Despite some positive developments in the Nigeria's economy in recent months the International Monetary Fund (IMF) has said that the economy has sunk deeper than was the case before the COVID-19 pandemic.
A statement from the IMF headquarters in Washington DC, United States of America, which was forwarded by the Country Office to the media, yesterday, indicated that the staff of the global body arrived at this verdict following virtual meetings with Nigerian authorities earlier this month.
The IMF team at the meetings which was led by Ms. Jesmin Rahman, however, acknowledged that the economy has started to gradually recover from the negative effects of the COVID-19 global pandemic.
The verdict stated: "Following sharp output contractions in the second and third quarters, GDP growth turned positive in Q4 2020 and growth reached 0.5 percent (y/y) in Q1 2021, supported by agriculture and services sectors. "Nevertheless, the employment level continues to fall dramatically and, together with other socio-economic indicators, is far below pre-pandemic levels. Inflation slightly decelerated in May but remained elevated at 17.9 percent, owing to high food price inflation.
"With the recovery in oil prices and remittance flows, the strong pressures on the balance of payments have somewhat abated, although imports are rebounding faster than exports and foreign investor appetite remains subdued resulting in continued FX shortage.
"The incipient recovery in economic activity is projected to take root and broaden among sectors, with GDP growth expected to reach 2.5 percent in 2021.
"Inflation is expected to remain elevated in 2021, but likely to decelerate in the second half of the year to reach about 15.5 percent, following the removal of border controls and the elimination of base effects from elevated food price levels.
"Tax revenue collections are gradually recovering but, with fuel subsidies resurfacing, additional spending for Covid-19 vaccines, and to address security challenges, the fiscal deficit of the consolidated government is expected to remain elevated at 5.5 percent of GDP.
"Downside risks to the near-term arise from further deterioration of security conditions and the still uncertain course of the pandemic both globally and in Nigeria."
IMF further raised concerns on the resurfacing of fuel subsidies in the country.
Rahman stated: "The mission expressed its concern with the resurgence of fuel subsidies. It reiterated the importance of introducing market-based fuel pricing mechanism and the need to deploy well-targeted social support to cushion any impact on the poor. The mission recommended stepping up efforts to strengthen tax administration to mobilize additional revenues and help address priority spending pressures.
"The mission urged the authorities to keep reliance on CBN overdrafts for deficit financing within legal limits, while the government continues to make efforts to strengthen budget planning and public finance management practices to allow for flexible financing from domestic markets and better integration of cash and debt management.
"The recent removal of the official exchange rate from the CBN website and measures to enhance transparency in the setting of the NAFEX exchange rate are encouraging. The mission recommended maintaining the momentum toward fully unifying all exchange rate windows and establishing a market-clearing exchange rate."
On monetary policy, to strengthen the monetary targeting regime, IMF recommended integrating the interbank and debt markets and using central bank or government bills of short maturity as the main liquidity management tool, instead of the cash reserve requirements.