The International Monetary Fund (IMF) has described most of Nigeria’s economic reform initiatives as desirable for the nation’s growth, despite some challenges.
The Fund’s position was contained in a statement issued by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, when its staff team visited Nigeria from June 27 to July 9, 2018 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.
At the end of the visit, Mati, who led the staff team, noted that higher oil prices and short-term portfolio inflows had provided relief from external and fiscal pressures for the country but that the recovery remained challenging.
The team also observed that the nation’s foreign reserves remained stable at about $47 billion, supported by some convergence in existing foreign exchange windows, and despite some reversal of foreign inflows since April.
This is even as the staff team noted that Nigeria’s inflation declined to its lowest level in more than two years while the real Gross Domestic Product (GDP) grew by 2 percent in the first quarter of this year compared to the first quarter of last year.
However, the Breton Woods institution’s staff team observed that activity in the non-oil non-agricultural sector remained weak still as lower purchasing power weighed on consumer demand and as credit risk continues to limit bank lending.
The team leader stated further: “Corporate tax collection efforts improved but revenue shortfalls and the late adoption of the 2018 budget impede its implementation. Revenue from higher oil prices is limited by net losses from retail fuel sales while non-oil revenue remains below expectations, with yields from tax administration measures—including the Voluntary Asset Income Declaration Scheme (VAID) and increased tax audits—yet to fully materialize.
“Current spending remains in line with expectations. Carryover from 2017 to 2018 helped increase capital spending in the first four months of 2018, despite delayed approval of the 2018 budget. Lower yields have kept interest payments within the budgeted envelope, but the Federal Government’s interest-to-revenue ratio is expected to absorb more than half of revenues this year.
“Reforms to improve the business environment are progressing, including through identification of priority investment projects and the adoption of the Company and Allied Matters Act (CAMA)—a legislative landmark for private sector development.
“The implementation of the Power Sector Recovery Plan is advancing through a mini-grid policy, and regulations on eligible customers and meter asset providers.
“Under current policies, the outlook remains challenging. Growth would pick up to about 2 percent in 2018, weighed down by lower than expected oil production and relatively weak agriculture growth.
“The fiscal deficit would narrow slightly, with higher oil revenues offsetting increased spending, including those planned in a supplementary budget. Inflation would pick up in the second half of 2018 as base effects dissipate and higher spending and supply constraints in agriculture put pressure on prices.
“Increased oil exports would keep the current account in surplus, helping stabilize gross international reserves even if the current pace of foreign portfolio outflows continues.
“A coherent set of policies to reduce vulnerabilities and increase growth remains urgent. This includes specific and sustainable measures to increase the currently low tax revenue—including through avoiding new tax exemptions — and ensuring budget targets are adhered to even in an election year.
“This process should be supported by keeping monetary policy tight through appropriate monetary policy tools that will help contain inflationary pressures and support a move towards a uniform market-determined exchange rate.
“Moving ahead with structural reforms is needed to invigorate inclusive growth, particularly in the power sector where faster progress would be needed to ensure financing shortfalls in the sector are met in a sustainable manner.
“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, and international development partners”, Mati added.