The International Monetary Fund, IMF, has reiterated a projection it made last October that Nigeria would get out of the economic recession this year, but warned that there is still significant threat to recovery as the economy will not grow enough to reduce unemployment and poverty.
It projected that Nigeria’s economy will grow by 0.8 per cent in 2017 given that various indicators suggest an uptick in economic activity in the second half. It however warned that the country’s 0.8 per cent growth in the first half of this year would not be sufficient to reduce unemployment and end poverty in the country.
This was even as the Fund expressed concern that Nigerian banks’ stock of Non-Performing Loans, NPLs, have more than doubled since 2015, noting that the loans have grown from six per cent in 2015 to 15 per cent in 2017.
The above sentiments were part of the report by the IMF staff team, which visited Nigeria from July 20 to July 31, to review recent economic and financial developments, update macroeconomic projections and reform implementation. The team was led by the senior resident representative and mission chief to Nigeria at the IMF, Amine Mati.
The statement by the team reads in part, “Preliminary data for the first half of the year indicate significant revenue shortfalls, with interest-payments to revenue ratio remaining high (40 per cent at end-June) and projected to increase further under current policies.
“High domestic bond yields and tight liquidity continue to crowd out private sector credit. Nigeria’s low growth environment and the banking system’s exposure to the oil and gas sector, increased from 6 per cent in 2015 to 15 per cent.”
The team also said “helped by favourable base effects, headline inflation decreased to 16.1 per cent in June 2017, but remains high despite tight liquidity conditions.”
IMF also commended the Central Bank of Nigeria, CBN’s new foreign exchange window, which it said has improved forex inflows.
“Faced with these challenges, the government has started implementing a number of important measures. The Economic Recovery and Growth Plan (ERGP) is driving the diversification strategy and security in the Niger Delta improved through strengthened engagement.
“The new investor and exporter forex window has provided impetus to portfolio inflows, helped increase reserves above $30 billion and contributed to reducing the parallel market premium,” it said.
The IMF team also noted that, “progress is also ongoing within the oil and energy sector through implementation of a new funding mechanism for cash calls.
“However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated. At 0.8 per cent, growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty,” it stated.
The Fund advised that “Acting on an appropriate and coherent set of policies to enhance an economic recovery remains urgent, including implementing immediately specific priorities that will help achieve the goals of the ERGP.”
It called for “a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues that would create space for infrastructure spending, social protection and private sector credit.
“This should be simultaneously accompanied by a monetary policy that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural reforms.
“Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy,” the Bretton Woods Institution advised