An International Monetary Fund (IMF) staff team led by Amine Mati visited Nigeria from July 20-31, 2017 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.The report has been generating controversy, as it touches on possible threats to Nigeria’s economic recovery after months of recession. But there are positives in the report as well.
Mati, a senior resident representative and mission chief for Nigeria, also led the IMF team that visited Tunisia last year March.
“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 per cent, mainly as maintenance stoppages reduced oil production. However, 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. Various indicators suggest an uptick in activity in the second quarter of the year. Helped by favourable base effects, headline inflation decreased to 16.1 per cent 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 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 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 programme 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.
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
“However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated. At 0.8 per cent, 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 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.
“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 team held productive discussions with senior government and central bank officials. It also met with members of parliament, representatives of the banking system, private sectors, civil society, and international development partners. The team wishes to thank the authorities and all those with whom they met for the productive discussions, excellent cooperation, and warm hospitality.”