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Tuesday, February 18, 2020 /05:51
PM / By IMF / Header Image Credit: IMF
An International Monetary Fund (IMF) staff team led by
Amine Mati, Senior Resident Representative and Mission Chief for Nigeria,
visited Lagos and Abuja from January 29-February 12, 2020 to conduct its annual
Article IV Consultation discussions on Nigeria's economy.
At the end of the visit, Mr. Mati issued the following
statement:
"The pace of economic recovery remains slow, as
declining real incomes and weak investment continue to weigh on economic
activity. Inflation-driven by higher food prices-has risen, marking the end of
the disinflationary trend seen in 2019. External vulnerabilities are
increasing, reflecting a higher current account deficit and declining reserves
that remain highly vulnerable to capital flow reversals. The exchange rate has
remained stable, helped by steady sales of foreign exchange in various windows.
"High fiscal deficits are complicating monetary
policy. Weak non-oil revenue mobilization led to further de"terioration of the
fiscal deficit, which was mostly financed by Central Bank of Nigeria (CBN)
overdrafts. The interest payments to revenue ratio remains high at about 60
percent.
"Under current policies, the outlook is challenging.
The mission's growth forecast for 2020 was revised down to 2 percent to reflect
the impact of lower international oil prices. Inflation is expected to pick up,
while deteriorating terms of trade and capital outflows will weaken the
country's external position.
Recognizing these vulnerabilities, the authorities
have taken a number of welcome steps. These include measures to boost revenue
through the adoption of the Finance Bill and Deep Offshore Basin Act and; and
improve budget execution by adopting the 2020 budget by end-December 2019. The
tightening of monetary policy in January 2020 through higher cash reserve
requirements to respond to looming inflationary pressures is welcome. Progress
on structural reforms--articularly in Doing Business, finalizing power sector
reforms, and strengthening governance-is commendable.
"Major policy adjustments remain necessary to contain
short-term vulnerabilities, build resilience, and unlock growth potential.
"Non-oil revenue mobilizationincluding through tax
policy and administration improvements-remains urgent to ensure financing
constraints are contained and the interest payments to revenue ratio
sustainable. Recourse to central bank overdrafts should be limited and the
mission supports the authorities' plans to use the low domestic yield
environment to front load their financing requirements.
"Further tightening of monetary policy-albeit through
more conventional methods-is needed to contain domestic and external pressures
arising from large amounts of maturing CBN bills. The mission reiterated its
advice on ending direct central bank interventions, securitizing overdrafts to
introduce longer-term government instruments to mop up excess liquidity and
moving towards a uniform and more flexible exchange rate. Removing restrictions
on access to foreign exchange for the 42 categories of imported goods would be
needed to encourage long-term investment.
"Banking system vulnerabilities should continue to be
addressed. The mission welcomed recent efforts to reduce legacy non-performing
loans. The introduction of risk-based minimum capital requirements would also
help strengthen bank resilience. Notwithstanding the significant increase in
lending, concerns about shortened maturity, asset quality and conflicting
monetary policy signals call for revisiting the minimum lending to deposit
ratio directive.
"Structural reforms-particularly executing the
much-delayed power sector recovery plan, implementing the anti-corruption and
financial inclusion strategy, and addressing infrastructure and gender
gaps-remain essential to boosting inclusive growth.
"Nigeria's border closure will continue to have
significant economic consequences on the country's neighbors. It is important
that all involved parties quickly resolve the issues keeping the borders
closed-including to stop the smuggling of banned products.
"The team held productive discussions with senior
government and central bank officials. It also met with representatives of the
banking system, the private sector, civil society organizations and development
partners. The team wishes to thank the authorities and all those it met for the
productive discussions, excellent cooperation, and warm hospitality."
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