Nigeria needs urgent policy adjustment as economy worsens – IMF

The International Monetary Fund has said Nigeria needs urgent policy adjustment and more fundamental reforms to address its economic woes.

The IMF said this on Monday in a statement while announcing that its executive board concluded the Article IV consultation with Nigeria on Jan. 27.

Noting that the country’s economy had been hit hard by the COVID-19 pandemic, it said, “Following a sharp drop in oil prices and capital outflows, real GDP is estimated to have contracted by 3.2 percent in 2020 amidst the pandemic-related lockdown.

“Headline inflation rose to 14.9 percent in November 2020, a 33-month high, reflecting core and food inflation increases emanating from supply shortages due to the lockdown effected to curb infections alongside, the land-border closure and continued import restrictions.”

It noted that the unemployment rate reached 27 percent in the second quarter, with youth unemployment at 41 percent.

The Washington-based fund said, “The Nigerian authorities acted swiftly to adopt a pandemic-related support package equivalent to 0.3 percent of GDP in the 2020 revised federal budget despite limited fiscal space.

“External vulnerabilities due to lower oil prices and weak global demand have increased, with the current account remaining in deficit in the first half of 2021.”

In April 2020, the country received IMF emergency financial assistance of $3.5 billion under the Rapid Financing Instrument to help cushion the impact of the pandemic.

The IMF said, “Socio-economic conditions have deteriorated, with rising food inflation, elevated youth unemployment, mass protests in October 2020, and surveys show worsening food insecurity with a significant impact on the vulnerable.

“Risks are tilted to the downside and include the resurgence of the pandemic, security situation and unfavorable external environment. Capital outflow risks arise from the record-low domestic interest rates and large foreign holdings of domestic securities.”

The fund, however, said recovering oil prices and completion of the Dangote oil refinery could catalyse more domestic crude oil production and boost growth.

Its executive director commended the Nigerian authorities for the measures taken to address the health and economic impacts of the COVID-19 pandemic which had exacerbated pre-existing weaknesses.

“Looking ahead, directors emphasised the need for urgent policy adjustment and more fundamental reforms to sustain macroeconomic stability and lift growth and employment,” the IMF said.

The directors welcomed notable reforms undertaken in the fiscal sector, including removal of the fuel subsidy and steps to implement cost-reflective tariff increases in the power sector.

They, however, stressed the need for significant revenue mobilisation to reduce fiscal sustainability risks, relying initially on progressive and efficiency-enhancing measures with higher tax rates awaiting a more sustained economic recovery.

They highlighted the need for improved social safety nets to cushion potential negative impacts on the poor.