Nigeria Exits Recession, But Economy Still Vulnerable, IMF Warns

MICHAEL AKINOLA

The Nigerian economy is exiting recession but remains vulnerable, the International Monetary Fund (IMF) announced on Wednesday.

The Executive Board of the Fund disclosed after the conclusion of its Article IV consultation with Nigeria.

According to the Bretton Woods institution, it acknowledged “the new foreign exchange measures, rising oil prices, attractive yields on government securities, and a tighter monetary policy have contributed to better foreign exchange availability, increased reserves to a four-year high, and contained inflationary pressures.”

“Economic growth reached 0.8 percent in 2017, driven mainly by recovering oil production. Inflation declined to 15.4 percent year-on-year by end-December, from 18.5 percent at end-2016. Reforms under the government’s Economic Recovery and Growth Plan have resulted in significant strides in strengthening the business environment and steps to improve governance.

The Fund however expressed concerns that the witnessed economic growth is still largely driven by oil revenues and gains from agriculture

“All these factors have not yet boosted non-oil non-agricultural activity, brought inflation close to the target range, contained banking sector vulnerabilities, or reduced unemployment. A higher fiscal deficit driven by weak revenue mobilization amidst still tight domestic financing conditions has raised bond yields, and crowded out private sector credit,” IMF stated.

“Higher oil prices are supporting the near-term projections, but medium-term projections indicate that growth would remain relatively flat, with continuing declines in per capita real GDP under unchanged policies.

“The improved outlook for oil prices is expected to provide welcome relief from pressures on external and fiscal accounts, and growth would pick up to 2.1 percent in 2018, helped by the full year impact of greater foreign exchange availability and recovering oil production.

“Renewed import growth would reduce gross reserves despite continued access to international markets. After arrears clearance in 2018, the fiscal deficit would narrow, and public debt levels would remain relatively low, but the interest payments-to-Federal Government revenue ratio would remain high.

“Risks are balanced. Lower oil prices and tighter external market conditions are the main downside risks. Domestic risks include heightened security tensions, delayed fiscal policy response, and weak implementation of structural reforms. Stress scenarios highlight sensitivity of external and public debt, particularly to oil exports and naira depreciation. Faster than expected implementation of infrastructure projects are an upside risk. A further uptick in international oil prices would provide positive spillovers into the non-oil economy.