IMF, World Bank Advocate Urgent Structural Reforms In Nigeria

BEVERLY HILLS, October 10, (THEWILL) – The World Bank and the International Monetary Fund (IMF) have called for urgent structural reforms to fast-track Nigeria’s economic recovery.

The World Bank, in the 20th edition of Africa’s Pulse, its bi-annual economic update for the region, which was launched wednesday, said the recovery in Nigeria, South Africa, and Angola—the region’s three largest economies—had remained weak and is weighing on the region’s prospects.

ThisDay reports that this edition of Africa’s Pulse includes special sections on accelerating poverty reduction and promoting women’s empowerment.

“In Nigeria, growth in the non-oil sector has been sluggish, while in Angola the oil sector remained weak. In South Africa, low investment sentiment is weighing on economic activity,” the bank stated.

It said initiatives to empower poor people, girls and women were essential to progress.

World Bank’s Vice President for Africa, Mr. Hafez Ghanem, said: “Empowering women will help boost growth. African policy makers face an important choice: business as usual or deliberate steps toward a more inclusive economy. After several years of slower-than-expected growth, closing the opportunity gap for women by removing barriers to their economic participation is the best way forward.”

According to the report, “Excluding Nigeria, South Africa and Angola, growth in the rest of the subcontinent is expected to remain robust although slower in some countries”.

The report noted that overall growth in the region is projected to rise to 2.6 per cent in 2019 from 2.5 per cent in 2018, which is 0.2 percentage points lower than the April forecast.

On its part, the IMF in a statement at the end of a visit by its staff to Nigeria, led by the Senior Resident Representative and Mission Chief for Nigeria, Amine Mati, stressed the urgent need for a “comprehensive package of measures,” to reduce vulnerabilities and raise economic growth in the country.

It called for structural reforms on governance and corruption, noting that implementing the much-delayed power sector recovery plan is essential to boosting prospects for higher and more inclusive growth.

According to the IMF, the pace of Nigeria’s economic recovery remains slow, adding that the depressed private consumption and investors’ wait-and-see attitude kept growth in the first half of the year at two per cent, a rate significantly below population growth.

It added that headline inflation has fallen, reaching its lowest level since January 2016. This was helped by lower food price inflation.

It said: “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.”

The multilateral institution said the outlook for Nigeria under current policies was challenging, predicting that growth was expected to pick up to 2.3 per cent this year on the strength of a continuing recovery in the oil sector and the regaining of momentum in agriculture following a good harvest.

“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,” it added.

According to IMF, the increasing Central Bank of Nigeria’s (CBN) financing of the government reinforces the need for an ambitious revenue-based fiscal consolidation that should build on the initiatives laid out by the government in the Strategic Revenue Growth Initiative.

The IMF expressed support for the current CBN’s tight monetary policy regime, saying it should be maintained through more conventional tools.

It stated: “Managing vulnerabilities arising from large amounts of maturing CBN bills—including those held by non-residents—requires stopping direct central bank interventions, the introduction of longer-term government instruments to mop up excess liquidity and moving towards a uniform market-determined exchange rate.

“Banking sector prudential ratios are improving. However, new regulations to spur lending—which has recently increased—should be carefully assessed and may need to be revisited in view of the potential unintended consequences on banks’ asset quality, maturity structure, prudential buffers and the inflation target. Continued strengthening of banks’ capital buffers would enhance banking sector resilience.

“Structural reforms, particularly on governance and corruption and in implementing the much-delayed power sector recovery plan, remain essential to boosting prospects for higher and more inclusive growth,” it added.