IMF Staff Completes 2018 Article IV Mission to Nigeria

IMF News, December 22, 2017

Source details

Mission dates: December 6-20, 2017.
Announcement date: December 22, 2017.
Mission leader: Amine Mati, Senior Resident Representative and Mission Chief for Nigeria at the IMF.
Press Release No.: 17/521.
Summary statement: "Nigeria is exiting the recession but the economy remains vulnerable. Welcome actions to improve the power sector and business environment under the Economic Recovery and Growth Plan. Macroeconomic and structural reforms remain urgent to contain vulnerability and support sustainable private sector led growth."

Economic activity expanded by 1.4 percent 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.
Non-oil-non-agricultural sector (representing about 65 percent of the economy) contracted in the first three quarters of 2017 relative to the same period last year.
Headline inflation declined to 15.9 percent by end-November, from 18½ percent at end-2016, but "remains sticky despite tight liquidity conditions."
External buffers increased to a four-year high, helped by portfolio inflows following the new Investor and Exporter foreign exchange window.
Parallel market premium: reduced (no numeric value provided).

High fiscal deficits driven by weak revenue mobilization generated large financing needs.
Tight monetary policy, necessary to reduce inflationary pressures, increased pressure on bond yields and crowded out private sector credit.
Interest payments relative to federal government revenue: described as having increased "to unsustainable levels" (no numeric ratio provided in text).
Recent fiscal actions welcomed by the mission:
- Recent tax reforms aimed at improving tax administration.
- Planned increases in excises.
- Steps taken to lower debt servicing costs and lengthen maturities.
Policy recommendation: mobilize non-oil revenues, including through reforming the VAT and removing exemptions, while safeguarding priority expenditures, including scaling up social safety nets and infrastructure investment.

Banking industry solvency ratios declined from almost 15 to 10½ percent between December 2016 and October 2017.
Non-performing loans increased from 5 percent in June 2015 to 15 percent as of October 2017, with provisioning coverage of about 82 percent.
Factors contributing to banking sector stress: low growth environment and exposure to the oil and gas sector.

Monetary policy stance: should remain tight to further reduce inflation and anchor inflation expectations.
Exchange rate policy: move toward a unified and market-based exchange rate "as soon as possible" while continuing to strengthen external buffers to increase confidence and reduce potential risks from capital flow reversals.

Near-term outlook described as challenging in the absence of new policies.
Growth projection for 2018: expected to pick up to 2.1 percent, helped by the full year impact of greater availability of foreign exchange and higher oil production.
Medium-term growth: expected "to stay relatively flat."
Risks to the outlook include:
- Lower oil prices.
- Tighter external market conditions.
- Heightened security issues.
- Delayed policy responses.

Authorities have begun addressing macroeconomic imbalances and structural impediments through the Economic Recovery and Growth Plan (ERGP).
Positive measures noted:
- New Investor and Exporter foreign exchange window increased investor confidence.
- Power Sector Recovery Program increased power supply generation and ensured government agencies pay their electricity bills.
- Steps to improve the business environment and address corruption, including adoption of the National Anti-Corruption Strategy in August 2017.
Recommended structural priorities:
- Build on recent successes to improve the business environment.
- Close infrastructure gaps.
- Implement the power sector reform plan.
- Strengthen governance and transparency initiatives.
- Lower gender inequality and foster financial inclusion.
Intended outcome: a diversified private-sector led economy.

The team held 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 thanked the authorities and stakeholders for "the open and productive discussions, excellent cooperation, and warm hospitality."

International Monetary Fund