IMF Executive Board Concludes 2019 Article IV Consultation with Nigeria

April 3, 2019

On March 27, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Nigeria.

Nigeria’s economy is recovering. Real GDP increased by 1.9 percent in 2018, up from 0.8 percent in 2017, on the back of improvements in manufacturing and services, supported by 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. Record holdings of mostly short-term local debt and equity and a current account surplus lifted gross international reserves to a peak in April 2018, while the three-times oversubscribed November 2018 Eurobond helped cushion the impact of outflows later in the year.

However, persisting structural and policy challenges continue to constrain growth to levels below those needed to reduce vulnerabilities, lessen poverty and improve weak human development outcomes, such as in health and education. A large infrastructure gap, low revenue mobilization, governance and institutional weaknesses, continued foreign exchange restrictions, and banking sector vulnerabilities are dampening long-term foreign and domestic investment and keeping the economy reliant on volatile oil prices and production.

Under current policies, the outlook remains therefore 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. On the upside, oil prices could rise, prompted by global political disruptions or supply bottlenecks. Bold reform efforts, following the election cycle, could boost confidence and investments, especially given relatively conservative baseline projections. On the downside, additional 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 [2]

Executive Directors welcomed Nigeria’s ongoing economic recovery, accompanied by reduced inflation and strengthened reserve buffers. They noted, however, that the medium-term outlook remains muted, with risks tilted to the downside. In addition, long standing structural and policy challenges need to be tackled more decisively to reduce vulnerabilities, raise per capita growth, and bring down poverty. Directors, therefore, urged the authorities to redouble their reform efforts, and supported their intention to accelerate implementation of their Economic Recovery and Growth Plan.

Directors emphasized the need for revenue-based consolidation to lower the ratio of interest payments to revenue and make room for priority expenditure. They welcomed the authorities’ tax reform plan to increase non-oil revenue, including through tax policy and administration measures. They stressed the importance of strengthening domestic revenue mobilization, including through additional excises, a comprehensive VAT reform, and elimination of tax incentives. Securing oil revenues through reforms of state owned enterprises and measures to improve the governance of the oil sector will also be crucial.

Directors highlighted the importance of shifting the expenditure mix toward priority areas. They welcomed, in this context, the significant increase in public investment but underlined the need for greater investment efficiency. They also recommended increasing funding for health and education. They noted that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space. Directors recommended stronger coordination for more effective public debt and cash management.

With inflation still above the central bank target, Directors generally considered that a tight monetary policy stance is appropriate. They encouraged the authorities to enhance transparency and communication and to improve the monetary policy framework, including by using more traditional methods, such as raising the monetary policy rate or cash reserve requirements.

Directors also urged ending direct central bank intervention in the economy to allow focus on the central bank’s price stability mandate.

Directors commended the authorities’ commitment to unify the exchange rate and welcomed the increasing convergence of foreign exchange windows. They noted that a unified market based exchange rate and a more flexible exchange rate regime would support inflation targeting. Directors also stressed that elimination of exchange restrictions and multiple currency practices would remove distortions and facilitate economic diversification.

Directors welcomed the decline in nonperforming loans and the improved prudential banking ratios but noted that restructured loans and undercapitalized banks continue to weigh on financial sector performance. They suggested strengthening capital buffers and risk based supervision, conducting an asset quality review, avoiding regulatory forbearance, and revamping the banking resolution framework. Directors also recommended establishing a credible time bound recapitalization plan for weak banks and a timeline for phasing out the state backed asset management company AMCON.

Directors urged the authorities to reinvigorate implementation of structural reforms to diversify the economy and achieve the Sustainable Development Goals. They pointed to the importance of improving the business environment, implementing the power sector recovery program, deepening financial inclusion, reforming the health and education sectors, and implementing policies to reduce gender inequities. Directors also emphasized the need to strengthen governance, transparency, and anti-corruption initiatives, including by enhancing AML/CFT and improving accountability in the public sector.

Directors welcomed improvements in the quality and availability of economic statistics and encouraged continued efforts to address remaining gaps, including through regular funding.



Table 1. Selected Economic and Financial Indicators, 2016–20

2016

2017

2018

2019

2020

Est.

Projections

National income and prices

(Annual percentage change, unless otherwise specified)

Real GDP (at 2010 market prices)

-1.6

0.8

1.9

2.1

2.5

Oil and Gas GDP

-14.4

4.7

1.1

4.4

6.1

Non-oil GDP

-0.3

0.5

2.0

1.9

2.2

Production of crude oil (million barrels per day)

1.81

1.89

1.93

2.00

2.10

Nominal GDP at market prices (trillions of naira)

102.6

114.9

129.1

144.6

161.2

Nominal GDP per capita (US$)

2,254

1,995

2,049

GDP deflator

9.5

11.1

10.2

9.6

8.8

Consumer price index (annual average)

15.7

16.5

12.1

11.7

11.7

Consumer price index (end of period)

18.5

15.4

11.4

12.1

11.7

Investment and savings

(Percent of GDP)

Gross national savings

16.0

18.2

15.8

13.8

13.9

Public

-0.1

-0.7

0.8

-0.1

-0.1

Private

16.1

18.9

15.0

13.9

14.0

Investment

15.4

14.7

13.2

13.7

13.6

Public

2.2

3.1

3.3

3.0

2.8

Private

13.2

11.6

9.9

10.7

10.8

Current account balance

0.7

2.8

2.1

-0.4

-0.2

Consolidated government operations

(Percent of GDP)

Total revenues and grants

5.5

6.2

8.0

7.0

7.3

Of which: oil and gas revenue

2.1

2.6

4.6

3.2

3.4

Total expenditure and net lending

9.5

11.6

12.5

12.1

11.9

Overall balance

-4.0

-5.4

-4.5

-5.1

-4.6

Non-oil primary balance

-4.8

-6.7

-7.4

-6.8

-6.9

Non-oil revenue

3.4

3.6

3.4

3.6

3.7

Public gross debt1

23.4

25.3

28.4

30.1

31.4

Of which : FGN debt

20.5

22.4

25.2

26.8

27.7

FGN interest payments (percent of FGN revenue)

61.9

58.4

60.0

63.0

50.7

Money and credit

(Change in percent of broad money at the beginning of the period, unless otherwise specified)

Broad money (percent change; end of period)

24.0

9.1

15.4

15.6

15.1

Net foreign assets

5.8

23.4

6.9

-4.5

-2.6

Net domestic assets

3.4

-26.0

8.5

20.1

17.6

o/w Claims on consolidated government

10.7

-2.4

4.4

15.5

14.6

Credit to the private sector (y-o-y,%)

22.3

-3.3

-6.7

3.9

2.3

Velocity of broad money (ratio; end of period)

3.7

3.8

3.4

3.4

3.4

External sector

(Annual percentage change, unless otherwise specified)

Exports of goods and services

-21.6

32.3

28.9

-8.5

5.7

Imports of goods and services

-34.7

8.4

29.9

8.5

2.6

Terms of trade

-6.1

10.3

12.5

-7.2

-0.5

Price of Nigerian oil (US dollar per barrel)

44.6

54.4

71.1

61.8

61.5

External debt outstanding (US$ billions) 2

45.7

50.6

63.4

69.8

76.6

Gross international reserves (US$ billions)

27.6

39.8

42.6

38.5

35.6

(equivalent months of imports of G&Ss)

6.5

7.2

7.1

6.3

5.7

Sources: Nigerian authorities; and IMF staff estimates and projections.

1 Gross debt figures for the Federal Government and the public sector include overdrafts from the Central Bank of Nigeria (CBN) and AMCON bonds (N 4.1 trillion). On a net basis, the overdrafts and government deposits at the CBN almost cancel out, and AMCON net debt reduces to N 2.4 trillion.

2 Includes both public and private sector.



[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .

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