Pace Of Nigeria's Economic Recovery Remains Slow Under Buhari – IMF

The IMF in its preliminary findings shows that as low economic recovery is continuing, inflation is falling, and external buffers are declining in the face of increased portfolio outflows in Nigeria.

Other findings noted that Elevated fiscal deficits rely on central bank financing, which complicates monetary policy; and that action on a coherent and coordinated set of policies is urgently needed to reduce vulnerabilities and increase growth over the medium term.

Between September 25 and October 7 this year, an IMF staff team led by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, visited Lagos and Abuja to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.



At the end of the visit, Mati said: “The pace of economic recovery remains slow, as depressed private consumption and investors’ wait-and-see attitude kept growth in the first half of the year at 2 percent, a rate significantly below population growth. Headline inflation has fallen, reaching its lowest level since January 2016, helped by lower food price inflation.

“Spurred by one-off increases in imports, the current account turned into a deficit in the first half of 2019 after three years of surpluses. Gross international reserves have fallen to below $42 billion at end-August 2019, mainly reflecting a decline in foreign holdings of short-term securities and equity. The exchange rate in various windows remained stable, helped by steady sales of foreign exchange by the Central Bank of Nigeria (CBN).

“Carryover from 2018 to 2019 helped increase public investment spending in the first half of 2019, but revenue underperformed significantly relative to the budget target in the first half of 2019. Over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in overreliance on expensive borrowing from the CBN to finance the fiscal deficit. Federal Government interest payments continue to absorb more than half of revenues in 2019."

According to him, the outlook under current policies remains challenging, pointing out that growth is expected to pick up to 2.3 percent this year on the strength of a continuing recovery in the oil sector and the regaining of momentum in agriculture following a good harvest.

The IMF representative added, "Revenue initiatives planned under the 2020 budget—including a VAT reform that increases the rate, introduces a minimum registration threshold and exempts basic food products—will help partially offset declining oil revenues and the impact of higher minimum wages, thus keeping the overall consolidated fiscal deficit elevated. The current account’s shift to a deficit is expected to persist while the pace of capital outflows continues to weigh on international reserves. Inflation will likely pick up in 2020 following rising minimum wages and a higher VAT rate, despite a tight monetary policy.

“A comprehensive package of measures—whose design and implementation will require close coordination within the economic team and the newly-appointed Economic Advisory Council—is urgently needed to reduce vulnerabilities and raise growth."

Mati also noted that the increasing CBN financing of the government reinforced the need for an ambitious revenue-based fiscal consolidation that should build on the initiatives laid out in the Strategic Revenue Growth Initiative.

He, therefore, urged the President Muhammadu Buhari regime to maintain a tight monetary policy through more conventional tools.