Press Release: IMF Executive Board Concludes 2016 Article IV Consultation with Nigeria
IMF News, March 31, 2016
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- Published: March 31, 2016
Overview
- On March, 30, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Nigeria.
- The Nigerian economy faces substantial challenges driven by lower oil prices, which significantly affected fiscal and external accounts and slowed growth.
Economic developments and outlook
- Non-oil sector accounts for 90 percent of GDP, while the oil sector remains central to the economy.
- Growth and inflation:
- Real GDP growth slowed from 6.3 percent in 2014 to an estimated 2.7 percent in 2015.
- Growth in 2016 is expected to decline to 2.3 percent, with non-oil sector growth projected to slow from 3.6 percent in 2015 to 3.1 percent in 2016 before recovering to 3.5 percent in 2017.
- Inflation increased to 9.6 percent in January (up from 7.9 percent in December, 2014), above the CBN’s medium-term target range of 6–9 percent.
- Resilience and social impact:
- Slower growth weakened corporate balance sheets, lowered banking system resilience, and likely reversed progress in reducing unemployment and poverty.
- Recovery prospects and downside risks:
- Recovery likely modest over the medium term, with significant downside risks including lower oil prices, shortfalls in non-oil revenues, deterioration in state and local government finances, constraints on access to foreign exchange disrupting private sector activity, and resurgence in security concerns.
Fiscal and external accounts
- Fiscal:
- Government revenues fell to just 7.8 percent of GDP in 2015, with the general government deficit doubling to about 3.7 percent of GDP in 2015.
- The general government deficit is projected to widen somewhat in 2016 before improving in 2017.
- Directors emphasized the critical need to raise non-oil revenues to ensure fiscal sustainability while maintaining infrastructure and social spending.
- External:
- Exports dropped about 40 percent in 2015, pushing the current account from a surplus of 0.2 percent of GDP to a deficit projected at 2.4 percent of GDP.
- With foreign portfolio inflows slowing, reserves fell to $28.3 billion at end-2015.
- The external current account deficit is likely to worsen further in 2016.
Monetary policy and exchange rate
- Policy stance and impacts:
- Exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have significantly impacted private sector segments dependent on foreign currencies.
- The combination of expansionary monetary policy, a relatively fixed exchange rate, and exchange restrictions adversely impacted economic activity and raised concerns about the authorities’ commitment to the inflation objective.
- Recommendations:
- Directors underscored the need for credible adjustment to the large terms-of-trade shock, including greater exchange rate flexibility and speedy unwinding of exchange restrictions to facilitate an exchange rate consistent with fundamentals.
- They welcomed recent monetary policy tightening and recommended that the central bank target price stability to maintain inflation within the target range.
Financial sector soundness
- Current situation:
- Declining asset quality is a concern as growth slows, though financial sector soundness indicators remain favorable.
- Recommendations:
- Further strengthening of regulatory and supervisory frameworks, intensified monitoring of banks, and enhanced contingency planning and resolution frameworks were recommended.
- Lowering interest rate spreads and increasing efficiency could enhance credit growth, especially for small and medium enterprises.
Structural reforms and governance
- Policy priorities urged by Directors:
- Raise non-oil revenues through a gradual increase in the VAT rate, further improvements in revenue administration, and broadening of the tax base.
- Implement budget preparation and execution reforms to allow orderly sub-national budget adjustment.
- Strengthen public financial management and service delivery.
- Implement an independent price-setting mechanism to address petroleum subsidies while strengthening the social safety net.
- Continue core infrastructure investment, reduce the cost of doing business through greater transparency and accountability, and promote employment of youth and women.
- Adopt legislation to spur investment in the oil and gas sector and promote governance policies, including targeted AML/CFT measures.
- Foster transparency and enhanced accountability.
Data and statistical efforts
- Directors welcomed progress in improving quality and availability of economic statistics.
- Authorities committed to implement the e-GDDS, including a National Summary Data Page, and encouraged efforts to improve balance of payments data and compilation of sub-national fiscal accounts.
Key statistics and projections (2014–2017)
- Real GDP (at 2010 Basic Prices): 6.3 (2014); 2.7 (2015 Prel.); 2.3 (2016 Projections); 3.5 (2017)
- Oil and Gas GDP: -1.3 (2014); -5.4 (2015); -4.8 (2016); 3.0 (2017)
- Non-oil GDP: 7.3 (2014); 3.6 (2015); 3.1 (2016); (2017) 3.5
- Production of crude oil (million barrels per day): 2.2 (2014); 2.1 (2015)
- Consumer price index (end of period): 8.0 (2014); 9.6 (2015); 12.0 (2016); 12.5 (2017)
- Total revenues and grants (Percent of GDP): 10.5 (2014); 7.8 (2015); 5.9 (2016); 6.8 (2017)
- Of which: oil and gas revenue (Percent of GDP): 6.5 (2014); 3.7 (2015); 1.5 (2016); 1.9 (2017)
- Total expenditure and net lending (Percent of GDP): 12.3 (2014); 11.5 (2015); 10.3 (2016); 10.9 (2017)
- Overall balance (Percent of GDP): -1.8 (2014); -3.7 (2015); -4.4 (2016); -4.0 (2017)
- Non-oil primary balance (percent of non-oil GDP): -8.2 (2014); -6.8 (2015); -5.3 (2016); -5.2 (2017)
- Broad money (percentage change; end of period): 20.4 (2014); 14.2 (2015); 16.5 (2016)
- Net foreign assets: -10.9 (2014); -7.4 (2015); -2.4 (2016)
- Net domestic assets: 31.1 (2014); 12.7 (2015); 21.5 (2016); 18.9 (2017)
- Exports of goods and services: -13.3 (2014); -40.7 (2015); -21.8 (2016); 22.6 (2017)
- Imports of goods and services: -22.1 (2014); -3.0 (2015); 6.9 (2016)
- Current account balance (percent of GDP): 0.2 (2014); -2.8 (2015)
- Terms of trade: -2.7 (2014); -24.9 (2015); -16.9 (2016); 9.3 (2017)
- Price of Nigerian oil (US$ per barrel): 100.6 (2014); 53.1 (2015); 36.1 (2016); 43.3 (2017)
- Gross international reserves (US$ billions): 34.3 (2014); 28.3 (2015); 19.5 (2016)
- Equivalent months of next year’s imports (reserves): 6.1 (2014); 5.2 (2015); 3.2 (2016)
IMF Press Release No. 16/146 — March 31, 2016. Executive Board conclusions and staff projections as presented in the Article IV Consultation with Nigeria.