An International Monetary Fund (IMF) mission to Nigeria which ended this week has said the country’s anaemic growth rate is unlikely to put a dent in poverty or rising unemployment.
The 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.
Africa’s largest economy, which entered its first full year recession in 29 years in 2016, is expected to see a mild expansion in economic output this year.
“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,” Mati, Senior Resident Representative and Mission Chief for Nigeria at the IMF, said yesterday (August 02) at the end of the visit.
“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.”
Nigeria’s unemployment rate rose to 14.2 per cent in the 4th quarter of 2016, the National Bureau of Statistics (NBS) said in June.
Some 28.5 million Nigerians were unemployed in the period, compared to 27.12 million in 3rd quarter.
The IMF cited 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, as the main risks to the outlook.
The end-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country.
“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 undercapitalised banks),” the statement said.
The IMF acknowledged that 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.
A 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, the IMF 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, the fund 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 reforms. Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy, according to the IMF.
“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,” the statement concluded.