This Day (Lagos)

10 May 2013

Nigeria: IMF Forecasts U.S.$80 Billion in Foreign Reserves Accretion

Abuja — The International Monetary Fund (IMF) is expecting Nigeria's foreign reserves to increase to about $80 billion in the next four years. IMF Senior Resident Representative, Mr. Scott Rogers, said its projection was based on expectations that export diversification and continued capital in-flows would be sustained because of improvement in the country's investment climate.

Noting that export diversification was critical to long-term growth, it added that interest rate spread would also remain for a few more years.

Speaking to journalists in Abuja during a briefing to present highlights of the Staff Report on the 2012 Article IV Consultation, which is expected to be published soon, he said the IMF was in support of the agitation for complete removal of fuel subsidy.

The Fund also recommended that the current tight monetary policy be maintained until signs of durable reduction of inflationary pressure are achieved.

He said: " The principle factor is that oil prices would be coming down on a very high level, so you have that starting point. Meanwhile oil exports now are about a $100 billion a year. So that would fall a little bit. What that means is that your balance of payment surplus would be getting smaller but it's still going to be positive and that's how you build reserves."

On its recommendation for the removal of fuel subsidy amid its social implication, the IMF country representative said the Fund believed it was the right step in the right direction.

He said: "We are not saying it should be done on friday...removal of fuel subsidy will definite have impact on the poor but the benefit is overwhelmingly to be better off in every society because it is the middle class and upper classes that are consuming most of the energy and not the very poor people.

"The main one is the fuel subsidy because that's a lot of money: The fuel subsidy alone in 2011 was about three times the capital budget; it's a lot of money...We are basically supporting what almost everyone in Nigeria has been saying at least, in terms of the policy makers and we think it's the right way to go."

Continuing, he noted that: "There are other forms of subsidy-there's the budget subsidy to power company (PHCN) and it's supposed to be in place for the next two years: and that is suppose to stop. And that's something that is important."

He said the right way to go was to subsidise consumers within the power sector instead of the whole industry.

He said the present controversy over the passage of the Petroleum Industry Bill (PIB) had continued to delay huge investment in the power sector.

However, he said the economy was expected to continue to post strong growth in the non-oil sectors.

According to him, tighter fiscal monetary policy is easing inflationary pressures, although government's medium-term expenditure framework required substantial fiscal adjustment.

Rogers added however that the success of such expenditure framework would largely depend on the use of the Excess Crude Account (ECA) and the Sovereign Wealth Fund (SWF) as well as the ability to contain recurrent expenditures.

He explained that international reserves would continue to rise, helped by the relatively high interest rates in short-term.

He noted that macroeconomic performance and policies in 2012 had been largely positive adding that fiscal targets for 2013 and medium term were consistent with macroeconomic stability although additional measures were required.

He added that the elimination of subsidy would help fiscal adjustment.

He said there was need to strengthen oil-price rule and oil savings mechanism as well as implementation capacity of public investment.

He, however, warned that the overall success could be limited by negative oil price shock arising from weaker global recovery as well as weaker fiscal stance arising from spending pressures.

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