IMF Staff Concludes Visit to Nigeria

IMF News, August 2, 2017

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IMF staff team led by Amine Mati visited Nigeria from July 20-31, 2017 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.
End-of-mission statement emphasizes preliminary findings and does not represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

Economic activity contracted in Q1 2017 by 0.6 percent, mainly due to maintenance stoppages reducing oil production.
After four quarters of negative growth, the non-oil economy grew by 0.6 percent (year-on-year), driven by a rebound in manufacturing and strong agricultural performance.
Various indicators suggest an uptick in activity in Q2 2017.
Headline inflation decreased to 16.1 percent in June 2017, helped by favorable base effects, but remains high despite tight liquidity conditions.
Preliminary data for H1 2017 indicate significant revenue shortfalls.
At 0.8 percent, growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty.

Interest-payments to revenue ratio: 40 percent at end-June (projected to increase further under current policies).
Non-performing loans (NPLs): increased from 6 percent in 2015 to 15 percent in March 2017 (8 percent after excluding the four undercapitalized banks).
Reserves: increased above $30 billion following the new Investor and Exporter FX window.
Domestic context: high domestic bond yields and tight liquidity continue to crowd out private sector credit.
Main risks to the outlook:
- Delays in policy implementation.
- Reversal of favorable external market conditions.
- Possible shortfalls in agricultural and oil production.
- Additional fiscal pressures.
- Continued market segmentation in a foreign exchange market dependent on central bank interventions.
- Banking system fragilities.

The Economic Recovery and Growth Plan (ERGP) is driving the diversification strategy.
Security in the Niger Delta improved through strengthened engagement.
The new Investor and Exporter FX window has provided impetus to portfolio inflows, helped increase reserves above $30 billion, and contributed to reducing the parallel market premium.
Important steps in implementing the power sector recovery plan.
Introduction of a voluntary income and asset declaration program.
Advancement of the 60-day national action plan to improve the business environment.
Progress in the oil and energy sector through implementation of a new funding mechanism for cash calls.

Act immediately on a coherent set of policies to enhance economic recovery and reduce macroeconomic vulnerabilities.
Near-term priority: a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues to create space for:
- Infrastructure spending,
- Social protection,
- Private sector credit.
Monetary policy: avoid direct financing of the government and keep policy sufficiently tight.
Exchange rate policy: move to a unified and market-based exchange rate.
Structural reforms: rapid implementation to support a diversified private-sector-led economy.
Pursue these policies simultaneously to reduce vulnerabilities and create an environment for diversification.

The IMF team held productive discussions with senior government and central bank officials, members of parliament, representatives of the banking system, private sector, civil society, and international development partners.
The team expressed thanks for productive discussions, excellent cooperation, and warm hospitality.

Press Release No. 17/314 — August 2, 2017.