Nigeria Needs Radical Economic Reforms To Avoid Crash, Says IMF

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The International Monetary Fund (IMF) has advised Nigeria to initiate key fiscal and monetary reforms if the country is to survive the impact of COVID-19 on it and pull out of its current recession in good time.

 The IMF made the submission after its staff team led by Jesmin Rahman concluded a virtual mission from October 30 to November 17, 2020 in the context of the 2020 Article IV Consultation with Nigeria.

 The IMF team observed that “real GDP is contracting, inflation is increasing, and external vulnerabilities remain large” in Nigeria.

 Consequently, it stated that “major policy adjustments embracing broad market reforms are needed.  It suggested that “exchange rate and monetary policy reforms, increased revenue mobilization and structural reforms will help to unlock Nigeria’s growth potential.”

President Buhari

 The IMF statement reads in part: “The COVID-19 global pandemic is exacting a heavy toll on the Nigerian economy, which was already experiencing falling per capita income and double-digit inflation, with limited buffers and structural bottlenecks. Low oil prices and sharp capital outflows have significantly increased balance of payments (BOP) pressures and, together with the pandemic-related lockdown, have led to a large output contraction and increased unemployment. Supply shortages have pushed up headline inflation to a 30-month high.

 “Under current policies, the outlook is challenging. Real GDP is projected to contract by 3¼ percent in 2020. The recovery is projected to start in 2021, with subdued growth of 1½ percent and output recovering to its pre-pandemic level only in 2022. Despite an expected easing of food prices, inflation is projected to remain in double-digits and above the Central Bank of Nigeria’s (CBN) target range, absent monetary policy reforms. Following a significant decline in revenue collections—from levels that were already among the lowest in the world— fiscal deficits are projected to remain elevated in the medium term. There are significant downside risks to this near-term outlook arising from the uncertain course of the pandemic both globally and in Nigeria.

  “Recognizing the gravity of the situation, the Nigerian authorities have undertaken commendable and timely measures to counter the pandemic’s impact on lives and livelihoods. The Federal Government adopted a revised budget in July which removed fuel subsidies and prioritized spending to make room for a support package, which included higher subsidies on CBN credit intervention facilities and regulatory forbearance measures to ease debt service in affected sectors. The authorities have also taken courageous steps to remove costly and untargeted subsidies in the power sector, which were largely benefiting better-off households.

  “But more needs to be done. Major policy adjustments embracing broad market and exchange rate reforms are needed to address recurrent BOP pressures and raise the medium-term growth path.

“A durable solution to Nigeria’s recurrent BOP problems requires recalibrating exchange rate policies to reduce BOP risks, instill market confidence and facilitate private sector planning. The adjustments in the official exchange rate made earlier this year are steps in the right direction and the mission recommended a multi-step transition to a more unified exchange rate regime, with a market-based, flexible exchange rate.

  “Significant revenue mobilization—including through tax policy and administration improvements—is required to create space for higher social spending and reduce fiscal risks and debt vulnerabilities. With high poverty rates and only a gradual recovery in prospect, revenue mobilization will need to rely initially on progressive and efficiency-enhancing measures, with higher VAT and excise rates awaiting until stronger economic recovery takes root.”


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