SAN FRANCISCO, February 18, (THEWILL) – The International Monetary Fund (IMF) has revised downward its 2020 Gross Domestic Product (GDP) forecast for Nigeria to two per cent, from the 2.5 per cent it had predicted earlier.
According to IMF, the cut reflects the impact of lower international oil prices while inflation in the country is expected to pick up.
In addition, it predicted that “deteriorating terms of trade and capital outflows will weaken the country’s external position.”
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The Washington-based institution stated this in its Article IV Consultation on Nigeria, which saw some of its officials visiting Lagos and Abuja between January 29-February 12, 2020, for discussions on Nigeria’s economy. The IMF team was led by the Senior Resident Representative and Mission Chief for Nigeria, Amine Mati.
The statement signed by Mati, at the end of the visit, was posted on the fund’s website.
Mati said external vulnerabilities in the country were increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals.
The exchange rate has remained stable, helped by steady sales of foreign exchange in various windows.
“High fiscal deficits are complicating monetary policy. Weak non-oil revenue mobilisation led to further deterioration of the fiscal deficit, which was mostly financed by 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 two 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,” he said.
However, Mati noted that policymakers in the country have recognised the vulnerabilities, which led to a number of initiatives that had been introduced.
“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-December 2019.
“The tightening of monetary policy in January 2020 through higher cash reserve requirements to respond to looming inflationary pressures is welcome. Progress on structural reforms—particularly in Doing Business, finalising power sector reforms and strengthening governance—is commendable.
“Major policy adjustments remain necessary to contain short-term vulnerabilities, build resilience, and unlock growth potential.
“Non-oil revenue mobilisation—including through tax policy and administration improvements—remains urgent to ensure financing 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,” it stated.
He stressed the need for further tightening of monetary policy by the Central Bank of Nigeria (CBN), “albeit through more conventional methods.”
This, the multilateral institution said, was needed to contain domestic and external pressures arising from large amounts of maturing CBN bills.
As part of its restrictive monetary policy stance, the CBN Monetary Policy Committee (MPC) at the end of its last meeting had raised the Cash Reserve Ratio (CRR) from 22.5 per cent to 27.5 per cent.
Mati, however, reiterated the advice on ending direct central bank interventions, securitising overdrafts to introduce longer-term government instruments to mop up excess liquidity and moving towards a more flexible exchange rate.
“Banking system vulnerabilities should continue to be addressed. The mission welcomed recent efforts to reduce legacy non-performing loans. The introduction of risk-based minimum capital requirements would also help strengthen bank resilience,” he stated.
The IMF officials also noted that structural reforms, particularly executing the much-delayed power sector recovery plan, implementing the anti-corruption and financial inclusion strategy, as well as addressing infrastructure and gender gaps, are essential to boost inclusive growth in the country.
“Nigeria’s border closure will continue to have significant economic consequences on the country’s neighbours. It is important that all involved parties quickly resolve the issues keeping the borders closed—including to stop the smuggling of banned products.
“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 organisations and development partners. The team wishes to thank the authorities and all those it met for the productive discussions, excellent cooperation, and warm hospitality,” the statement added.
Mati, stated that the pace of economic recovery in the country remains slow, as declining real income and weak investment continued to weigh on economic activity.
He said inflation, driven by higher food prices, has risen, marking the end of the disinflationary trend seen in 2019.
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