The International Monetary Fund, IMF, in its latest Country Report on Nigeria released on Monday, February 8, said the Nigerian economy is “lackluster” and at “a critical juncture” amidst the roiling COVID-19 pandemic crisis, and is “grappling with multiple shocks” thereof.
This was reinforced by a weak pre-crisis economy marked by falling per capita income, double-digit inflation, significant governance vulnerabilities, and limited buffers. The IMF noted that real output was projected to contract by 3.2 percent in 2020, but that a weak recovery was likely to keep per capita income stagnant and no higher than the 2010 level in the medium term.
It advised that “policy adjustment and reforms are urgently needed to navigate this crisis and change the long-running lackluster course.”
The IMF made a few key policy recommendations. In the short run, a policy mix of exchange rate adjustment, given constrained capacity on the monetary and fiscal fronts, and in the medium term, revenue mobilization.
It recommends that in the short run, federal government’s fiscal policy should address economic and health impact of COVID-19 pandemic in a transparent and efficient manner. Significant revenue should be mobilized in the medium term to reduce fiscal sustainability risks expected from low debt servicing capacity.
“With high poverty rates, revenue mobilization will need to rely on progressive and efficiency-enhancing measures, with higher value added and excise tax rates awaiting a firm economic recovery,” observed the Fund.
On exchange rate policies, it said a more transparent and market-based exchange rate policy is an imperative to instill confidence. To this end, IMF recommends Nigeria “establishing a market-clearing unified exchange rate with the near-term focus on allowing greater flexibility and removing the backlog of requests for foreign exchange.”
On monetary and financial sector policies, the IMF says “the accommodative monetary stance is appropriate but may need to be tightened if balance of payments pressures intensify.” Therefore, “in the medium term, the monetary policy operational framework should be reformed to establish the primacy of price stability.”
It observed that “the banking sector has been resilient, thanks to the ample pre-crisis buffers.” However, “continued vigilance, and if necessary, prompt corrective actions are needed to contain stability risks.”
The IMF also supports shoring up structural policies through expected significant reforms underway in the fuel and power sectors, as well as in governance and business regulations. “Steadfast implementation in these areas, along with broad market and trade reforms to open up the economy are needed to usher in a job-rich growth.”
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