Nigeria: IMF Executive Board Concludes 2020 Article Iv Consultation With Nigeria

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Washington, DC — On January 27, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Nigeria.

Nigeria's economy has been hit hard by the COVID-19 pandemic. Following a sharp drop in oil prices and capital outflows, real GDP is estimated to have contracted by 3.2 percent in 2020 amidst the pandemic-related lockdown. Headline inflation rose to 14.9 percent in November 2020, a 33-month high, reflecting core and food inflation increases emanating from supply shortages due to the lockdown effected to curb infections alongside, the land-border closure and continued import restrictions. The unemployment rate reached 27 percent in the second quarter of 2020, with youth unemployment at 41 percent.

The Nigerian authorities acted swiftly to adopt a pandemic-related support package equivalent to 0.3 percent of GDP in the 2020 revised federal budget despite limited fiscal space. External vulnerabilities due to lower oil prices and weak global demand have increased, with the current account remaining in deficit in the first half of 2021. In April 2020, Nigeria received IMF emergency financial assistance of $3.5 billion under the Rapid Financing Instrument to help cushion the impact of the pandemic.

Socio-economic conditions have deteriorated, with rising food inflation, elevated youth unemployment, mass protests in October 2020, and surveys show worsening food insecurity with a significant impact on the vulnerable.

Risks are tilted to the downside and include the resurgence of the pandemic, security situation and unfavorable external environment. Capital outflow risks arise from the record-low domestic interest rates and large foreign holdings of domestic securities. On the upside, recovering oil prices and completion of the Dangote oil refinery could catalyze more domestic crude oil production and boost growth.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for the measures taken to address the health and economic impacts of the COVID-19 pandemic which have exacerbated pre-existing weaknesses. Looking ahead, Directors emphasized the need for urgent policy adjustment and more fundamental reforms to sustain macroeconomic stability and lift growth and employment.

Directors welcomed notable reforms undertaken in the fiscal sector, including removal of the fuel subsidy and steps to implement cost-reflective tariff increases in the power sector. However, they stressed the need for significant revenue mobilization to reduce fiscal sustainability risks, relying initially on progressive and efficiency-enhancing measures with higher tax rates awaiting a more sustained economic recovery. They highlighted the need for improved social safety nets to cushion potential negative impacts on the poor.

Directors noted that multiple rates, limited flexibility, and foreign exchange shortages are posing challenges. They recommended a gradual and multi-step approach to establishing a unified and clear exchange rate regime with the near-term focus on allowing for greater flexibility and removing the payments backlog.

Directors observed that the accommodative monetary stance remains appropriate in the near term, although tightening may be warranted if balance of payments or inflationary pressures were to increase. In the medium term, the monetary policy operational framework should be reformed and Central Bank financing of budget deficit phased out in order to reduce inflation.

While welcoming the resilience of the banking sector, Directors called for continued vigilance to contain financial stability risks. They noted that COVID-19 debt relief measures for bank clients should remain time-bound and limited to those with good pre-crisis fundamentals.

Directors welcomed recent progress in structural reforms and called for continued reforms aimed at promoting economic diversification and reducing the dependence on oil and increasing employment. In addition, they encouraged strengthening governance and anticorruption frameworks, including compliance with AML/CFT measures. Directors also welcomed the ratification of the African Continental Free Trade Area and underscored that implementing trade-enabling reforms remains critical to rejuvenate growth.

Nigeria: Selected Economic and Financial Indicators, 2017-21

2017

2018

2019

2020

2021

1/20/2021 16:19

Projections

National income and prices

(Annual percentage change, unless otherwise specified)

Real GDP (at 2010 market prices)

0.8

1.9

2.2

-3.2

1.5

Oil and Gas GDP

4.7

1.0

4.6

-10.5

3.0

Non-oil GDP

0.5

2.0

2.0

-2.5

1.4

Non-oil non-agriculture GDP

-0.6

2.0

1.8

-4.0

1.2

Production of crude oil (million barrels per day)

1.89

1.93

2.00

1.80

1.84

Nominal GDP at market prices (trillions of naira)

114.9

129.1

145.6

157.7

183.4

Nominal GDP per capita (US$)

1,969

2,033

2,230

...

...

GDP deflator

11.1

10.2

10.4

11.8

14.6

Non-oil GDP deflator

7.1

8.5

13.0

15.0

14.4

Consumer price index (annual average)

16.5

12.1

11.4

13.2

14.8

Consumer price index (end of period)

15.4

11.4

12.0

15.2

13.8

Investment and savings

(Percent of GDP)

Gross national savings

18.2

20.8

22.4

21.8

21.8

Public

-0.5

0.7

0.4

-1.3

-0.2

Private

18.8

20.1

22.0

23.1

22.0

Investment

14.7

19.0

25.4

24.6

23.5

Public

3.3

3.0

3.0

2.4

2.7

Private

11.5

16.0

22.4

22.2

20.7

Current account balance

2.8

1.0

-3.8

-3.7

-2.2

-3.8

-2.3

-2.6

-3.7

-3.0

Consolidated government operations

(Percent of GDP)

Total revenues and grants

6.6

8.5

7.9

5.9

6.9

Of which: oil and gas revenue

2.6

4.6

3.7

1.9

2.2

Total expenditure and net lending

12.0

12.8

12.6

11.8

11.7

Overall balance

-5.4

-4.3

-4.8

-5.9

-4.7

Non-oil primary balance

-6.7

-7.2

-6.8

-5.9

-5.6

Non-oil revenue

4.0

4.0

4.2

3.9

4.5

Public gross debt1

25.3

27.7

29.1

34.4

34.3

Of which : FGN debt

22.4

25.0

26.5

31.0

30.7

Of which: External debt

5.0

6.4

6.2

8.4

7.7

FGN interest payments (percent of FGN revenue)

58.4

60.7

52.6

92.6

60.8

Interest payments (percent of consolidated revenue)

20.5

19.9

20.5

35.2

23.0

Money and credit

(Change in percent of broad money at the beginning of the period, unless otherwise specified)

Broad money (percent change; end of period)

-1.2

15.0

6.4

9.7

17.3

Net foreign assets

10.8

3.0

-18.0

2.1

-7.9

Net domestic assets

-12.0

12.0

24.5

7.7

25.2

o/w Claims on consolidated government

-1.0

5.1

16.2

7.4

15.6

Credit to the private sector (y-o-y,%)

-1.8

-11.9

23.5

15.6

19.3

Velocity of broad money (ratio; end of period)

3.8

3.5

3.8

3.9

3.8

External sector

(Annual percentage change, unless otherwise specified)

Exports of goods and services

32.3

29.9

5.9

-32.4

17.3

Imports of goods and services

8.4

40.6

40.7

-24.0

4.2

Terms of trade

9.4

12.4

-5.1

-18.2

6.5

Price of Nigerian oil (US dollar per barrel)

54.4

71.1

64.0

42.8

48.0

External debt outstanding (US$ billions) 2

94.8

99.2

112.4

105.5

107.6

Gross international reserves (US$ billions)

39.5

42.8

38.1

29.5

21.8

(equivalent months of imports of G&Ss)

6.6

5.1

6.0

4.4

3.1

Sources: Nigerian authorities; and IMF staff estimates and projections.

1 Gross debt figures for the Federal Government and the public sector include overdrafts from the Central Bank of Nigeria (CBN) and AMCON bonds.

2 Includes both public and private sector.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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