• A slow economic recovery is continuing, inflation is falling, and external buffers are declining in the face of increased portfolio outflows.
  • Elevated fiscal deficits rely on central bank financing, which complicates monetary policy.
  • IMF says Nigeria needs to take action on a coherent and coordinated set of policies to reduce vulnerabilities and increase growth over the medium term.

The International Monetary Fund (IMF) on Wednesday said the investors’ wait-and-see attitude and depressed private consumption continue to put Nigeria's economic growth at a slow pace.

At 2% in the first half of 2019, the Bretton Woods Institution said the rate was significantly below population growth.

Nigeria's booming population grows at 3%, currently with over 200 million people. A former CBN governor, Emir Muhammadu Sanusi (II), recently described it as a liability rather than an asset.

This formed part of the outcome of the IMF's visit to Nigeria led by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, to discuss recent economic and financial developments, update macroeconomic projections and review reform implementation.

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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 outlook under current policies remains challenging. Growth is expected to pick up to 2.3 percent 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,” the statement added.

The IMF team, however, advised that 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.