The International Monetary Fund (IMF) noted that the non-oil sector of the Nigerian economy could be stronger, benefiting from its recent growth momentum, increased output from the new Dangote refinery and favorable credit policies.
In the IMF Executive Board’s 2021 Article IV consultation with Nigeria released recently, the world body added that Nigeria’s ratification of the African Continental Free Trade Agreement could also be a blow. positive thumb to the non-oil sector while oil production could rebound, supported by the more generous terms of the Petroleum Industry Act.
According to the IMF, Nigeria emerged from recession in the fourth quarter of 2020 and its output grew by 4.1% (year-on-year) in the third quarter, with broad-based growth except for the oil sector, which is facing security and technical challenges.
While growth was forecast at 3% for 2021, he said headline inflation rose sharply during the pandemic, peaking at 18.2% year-on-year (yoy) in March 2021, but has since declined to 15.6% in December.
The institution attributed this to the new harvest season and the opening of land borders, while noting that reported unemployment rates (end of 2020) have yet to decline. He did, however, confirm that more recent monthly COVID-19 surveys showed employment had returned to pre-pandemic levels.
“Despite the recovery in oil prices, the general government budget deficit is expected to widen in 2021 to 5.9% of GDP, reflecting implicit fuel subsidies and increased security spending,” says the Fund. “Furthermore, the consolidated government revenue-to-GDP ratio, at 7.5%, remains one of the lowest in the world.
“After registering a historic deficit in 2020, the current account improved in 2021 and gross foreign exchange reserves improved, supported by the allocation of IMF SDRs and investments in Eurobonds in September 2021.
“Despite the authorities’ proactive approach to containing COVID-19 infection and death rates and the recent improvement in growth, socio-economic conditions remain a challenge. Food insecurity levels have increased and the poverty rate is estimated to have increased during the pandemic.
Directors underscored the urgency of fiscal consolidation to create policy space and reduce debt sustainability risks and called for significant domestic revenue mobilization.
“They noted that exchange rate reforms should be accompanied by macroeconomic policies to contain inflation, structural reforms to improve transparency and governance, and clear communications regarding exchange rate policy.
“Directors considered it appropriate to maintain a supportive monetary policy in the short term, with continued vigilance against inflation and balance of payments risks. They encouraged the authorities to stand ready to adjust policy monetary policy if inflationary pressures increase,” the consultation noted.
“Directors recommended strengthening the medium-term monetary operational framework – emphasizing the primacy of price stability – and reducing quasi-fiscal central bank operations. Directors welcomed the resilience of the banking sector and the expected expiration of pandemic-related support measures. They agreed that while the new eNaira system could help foster financial inclusion and improve welfare delivery, close monitoring of associated risks would be important. They also encouraged continued efforts to address shortcomings in the AML/CFT framework.
“Directors underscored the need for bold trade regime and agricultural sector reforms, as well as investments, to promote diversification and job-rich growth and harness the gains of the African Continental Free Trade Agreement. “Improving transparency and governance is also critical to building business confidence and public trust. Directors called for increased efforts to improve transparency in COVID-19-related emergency spending,” added the IMF.