After concluding annual Article IV consultation on Wednesday last week, the staff of International Monetary Fund (IMF) on Monday, declared that Nigeria’s economic outlook for 2020 was challenging and thus reversed growth to two per cent.
In the statement released by IMF senior resident representative in Nigeria, Amine Mati who led the team said “the pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity.
“External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals.
“Weak non-oil revenue mobilization led to further deterioration 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 per cent.
“Under current policies, the outlook is challenging.
“The mission’s growth forecast for 2020 was revised down to 2 per cent 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; improve budget execution by adopting the 2020 budget by end of December 2019.”
The team which visited Lagos and Abuja from January 29-February 12 said major policy adjustments remain necessary to contain short-term vulnerabilities, build resilience, and unlock growth potential.
“Non-oil revenue mobilization included through tax policy and administration improvements remains urgent to ensure financial 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.
It, however, commended the tightening of monetary policy in January 2020 through higher cash reserve requirements to respond to looming inflationary pressures.
“Progress on structural reforms particularly in doing business, finalizing power sector reforms, and strengthening governance are commendable.
“The mission welcomed recent efforts to reduce non-performing loans.
“The introduction of risk-based minimum capital requirements would also help strengthen bank resilience.”