DESPITE the fact that Nigeria’s economy was reported to have exited recession, the recent report by the International Monetary Fund (IMF)’has said its economy is still vulnerable.
The IMF in a statement by Raphael Ranspach, its Media and Press Officer, welcomed the Federal Government’s actions to improve the power sector and business environment under the Economic Recovery and Growth Plan (EGRP).
The organisation explained that macroeconomic and structural reforms remained urgent to contain vulnerability and support sustainable private sector-led growth.
The IMF said its staff team led by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, visited Nigeria from December 6 to December 20 to conduct the 2018 Article IV consultation, which led to the report.
“Overall growth is slowly picking up but recovery remains challenging. Economic activity expanded by 1.4 per cent year-on-year in the third quarter of 2017 – the second consecutive quarter of positive growth after five quarters of recession – driven by recovering oil production and agriculture.
“However, growth in the non-oil-non-agricultural sector (representing about 65 per cent of the economy) contracted in the first three quarters of 2017 relative to the same period last year.
“Difficulties in accessing financing and high inflation continued to weigh on companies’ performance and consumer demand.
“Headline inflation declined to 15.9 per cent by end November, from 18.5 per cent at end of 2016, but remains sticky despite tight liquidity conditions.
“High fiscal deficits – driven by weak revenue mobilisation – generated large financing needs, which, when combined with tight monetary policy necessary to reduce inflationary pressures, increased pressure on bond yields and crowded out private sector credit.”
According to the IMF, the factors above contributed to raising the ratio of interest payments to the Federal Government revenue to unsustainable levels.
Reflecting the low growth environment and exposure to the oil and gas sector, it said the banking industry’s solvency ratio has declined from almost 15 to 10.5 per cent between December 2016 and October 2017.
“In addition, non-performing loans have increased from 5 per cent in June 2015 to 15 per cent as of October 2017, although with provisioning coverage of about 82 per cent,” it said.
It noted that the authorities had begun addressing macroeconomic imbalances and structural impediments through the implementation of policies underpinning the ERGP.
The international institution said through recovering oil prices, the new investor and exporter foreign exchange window has increased investor confidence and provided impetus to portfolio in flows.
The fund added that these have helped to increase external buffers to a four-year high and contributed to reducing the parallel market premium.
It said important actions under the Power Sector Recovery Programme increased power supply generation and ensured government agencies paid their electricity bills.
The IMF added that welcome steps were also taken to improve the business environment and to address long standing corruption issues, including the adoption of the National Anti-Corruption Strategy in August 2017.
It, however, noted that with the positive actions by the government, growth is expected to continue to pick up in 2018 to 2.1 per cent, aided by the full year impact of greater availability of foreign exchange and higher oil production, but this might stay relatively flat in the medium term.
“However, in the absence of new policies, the near-term outlook remains challenging. Risks to the outlook include lower oil prices, tighter external market conditions, heightened security issues and delayed policy responses,” IMF said.
