The International Monetary Fund (IMF) has reviewed its projected GDP for Nigeria from 2.5% to 2% in 2020. The global lender attributed the forecast to the expected fall in revenue of the nation, which is connected to a fall in oil prices due to the outbreak of coronavirus, and her inflation rate that is expected to rise.
This was stated in the Bretton Wood Institution’s Article IV Consultation on Nigeria.
According to the IMF’s document, the country needs a major policy shift and refocus in order to reduce growing vulnerabilities and shocks in the economy, just as the outlook is challenging under the current policies. It also predicted deteriorating terms of trade and capital outflows which will weaken the country’s external position.
Some officials of the lender led by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, paid visits to Lagos and Abuja in January and February for consultations and deliberations on the Nigerian economy.
Mati said, “External vulnerabilities in the country were increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals.
“The exchange rate has remained stable, helped by steady sales of foreign exchange in various windows.
“High fiscal deficits are complicating monetary policy. Weak non-oil revenue mobilisation led to further deterioration of the fiscal deficit, which was mostly financed by CBN overdrafts. The interest payments to revenue ratio remain high at about 60%.
“Under current policies, the outlook is challenging. The mission’s growth forecast for 2020 was revised down to two% to reflect the impact of lower international oil prices. Inflation is expected to pick up while deteriorating terms of trade and capital outflows will weaken the country’s external position.”
The IMF chief, however, noted that policymakers in the country had taken a number of steps having recognized the vulnerabilities which had to be tackled. Some of these measures include:
adoption of the Deep offshore Basin Act and Finance Bill;
adoption of the 2020 budget by December 2019 in order to improve its execution;
tightening monetary policy in January 2020 through higher cash reserve requirements to respond to looming inflationary pressures; and
power sector reforms, ease of doing business reforms and so on.
Mati reiterated the need for improvement on the non-oil revenue through major tax policy and administrative reforms. This is to ensure that revenue to debt ratio is improved, the interest payments to revenue ratio are sustainable and many other financial constraints are contained.
He mentioned in the report that the execution of the power sector recovery plan, implementing anti-corruption and financial inclusion strategy and addressing infrastructure gaps are essential for inclusive growth.