As part of a credible package of policies, the fund recommended that the naira “exchange rate should be allowed to reflect market forces more and restrictions on access to foreign exchange removed, while improving the functioning of the interbank foreign exchange market (IFEM)”.
In addition, it stated that it “will be important for the regulatory and supervisory frameworks to ensure a strong and resilient financial sector that can support private sector investment across production segments (including SMEs) at reasonable financing costs”.
The multilateral institution stated this in its 2016 Article IV Mission statement on Nigeria that was posted on its website yesterday. It however stressed that the views expressed in the statement were those of its staff who visited Nigeria between December 14-17, 2015 and January 10–25, 2016, saying they do not necessarily represent the views of the IMF’s executive board.
It pointed out that Nigeria was facing the impact of a sharp decline in oil prices, adding that due to its dependence on oil revenues, the general government deficit doubled to about 3.3 per cent of GDP in 2015, despite a sharp reduction in public investment.
Nigeria’s exports dropped about 40 per cent, pushing the current account deficit to an estimated 2.4 per cent of Gross Domestic Product (GDP), with foreign portfolio flows slowing significantly, reserves fell to $28.3 billion at end-2015.
It added: “Foreign exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies.
“Coupled with fuel shortages in the first half of the year and lower investor confidence, growth is estimated to have slowed to 2.8 per cent in 2015 (from 6.3 per cent in 2014), weakening corporate balance sheets, lowering the resilience of the banking system, and likely reversing progress in reducing unemployment and poverty.
“Inflation increased to 9.6 per cent in December (up from 7.9 per cent in December 2014), above the CBN’s medium term target range of 6 – 9 per cent.
“With oil prices expected to remain low for a long time, continuing risk aversion by international investors, and downside risks in the global economy, the outlook remains challenging. The (Nigerian) authorities’ policy response has focused on seeking to support growth, while preserving international reserves.
“The draft 2016 budget envisaged, appropriately, a significant shift in the composition of fiscal spending toward capital investment while increasing the allocation for a social safety net. At the same time the CBN has eased monetary conditions.”
Furthermore, it noted that in light of the significant macroeconomic adjustment needed to address the permanent terms-of-trade shock, it would be important for Nigeria to put in place an integrated package of policies centred around: fiscal discipline; reducing external imbalances; further improving efficiency of the banking sector; and fostering strong implementation of structural reforms that will enhance competitiveness and foster inclusive growth.
According to the fund, Nigeria’s growth is projected to improve slightly to 3.2 per cent in 2016 but could rebound to 4.9 per cent in 2017, supported by an appropriate policy package that would, for example, enable priority infrastructure investments.
“Key risks to the outlook include lower-than-budgeted oil prices, shortfalls in non-oil revenues, a further deterioration in finances of state and local governments, and a resurgence in security concerns.
“Establishing medium-term fiscal policy goals that support fiscal sustainability is a priority. In particular, measures should be implemented to boost the ratio of non-oil revenue to GDP, including from improvements in revenue administration and broadening of the tax base; rationalise spending; adopt safety nets for the most vulnerable; and foster enhanced accountability and an orderly adjustment of sub-national budgets.
“Steadfast implementation of structural reforms is key. Adopting a sound Petroleum Industry Bill, including by applying the Anti-Money Laundering/Combating the Financing of Terrorism framework, will help strengthen the regulatory framework for the oil sector.
“Emphasis should be sustained on doing ‘more with less’ to improve the efficiency of public sector service delivery and create an enabling environment to attract investment,” the IMF added.
During the visits, the IMF team met with Vice-President Yemi Osinbajo, Finance Minister Kemi Adeosun, Minister of Budget and Planning Udoma Udo Udoma, CBN Governor Godwin Emefiele, senior government officials, and representatives of the private sector.