concerns about delays in policy implementation, a reversal of favourable
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.”
According to him, in the near term, a stronger push for front-loaded
fiscal consolidation through a sustainable increase in non-oil revenues will be
needed to create space for infrastructure spending, social protection and
private sector credit.
He 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.”
“Pursuing these policies would help reduce macroeconomic vulnerabilities
and create an environment for a diversified private-sector led economy,” Mati
added.
Reacting to the IMF’s position, the Board Chairman, Nigerian Economic
Summit Group, a private sector think tank and policy advocacy group, Mr. Kyari
Bukar, said the NESG had, at the start of the year, predicted that the economy
would grow by 0.8 per cent.
He stated, “But we still have lack of clarity of the foreign exchange
policy; we still have not coordinated our fiscal and monetary policies; and
there is the debt burden.
“It is not just the borrowing that is the problem; if you’re borrowing
for investment, that’s fine. We need to pay attention to our debt servicing,
which is increasing.”
The Managing Director, Financial Derivatives Limited, Mr. Bismarck
Rewane, said, “Even though the recovery has started, and we are going to have
positive growth, the economy is still vulnerable to many domestic and exogenous
variables.
“One major risk is the exchange rate falling below a particular level,
and we are leaving the question of growth, the question of output and the
question of economic activity, and those things are potent. It is
one-dimensional diagnosis, and exchange rate being the critical variable.”
According to him, the government is aware of the risks and it has a team
of people who can respond to them.
A professor of Economics at the Olabisi Onabanjo University, Ago Iwoye,
Sheriffdeen Tella, said the delay in the passage of the budget had contributed
in slowing down the recovery of the economy, adding that inflation had not
fallen at the rate it should.
“Also, the Central Bank of Nigeria still retains high interest rate,
which is inimical to the demand for credit in the economy; most businesses are
still borrowing at very high interest rates, and, therefore, they will not
borrow as much as they need to. So, the economy cannot expand on the basis of
that,” he said.
He stressed the need for the harmonisation of the fiscal and monetary
policies, adding that the CBN needed to bring down the interest rates to
“enable investors who want to borrow money to run their businesses properly.”
The Managing Director, Cowry Asset Management Limited, Mr. Johnson
Chukwu, said nothing fundamental had changed about the Nigerian economy to give
one the assurance of a sustained growth or recovery.
He said the recovery of the economy so far was largely driven by the
price of crude oil and volume of oil production, which he described as major
risks.
“We know that even the Niger Delta militants are threatening again that
they may resume bombing; so that is a major threat to the oil production
volume. Once we begin to see growth in the oil and gas sector, which has been
on the decline, then the economy should continue to grow.” he added.
Last month, the Monetary Policy Committee of the CBN said available
forecasts of key macroeconomic indicators pointed to a fragile economic
recovery in the second quarter of the year.
But the committee cautioned that the recovery could relapse into a more
protracted recession if strong and bold monetary and fiscal policies were not
activated immediately to sustain it.
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