• Urges sustenance of Tax, budget, public procurement reforms
• Growth to remain subdued, GDP heads for new low
• Forex reserves may fall further by $6.8b
The International Monetary Fund (IMF) has declared another damning outcome for Nigeria’s economy and its growth prospects in 2016, as the expectations of improved Gross Domestic Product (GDP) was dashed with poorer projection at 2.3 per cent, worse than 2.7 per cent in 2015. The much touted non-oil sector contributions, which would serve as diversified revenue earning streams, are also projected to fall from 3.6 per cent in 2015, to 3.1 per cent in 2016, before reversing to 3.5 per cent in 2017, an indication that economic revival is still a long way. IMF, which made the disclosures at the conclusion of its yearly “Article IV Consultation” with Nigeria, admitted that though the non-oil sector accounts for 90 per cent of the nation’s GDP, the oil sector, amid the global price volatility, would still play a central role in the economy. Under Article IV of the IMF’s Articles of Agreement, IMF holds bilateral discussions with member countries, usually every year, with a staff team visiting a country, collects economic and financial information, and discusses with officials the country’s economic developments and policies, as well as prepares a report and conclusions.
“Lower oil prices have significantly affected the fiscal and external accounts, decimating government revenues to just 7.8 percent of GDP and resulting in the doubling of the general government deficit to about 3.7 percent of GDP in 2015.” “Exports dropped about 40 per cent in 2015, pushing the current account from a surplus of 0.2 per cent of GDP to a deficit projected at 2.4 per cent of GDP. “Growth in 2016 is expected to decline further to 2.3 percent, with non-oil sector growth projected to slow from 3.6 percent in 2015 to 3.1 percent in 2016 before recovering to 3.5 percent in 2017,” IMF said. According to IMF, Nigeria’s foreign exchange reserve, currently fluctuating at an 11-year-low, would fall further to new lows at about $21.5 billion before the end of the 2016 fiscal year. “Foreign portfolio inflows slowing significantly, reserves fell to $28.3 billion at end-2015. Exchange restrictions introduced to protect reserves have impacted significantly on the private sector that depended on an adequate supply of foreign currencies.”
“Coupled with fuel shortages in the first half of the year and lower investor confidence, growth slowed sharply from 6.3 percent in 2014 to an estimated 2.7 percent in 2015,” IMF said. Already, it added that the effect of all these has been manifesting in the weakening corporate balance sheets, lowering the resilience of the banking system, and likely reversing progress in reducing unemployment and poverty. While observing that Nigeria’s financial sector soundness indicators have remained favourable, IMF said that further strengthening of the regulatory and supervisory frameworks would help improve resilience now that operating costs and low earnings’ stream are dominating results. “With declining asset quality a concern as growth slows, intensified monitoring of banks and enhanced contingency planning and resolution frameworks would be important. Lowering interest rate spreads and increasing efficiency could enhance credit growth, especially for small and medium enterprises,” it noted. Meanwhile, the IMF has applauded Nigeria’s current policy agenda, which seeks to enhance transparency, strengthening governance, improving security and creating jobs, adding that despite low projections for non-oil sector in the year, government must sustain efforts to raise non-oil revenues to ensure fiscal sustainability, as well as maintaining infrastructure and social spending.
It therefore, sought the gradual increase in the Value Added Tax (VAT) rate, improvements in revenue administration, and a broadening of the tax base. “There should be an orderly adjustment of budgets at the sub-national level through reform in budget preparation and execution, strengthened public financial management and service delivery, the implementation of an independent price-setting mechanism to address petroleum subsidies, while strengthening the social safety net.” “There is need for structural reforms to enhance competitiveness and support investment. The authorities should continue core infrastructure investment, reduce the cost of doing business through greater transparency and accountability, and promote employment of youth and women, adopt legislation to spur investment in the oil and gas sector, and promote policies to strengthen governance of the sector, including targeted Anti-Money Laundering and Combating the Financing of Terrorism measures,” the Fund added.
The global institution commended the recent monetary policy tightening by the Central Bank of Nigeria and recommended that there should be target price stability to maintain inflation within range. It, however, noted that the policy approach of expansionary monetary policy, together with a relatively fixed exchange rate and exchange restrictions, had adversely impacted economic activity. It, therefore, called for credible adjustment to the large terms-of-trade shock, including through greater exchange rate flexibility and speedy unwinding of exchange restrictions to facilitate an exchange rate consistent with fundamentals.