IMF Staff Concludes Article IV Consultation to Nigeria

Via IMF (Den Internationale Valutafond)

IMF Staff Concludes Article IV Consultation to Nigeria

February 17, 2020

End-of-Mission press releases include statements of IMF staff teams that
convey preliminary findings after a visit to a country. The views expressed
in this statement are those of the IMF staff and do not necessarily
represent the views of the IMF’s Executive Board. Based on the preliminary
findings of this mission, staff will prepare a report that, subject to
Management approval, will be presented to the IMF’s Executive Board for
discussion and decision.

  • Growth is still recovering, inflation is increasing, and external
    vulnerabilities are rising.
  • Fiscal reform momentum and recent tightening of monetary policy are
  • Major policy adjustments remain necessary to contain short-term
    vulnerabilities and unlock Nigeria’s growth potential.

An International Monetary Fund (IMF) staff team led by Amine Mati, Senior
Resident Representative and Mission Chief for Nigeria, visited Lagos and
Abuja from January 29-February 12, 2020 to conduct its annual Article IV
Consultation discussions on Nigeria’s economy.

At the end of the visit, Mr. Mati issued the following statement:

“The pace of economic recovery remains slow, as
declining real incomes and weak investment continue to weigh on economic
activity. Inflation—driven by higher food prices—has risen, marking the end
of the disinflationary trend seen in 2019. External vulnerabilities are
increasing, reflecting a higher current account deficit and declining
reserves that remain highly vulnerable to capital flow reversals. The
exchange rate has remained stable, helped by steady sales of foreign
exchange in various windows.

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“High fiscal deficits are complicating monetary policy. Weak non-oil
revenue mobilization led to further deterioration of the fiscal deficit,
which was mostly financed by Central Bank of Nigeria (CBN) overdrafts. The
interest payments to revenue ratio remains high at about 60 percent.

“Under current policies, the outlook is challenging. The mission’s growth
forecast for 2020 was revised down to 2 percent to reflect the impact of
lower international oil prices. Inflation is expected to pick up, while
deteriorating terms of trade and capital outflows will weaken the country’s
external position.

“Recognizing these vulnerabilities, the authorities have taken a number of
welcome steps. These include measures to boost revenue through the adoption
of the Finance Bill and Deep Offshore Basin Act and; and improve budget
execution by adopting the 2020 budget by end-December 2019. The tightening
of monetary policy in January 2020 through higher cash reserve requirements
to respond to looming inflationary pressures is welcome. Progress on
structural reforms—particularly in Doing Business, finalizing power sector
reforms, and strengthening governance—is commendable.

“Major policy adjustments remain necessary to contain short-term
vulnerabilities, build resilience, and unlock growth potential.

“Non-oil revenue mobilization—including through tax policy and
administration improvements—remains urgent to ensure financing constraints
are contained and the interest payments to revenue ratio sustainable.
Recourse to central bank overdrafts should be limited and the mission
supports the authorities’ plans to use the low domestic yield environment
to front load their financing requirements.

“Further tightening of monetary policy—albeit through more conventional
methods—is needed to contain domestic and external pressures arising from
large amounts of maturing CBN bills. The mission reiterated its advice on
ending direct central bank interventions, securitizing overdrafts to
introduce longer-term government instruments to mop up excess liquidity and
moving towards a uniform and more flexible exchange rate. Removing
restrictions on access to foreign exchange for the 42 categories of
imported goods would be needed to encourage long-term investment.

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“Banking system vulnerabilities should continue to be addressed. The
mission welcomed recent efforts to reduce legacy non-performing loans. The
introduction of risk-based minimum capital requirements would also help
strengthen bank resilience. Notwithstanding the significant increase in
lending, concerns about shortened maturity, asset quality and conflicting
monetary policy signals call for revisiting the minimum lending to deposit
ratio directive.

“Structural reforms—particularly executing the much-delayed power sector
recovery plan, implementing the anti-corruption and financial inclusion
strategy, and addressing infrastructure and gender gaps—remain essential to
boosting inclusive growth.

“Nigeria’s border closure will continue to have significant economic
consequences on the country’s neighbors. It is important that all involved
parties quickly resolve the issues keeping the borders closed—including to
stop the smuggling of banned products.

“The team held productive discussions with senior government and central
bank officials. It also met with representatives of the banking system, the
private sector, civil society organizations and development partners. The
team wishes to thank the authorities and all those it met for the
productive discussions, excellent cooperation, and warm hospitality.”

IMF Communications Department

PRESS OFFICER: Lucie Mboto Fouda

Phone: +1 202 623-7100Email: