World Bank IMF and Dev Agencies | |
World Bank IMF and Dev Agencies | |
5235 VIEWS | |
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Saturday, December 23, 2017 /5:10PM / IMF
· Nigeria is exiting the recession but the economy remains vulnerable.
· Welcome actions to improve the power sector and business environment under the Economic Recovery and Growth Plan.
· Macroeconomic and structural reforms remain urgent to contain vulnerability and support sustainable private sector led growth.
An International Monetary Fund (IMF) staff
team led by Amine Mati visited Nigeria during December 6-20, 2017 to conduct
the 2018 Article IV consultation. Following the conclusion of the visit, Mr.
Mati, Senior Resident Representative and Mission Chief for Nigeria at the IMF,
issued the following statement:
“Overall growth is slowly picking up but
recovery remains challenging. Economic activity expanded by 1.4 percent
year-on-year in the third quarter of 2017—the second consecutive quarter of
positive growth after five quarters of recession—driven by recovering oil
production and agriculture. However, growth in the non-oil-non-agricultural
sector (representing about 65 percent of the economy), contracted in the first
three quarters of 2017 relative to the same period last year. Difficulties in
accessing financing and high inflation continued to weigh on companies’
performance and consumer demand. Headline inflation declined to 15.9 percent by
end-November, from 18½ percent at end-2016, but remains sticky despite tight
liquidity conditions.
“High fiscal deficits—driven by weak revenue
mobilization—generated large financing needs, which, when combined with tight
monetary policy necessary to reduce inflationary pressures, increased pressure
on bond yields and crowded out private sector credit. These factors contributed
to raising the ratio of interest payments to federal government revenue to
unsustainable levels. Reflecting the low growth environment and exposure to the
oil and gas sector, the banking industry’s solvency ratios have declined from
almost 15 to 10½ percent between December 2016 and October 2017, and
non-performing loans have increased from 5 percent in June 2015 to 15 percent
as of October 2017, although with provisioning coverage of about 82 percent.
“The authorities have begun addressing
macroeconomic imbalances and structural impediments through the implementation
of policies underpinning the Economic Recovery and Growth Plan (ERGP).
Supported by recovering oil prices, the new Investor and Exporter foreign
exchange window has increased investor confidence and provided impetus to
portfolio inflows, which have helped to increase external buffers to a
four-year high, and contributed to reducing the parallel market premium.
Important actions under the Power Sector Recovery Program increased power
supply generation and ensured government agencies pay their electricity bills.
Welcome steps were also taken to improve the business environment and to
address longstanding corruption issues, including through the adoption of the
National Anti-Corruption Strategy in August 2017.
“However, in the absence of new policies, the
near-term outlook remains challenging. Growth is expected to continue to pick
up in 2018 to 2.1 percent, helped by the full year impact of greater
availability of foreign exchange and higher oil production, but to stay
relatively flat in the medium term. Risks to the outlook include lower oil
prices, tighter external market conditions, heightened security issues, and
delayed policy responses.
“Containing vulnerabilities and achieving
growth rates that can make a significant dent in reducing poverty and
unemployment requires a comprehensive set of policy measures.
"On the fiscal front, the mission
welcomes the recent tax reforms aimed at improving tax administration, planned
increases in excises, and latest steps taken to lower debt servicing costs and
lengthen maturities. However, with oil prices expected to remain lower than in
the past, upfront actions to mobilize non-oil revenues, including through
reforming the VAT and removing exemptions, are needed while safeguarding
priority expenditures, including scaling up social safety nets and
infrastructure investment.
“Fiscal consolidation should be accompanied
by a monetary policy stance that remains tight to further reduce inflation and
anchor inflation expectations. Moving toward a unified and market-based
exchange rate as soon as possible while continuing to strengthen external
buffers would be necessary to increase confidence and reduce potential risks
from capital flow reversals.
“Such a policy package—along with structural
reform implementation, including by building on recent successes to improve the
business environment, closing infrastructure gaps, and implementing the power
sector reform plan——would lay the foundation for a diversified private-sector
led economy. Strengthening governance and transparency initiatives, and
lowering gender inequality and fostering financial inclusion would also be
important.”
The team held productive discussions with
senior government and central bank officials. It also met with members of
parliament, representatives of the banking system, private sector, civil
society, and international development partners. The team thanks the
authorities and those with whom it met for the open and productive discussions,
excellent cooperation, and warm hospitality.
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