The International Monetary Fund (IMF) has recommended cocktails of actions in addition to structural reforms to boost growth and reduce poverty in Africa’s largest economy.
The Fund In its latest Report On Nigeria on Wednesday noted that though the country’s economy is recovering with GDP at 1.9 percent and inflation trending lower at 11.4 percent by end of 2018, coupled with rising foreign reserves, these positive economic indices with monetary policy alone cannot boost growth.
According to IMF, attendant relevant reforms are needed to encourage investments and growth in key sectors of the economy to reduce vulnerabilities, lessen poverty and improve weak human development outcomes, such as in health and education.
They noted that Monetary policy focused on exchange rate stability would help contain inflation but worsen competitiveness if greater flexibility is not accommodated when needed.
Adding that high financing costs, on the back of little fiscal adjustment, would continue to constrain private sector credit, and the interest-to-revenue ratio would remain high.
The Fund noted that “large infrastructure gap, low revenue mobilization, governance and institutional weaknesses, continued foreign exchange restrictions, and banking sector vulnerabilities are dampening long-term foreign and domestic investment and keeping the economy reliant on volatile oil prices and production.”
It therefore concluded that “under current policies, the outlook remains therefore muted, and over the medium term, absent strong reforms, growth would hover around 2.5 percent, implying no per capita growth as the economy faces limited increases in oil production and insufficient adjustment four years after the oil price shock.”
In the statement that painted both down and up sides of two scenarios likely to play out in the fiscal year, IMF said: “Bold reform efforts, following the election cycle, could boost confidence and investments, especially given relatively conservative baseline projections. “On the downside, additional delays in reform implementation, a persistent fall in oil prices, reduced oil production, increased security tensions, or tighter global financial market conditions could undermine growth, provoke a market sell-off, and put additional pressure on reserves and/or the exchange rate,” the IMF concluded.
It further advised that long standing structural and policy challenges need to be tackled more decisively to reduce vulnerabilities, raise per capita growth, and bring down poverty, and urged the authorities to redouble their reform efforts.
To address all the issues, IMF Directors recommended strengthening domestic revenue mobilization, including through additional excises, a comprehensive VAT reform, and elimination of tax incentives.
It also recommended reforms of state owned Nigerian National Petroleum Corporation (NNPC) and measures to improve the governance of the oil sector and securing oil revenues.
Furthermore, IMF Directors highlighted the importance of shifting the expenditure mix toward priority areas and underlined the need for greater investment efficiency.
They also recommended increasing funding for health and education.
While urging for scrapping of implicit fuel subsidies, IMF advised for strengthening of social safety nets to cushion anticipated impact on the most vulnerable to reduce the poverty gap.
Directors recommended stronger coordination for more effective public debt and cash management even as they commended the decline in nonperforming loans in the banking industry and the improved prudential banking ratios.
While noting that restructured loans and undercapitalized banks have continued to weigh on financial sector performance, they suggested strengthening capital buffers and risk based supervision, conducting an asset quality review, avoiding regulatory forbearance, and revamping the banking resolution framework.
Directors also recommended establishing a credible time bound recapitalization plan for weak banks and a timeline for phasing out the state backed asset management company AMCON.
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