Nigeria: IMF Backs CBN's Monetary Policy to Grow Economy

16 October 2019

Washington, DC — The International Monetary Fund (IMF) yesterday reiterated its support for the ongoing tight monetary policy stance that had been adopted by the Central Bank of Nigeria (CBN) in the past few years.

The Chief Economist and Director of Research Department, IMF, Gita Gopinath, said this while responding to a THISDAY question, during a media briefing on the October 2019 World Economic Outlook (WEO), at the ongoing IMF/World Bank Annual Meetings in Washington DC.

She said the development bank supported the CBN's tight monetary policy and simpler unified exchange rate system, adding that this would alleviate the foreign exchange restrictions that had also been distorted public and private sector decisions and holding back of investments.

"More generally, strengthening the banking system resilience and continued stronger structural reforms, especially in infrastructure and power sector and broader governance remains critical," she added.

She expressed concern about the low level of per capita income in Nigeria, just as she reiterated the need for a comprehensive reform package in the country.

According to her, the fate of the Nigerian economy depends largely on volatility of crude oil prices.

"One thing to keep in mind about Nigeria is that per capita growth remains weak and this is why we are talking about restructuring and reforms," Gopinath stated.

Division Chief, Research Department, IMF, Oya Celasun, also said the multilateral institution had earlier in the year slightly reviewed upward Nigeria's growth due to strong agricultural production earlier in the year.

"But that growth is not high enough to lift the per capita growth into positive territory. For some time, we have been emphasising on a comprehensive package to lift growth. One element of that would have to be stronger non-oil revenue mobilisation as Nigeria has one of the lowest rates of revenue in the world, which was hit hard by the drop in oil prices.

"That is essential for the country to be able to spend more on priorities such as social safety and infrastructure," Celasun added.

While responding to a question on the benefits of the African Continental Free Trade Agreement to African countries, Celasun, who noted that African countries don't trade much with each other, said the continental deal would enhance trade, lower tariff barriers and help in creating new opportunities for growth.

"In the long term, we would expect that if its implementation progresses fast we would expect positive impact on the continent. Given the demographics of Africa, many jobs will have to be created and also considering the young population," she said.

Meanwhile, in its WEO, the IMF projected that Nigeria's Gross Domestic Product (GDP) growth will remain lacklustre in 2019. GDP growth in Nigeria stood at 1.94 per cent as of the second quarter of 2019.

"Growth in low-income developing countries remains robust, though growth performance is more heterogeneous within this group. Robust growth is expected for non-commodity exporters, such as Vietnam and Bangladesh, while the performance of commodity exporters, such as Nigeria, is projected to remain lacklustre.

"In sub-Saharan Africa, growth is expected at 3.2 percent in 2019 and 3.6 percent in 2020, slightly lower for both years than in the April 2019 WEO. Higher, albeit volatile, oil prices earlier in the year have supported the subdued outlook for Nigeria and some other oil-exporting countries in the region, but Angola's economy--because of a decline in oil production--is expected to contract this year and recover only mildly next year.

"In South Africa, despite a moderate rebound in the second quarter, growth is expected to be weaker in 2019 than projected in the April 2019 WEO following a very weak first quarter, reflecting a larger-than-anticipated impact of labour strikes and energy supply issues in mining, together with weak agricultural production.

"While the three largest economies of the region are projected to continue their lacklustre performance, many other economies--typically more diversified ones--are experiencing solid growth. About 20 economies in the region, accounting for about 45 per cent of the sub-Saharan African population and 34 per cent of the region's GDP (1 per cent of global GDP), are estimated to be growing faster than 5 per cent this year while growth in a somewhat larger set of countries, in per capita terms, is faster than in advanced economies," it stated.

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