IMF gives mixed verdict on economy, reforms

• Predicts 2.1% growth in 2018, lauds CBN’s dividend directive on banks
• Nigeria finds key crude oil buyer, after loss of U.S. market

Nigeria’s economy remains vulnerable, though policies and favourable oil prices have helped it to overcome a recession.Disclosing this position yesterday, the International Monetary Fund (IMF) noted that the economy is yet to receive boost from policy implementations that could make it withstand the shocks that previously pushed it into a recession.

The organisation described lower oil prices and high interest rates as the main downside risks, while insecurity, delayed fiscal policy response, and weak implementation of structural reforms make up the domestic perils.Explaining its verdict at the end of an economic review of the country, tagged ‘2018 Article IV,’ the IMF admitted that new reforms under the Economic Recovery and Growth Plan have aided the business environment. It, however, said they have not impacted substantially on non-oil and non-agricultural activities, inflation, banking sector vulnerabilities, unemployment and poverty.

According to the review, Nigeria retains its higher fiscal deficit, driven by weak revenue mobilisation, amid continued tight domestic financing conditions that have raised bond yields, and crowded out private sector credit.

The fund’s directors warned that rising banking sector risks, possibly caused by huge non-performing loans, deserve attention. They also commended the Central Bank of Nigeria’s commitment to help banks increase capital buffers by stopping the dividend payments of weak and most affected ones.

They called for an asset quality review to identify potential capital needs and noted that an enhanced risk-based banking supervision, strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks.

IMF’s Managing Director and Chairman, Christine Lagarde, in her summary of the directors’ views, said 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 per cent in 2017, driven mainly by recovering oil production. Inflation declined to 15.4 per cent year-on-year by end-December, from 18.5 per cent at end-2016. 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,” she said.

Noting that Nigeria would record a growth of 2.1 per cent in 2018, Lagarde said the improved outlook for oil prices is expected to provide relief for the country from pressures on external and fiscal accounts.

This would be helped by the full year impact of greater foreign exchange availability and recovering oil production, even as foreign reserves are tending towards $44 billion.The IMF projected a reduced growth of 1.9 per cent for the country in 2019. And the non-oil sector will record a marginal increase in Gross Domestic Product from 1.3 per cent in 2018 to 1.5 per cent in 2019, an indication of slow development in the sector.

The report notes that renewed import growth would reduce gross external reserves despite continued access to international markets. The IMF called for urgent comprehensive and coherent policy actions and a growth-friendly fiscal adjustment that focuses on non-oil revenue mobilisation and rationalises current expenditure, to reduce the ratio of interest payments to revenue.

It also urged the authorities to create space for priority social and infrastructure spending and warned that the ongoing efforts to improve tax administration must include ambitious tax policy measures and reforms in Value Added Tax, and rationalising of tax incentives.
   
The outlook may continue to look good as Indonesia has expressed willingness to become a major buyer of Nigeria’s crude oil.The United States had been one of the highest buyers of Nigeria’s sweet crude, demanding as high as 700,000 b/d in the 2000s and reaching a record figure of 1.31 million b/d in February 2006. The figure, however, has dropped significantly in recent times.

Anizar Burlian, the Vice President of Pertamina, Indonesia’s national oil company, said they were in Abuja to concretise arrangements. “Over the years, we have bought huge amount of crude oil from Nigeria. We are extremely happy to buy more Nigerian crude oil, which is globally rated to be of a very high grade and which is very suitable for our refineries,” he said.

He added that they are also interested in investment opportunities in the upstream, midstream and downstream sectors of the Nigerian oil industry. NNPC’s Group General Manager, Crude Oil Marketing Division (COMD), Mele Kyari, said the corporation would continue to assist Indonesia in the supply of crude oil, noting that a government-to-government arrangement is feasible through the presidency.