IMF Executive Board Concludes 2019 Article IV Consultation with Nigeria
IMF News, April 3, 2019
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- Published: April 3, 2019
Overview and recent developments
- On March 27, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nigeria.
- Nigeria’s economy is recovering: Real GDP increased by 1.9 percent in 2018, up from 0.8 percent in 2017, supported by improvements in manufacturing and services, spillovers from higher oil prices, ongoing convergence in exchange rates and strides to improve the business environment.
- Headline inflation fell to 11.4 percent at end-2018, reflecting declining food price inflation, weak consumer demand, a relatively stable exchange rate and tight monetary policy during most of 2018, but remains outside of the central bank’s target range of 6-9 percent.
- Gross international reserves peaked in April 2018 due to record holdings of mostly short-term local debt and equity and a current account surplus; the three-times oversubscribed November 2018 Eurobond helped cushion outflows later in the year.
Medium-term outlook and baseline projections
- Under current policies, the outlook is muted: over the medium term, absent strong reforms, growth would hover around 2½ percent, implying no per capita growth as the economy faces limited increases in oil production and insufficient adjustment four years after the oil price shock.
- Monetary policy focused on exchange rate stability would help contain inflation but worsen competitiveness if greater flexibility is not accommodated when needed.
- High financing costs, on the back of little fiscal adjustment, would continue to constrain private sector credit, and the interest-to-revenue ratio would remain high.
- Risks are moderately tilted downwards:
- Upside: oil prices could rise due to global political disruptions or supply bottlenecks; bold reform efforts following the election cycle could boost confidence and investments.
- Downside: delays in reform implementation, a persistent fall in oil prices, reduced oil production, increased security tensions, or tighter global financial market conditions could undermine growth, provoke a market sell-off, and put additional pressure on reserves and/or the exchange rate.
Executive Board Assessment and policy recommendations
- Directors welcomed the ongoing economic recovery, reduced inflation, and strengthened reserve buffers, but noted the medium-term outlook remains muted and risks are tilted to the downside.
- Key policy priorities emphasized by Directors:
- Revenue-based consolidation to lower the ratio of interest payments to revenue and make room for priority expenditure.
- Strengthen domestic revenue mobilization, including through additional excises, a comprehensive VAT reform, elimination of tax incentives, and the authorities’ tax reform plan to increase non-oil revenue.
- Secure oil revenues through reforms of state owned enterprises and measures to improve governance of the oil sector.
- Shift expenditure mix toward priority areas, increase investment efficiency, and increase funding for health and education.
- Phase out implicit fuel subsidies while strengthening social safety nets to mitigate impacts on the most vulnerable and free up fiscal space.
- Strengthen coordination for more effective public debt and cash management.
- Maintain a tight monetary policy stance while enhancing transparency and communication and improving the monetary policy framework (including using traditional methods such as raising the monetary policy rate or cash reserve requirements).
- End direct central bank intervention in the economy to allow focus on the central bank’s price stability mandate.
- Unify the exchange rate and move to a market-based, more flexible exchange rate regime; eliminate exchange restrictions and multiple currency practices.
- Strengthen banking sector resilience: increase capital buffers and risk-based supervision, conduct an asset quality review, avoid regulatory forbearance, revamp the banking resolution framework, establish a credible time-bound recapitalization plan for weak banks, and set a timeline for phasing out AMCON.
- Reinvigorate structural reforms to diversify the economy and achieve the Sustainable Development Goals: improve the business environment, implement the power sector recovery program, deepen financial inclusion, reform health and education sectors, implement policies to reduce gender inequities, and strengthen governance, transparency, and anti-corruption initiatives (including enhancing AML/CFT and improving public sector accountability).
- Continue improvements in economic statistics and address remaining gaps, including through regular funding.
Selected economic and financial indicators (highlights from Table 1, 2016–20)
- Real GDP (at 2010 market prices): -1.6 (2016); 0.8 (2017); 1.9 (2018); 2.1 (2019); 2.5 (2020)
- Oil and Gas GDP: -14.4 (2016); 4.7 (2017); 1.1 (2018); 4.4 (2019); 6.1 (2020)
- Non-oil GDP: -0.3 (2016); 0.5 (2017); 2.0 (2018); 2.2 (2019)
- Production of crude oil (million barrels per day): 1.81 (2016); 1.89 (2017); 1.93 (2018); 2.00 (2019); 2.10 (2020)
- Nominal GDP at market prices (trillions of naira): 102.6 (2016); 114.9 (2017); 129.1 (2018); 144.6 (2019); 161.2 (2020)
- Nominal GDP per capita (US$): 2,254 (2016); 1,995 (2017); 2,049 (2018)
- GDP deflator: 9.5 (2016); 11.1 (2017); 10.2 (2018); 9.6 (2019); 8.8 (2020)
- Consumer price index (annual average): 15.7 (2016); 16.5 (2017); 12.1 (2018); 11.7 (2019)
- Consumer price index (end of period): 18.5 (2016); 15.4 (2017); 11.4 (2018)
- Gross national savings (Percent of GDP): 16.0 (2016); 18.2 (2017); 15.8 (2018); 13.8 (2019); 13.9 (2020)
- Investment (Percent of GDP): 14.7 (2016); 13.2 (2017); 13.7 (2018); 13.6 (2019)
- Current account balance: 3.1 (2016); 3.3 (2017); 3.0 (2018); 2.8 (2019); 11.6 (2020) [table alignment preserved as in source]
- Total revenues and grants (Percent of GDP): 5.5 (2016); 6.2 (2017); 8.0 (2018); 7.0 (2019); 7.3 (2020)
- Of which: oil and gas revenue (Percent of GDP): 2.6 (2016); 4.6 (2017); 3.2 (2018); 3.4 (2019)
- Total expenditure and net lending (Percent of GDP): 12.5 (2016); 11.9 (2017)
- Overall balance (Percent of GDP): -4.0 (2016); -5.4 (2017); -4.5 (2018); -5.1 (2019); -4.6 (2020)
- Non-oil primary balance (Percent of GDP): -4.8 (2016); -6.7 (2017); -7.4 (2018); -6.8 (2019); -6.9 (2020)
- Non-oil revenue (Percent of GDP): 3.6 (2016); 3.7 (2017)
- Public gross debt (Percent of GDP): 23.4 (2016); 25.3 (2017); 28.4 (2018); 30.1 (2019); 31.4 (2020)
- Of which: FGN debt (Percent of GDP): 20.5 (2016); 22.4 (2017); 25.2 (2018); 26.8 (2019); 27.7 (2020)
- FGN interest payments (percent of FGN revenue): 61.9 (2016); 58.4 (2017); 60.0 (2018); 63.0 (2019); 50.7 (2020)
- Broad money (percent change; end of period): 24.0 (2016); 9.1 (2017); 15.6 (2018); 15.1 (2019)
- Credit to the private sector (y-o-y,%): 22.3 (2016); -3.3 (2017); 3.9 (2018); 2.3 (2019)
- Exports of goods and services (annual percent change): -21.6 (2016); 32.3 (2017); 28.9 (2018); -8.5 (2019); 5.7 (2020)
- Imports of goods and services (annual percent change): -34.7 (2016); 8.4 (2017); 29.9 (2018)
- Terms of trade: -6.1 (2016); 10.3 (2017); -7.2 (2018); -0.5 (2019)
- Price of Nigerian oil (US dollar per barrel): 44.6 (2016); 54.4 (2017); 71.1 (2018); 61.8 (2019); 61.5 (2020)
- External debt outstanding (US$ billions): 45.7 (2016); 50.6 (2017); 63.4 (2018); 69.8 (2019); 76.6 (2020)
- Gross international reserves (US$ billions): 27.6 (2016); 39.8 (2017); 42.6 (2018); 38.5 (2019); 35.6 (2020)
- Gross international reserves (equivalent months of imports of G&Ss): 6.5 (2016); 7.2 (2017); 7.1 (2018); 6.3 (2019)
Financial sector and structural reform priorities
- Financial sector: Directors welcomed the decline in nonperforming loans and improved prudential banking ratios but noted restructured loans and undercapitalized banks continue to weigh on performance.
- Recommendations: strengthen capital buffers and risk-based supervision; conduct an asset quality review; avoid regulatory forbearance; revamp the banking resolution framework; establish a credible time-bound recapitalization plan for weak banks; set a timeline for phasing out AMCON.
- Structural reforms: Directors urged reinvigorated implementation to diversify the economy and advance Sustainable Development Goals, including:
- Improve the business environment.
- Implement the power sector recovery program.
- Deepen financial inclusion.
- Reform health and education sectors.
- Implement policies to reduce gender inequities.
- Strengthen governance, transparency, and anti-corruption initiatives, including enhancing AML/CFT and improving public sector accountability.
IMF Press Release No. 19/99 — April 3, 2019.