By Cecilia Ologunagba
A team from the International Monetary Fund (IMF) said on Thursday that the Nigerian economy was “gradually” recovering from the negative effects of the COVID-19 pandemic.
The IMF disclosed this in its end-of-mission statement from its Washington, DC, headquarters on preliminary findings following virtual meetings of its teams with the Nigerian authorities from June 1-8.
The IMF team, led by Ms. Jesmin Rahman, discussed recent economic and financial developments and outlook and noted that “real gross domestic product (GDP) is recovering but unemployment and inflation remain high”.
He added, inter alia, that the recent exchange rate measures were encouraging and that further reforms were needed to achieve a fully unified and market-balanced exchange rate.
The findings also indicated that the resurgence of fuel subsidies was of concern, especially in the context of weak revenue mobilization.
“The Nigerian economy has started to gradually recover from the negative effects of the global COVID-19 pandemic.
“After sharp contractions in production in the second and third quarters, GDP growth turned positive in the fourth quarter of 2020 and growth reached 0.5% (year-on-year) in the first quarter of 2021, supported by the sectors of the agriculture and services.
“Nonetheless, the level of employment continues to drop dramatically and, along with other socio-economic indicators, is well below pre-pandemic levels.
“Inflation decelerated slightly in May but remained high at 17.9%, due to high food price inflation.
“With the recovery in oil prices and remittances, the strong pressures on the balance of payments have eased somewhat, although imports are rebounding faster than exports and the appetite of foreign investors remains low. which results in a continuing shortage of foreign exchange. “
The report says the nascent recovery in economic activity is expected to take hold and spread across sectors, with GDP growth expected to reach 2.5 percent in 2021.
He added that inflation is expected to remain high in 2021, but is expected to slow in the second half of the year to around 15.5%, following the removal of border controls and the elimination of the base effects of high price levels of foodstuffs.
“Tax revenues are gradually recovering but with the re-emergence of fuel subsidies, additional spending on COVID-19 vaccines and to deal with security concerns, the consolidated government budget deficit is expected to remain high at 5.5% of GDP.
“The short-term downside risks stem from a further deterioration in the security situation and the still uncertain course of the pandemic both globally and in Nigeria,” he said.
The IMF team praised the measures taken by the Nigerian authorities to contain the transmission of COVID-19 in the country.
He also praised the on-going vaccination program under the COVAX initiative and expressed strong support for the efforts of the Nigerian authorities to acquire additional doses in countries with surplus stocks.
The IMF team, however, expressed concern over the resurgence of fuel subsidies.
He reiterated the importance of introducing a market-based fuel pricing mechanism and the need to deploy well-targeted social support to cushion any impact on the poor.
He recommended redoubling efforts to strengthen tax administration to raise additional revenue and help address priority spending pressures.
“The mission urged the authorities to continue to use overdrafts from the Central Bank of Nigeria (CBN) for deficit financing within legal limits.
“The mission also advised the government to continue to make efforts to strengthen budget planning and public finance management practices to enable flexible financing in domestic markets and better integration of cash and debt management. “, did he declare.
He said the recent removal of the official exchange rate from the CBN website and measures to improve transparency in setting the Nigerian Autonomous Exchange Rate (NAFEX) were encouraging.
The mission recommended maintaining momentum towards the full unification of all exchange rate windows and the establishment of a market-balanced exchange rate.
In terms of monetary policy, to strengthen the monetary targeting regime, the mission recommended integrating the interbank and debt markets and using short-term central bank or government bonds as the main tool for managing debt. liquidity, instead of cash reserve requirements.
“The banking sector remains liquid and well capitalized while non-performing loans (NPLs) are contained.
“The extension of the moratorium on principal payments of eligible credit facilities on a case-by-case basis until March 2022 should be limited to viable debtors with strong pre-crisis fundamentals.
“CBN stress tests claim that the banking system would remain sufficiently capitalized, except in the event of a serious deterioration in credit quality.
“Nonetheless, it remains to be seen how much of the forgiven loans could become non-performing as the impact of the pandemic abates.”
He cautioned, however, that since non-performing loans often increased in the latter part of the economic crisis, close monitoring by the CBN remained essential to preserve financial sector stability.
The IMF mission thanked the Nigerian authorities and other counterparts for what it called “open and thoughtful discussions and excellent cooperation.” (NAA)