The International Monetary Fund (IMF) has noted that the non-oil sector of the Nigerian economy could be stronger, benefitting from its recent growth momentum, higher production from the new Dangote Refinery, and supportive credit policies.
In IMF’s Executive Board 2021 Article IV Consultation
with Nigeria released recently, the global organisation added that Nigeria’s
ratification of the African Continental Free Trade Agreement could also yield a
positive boost to the non-oil sector while oil production could rebound,
supported by the more generous terms of the Petroleum Industry Act.
According to the IMF, Nigeria exited the recession in
the fourth quarter of 2020 and its output rose by 4.1 per cent (y-o-y) in the
third quarter, with broad-based growth except for the oil sector, which is
facing security and technical challenges.
While growth was projected at 3 per cent for 2021, it
stated that headline inflation rose sharply during the pandemic, reaching a
peak of 18.2 per cent year-on-year (y-o-y) in March 2021, but has since
declined to 15.6 per cent in December.
The institution attributed this to the new harvest season and
opening of land borders, although it noted that the reported unemployment rates
(end 2020) have yet to come down. It, however, confirmed that more recent
COVID-19 monthly surveys have shown that employment was back at its
pre-pandemic level.
“Despite the recovery in oil prices, the general government
fiscal deficit is projected to widen in 2021 to 5.9 per cent of GDP, reflecting
implicit fuel subsidies and higher security spending,” the Fund said.
“Moreover, the consolidated government revenue-to-GDP ratio at 7.5 per cent
remains among the lowest in the world.
“After registering a historic deficit in 2020, the current
account improved in 2021, and gross FX reserves have improved, supported by the
IMF’s SDR allocation and Eurobond placements in September 2021.
“Notwithstanding the authorities’ proactive approach to
contain COVID-19 infection rates and fatalities and the recent growth
improvement, socio-economic conditions remain a challenge. Levels of food
insecurity have risen, and the poverty rate is estimated to have risen during
the pandemic.”
The directors highlighted the urgency of fiscal consolidation
to create policy space and reduce debt sustainability risks and called for
significant domestic revenue mobilisation.
“They noted that exchange rate reforms should be accompanied
by macroeconomic policies to contain inflation, structural reforms to improve
transparency and governance, and clear communications regarding exchange rate
policy.
“Directors considered it appropriate to maintain a supportive
monetary policy in the near term, with continued vigilance against inflation
and balance of payments risks. They encouraged the authorities to stand ready
to adjust the monetary stance if inflationary pressures increase,” the
consultation noted.
“Directors recommended strengthening the monetary operational
framework over the medium term - focusing on the primacy of price stability -
and scaling back the central bank’s quasi-fiscal operations. Directors welcomed
the resilience of the banking sector and the planned expiration of
pandemic-related support measures. They agreed that while the newly launched
eNaira could help foster financial inclusion and improve the delivery of social
assistance, close monitoring of associated risks will be important. They also
encouraged further efforts to address deficiencies in the AML/CFT framework.
“Directors emphasised the need for bold reforms in the trade
regime and agricultural sector, as well as investments, to promote
diversification and job-rich growth and harness the gains from the African
Continental Free Trade Agreement. Improvement in transparency and governance
are also crucial for strengthening business confidence and public trust.
Directors called for stronger efforts to improve the transparency of COVID-19
emergency spending,” the IMF added.
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