IMF Staff Concludes Virtual Visit with Nigeria

IMF News, June 17, 2021

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IMF team led by Ms. Jesmin Rahman held virtual meetings with the Nigerian authorities from June 1-8, 2021.
End-of-mission statement issued by Ms. Rahman conveying preliminary findings; the mission will not result in a Board discussion.
Press Release No. 21/184 dated June 17, 2021.

Real GDP:
- GDP growth turned positive in Q4 2020 and reached 0.5 percent (y/y) in Q1 2021, supported by agriculture and services sectors.
- GDP growth is expected to reach 2.5 percent in 2021.
Labor market and socio-economic indicators:
- Employment levels "continue to fall dramatically" and remain far below pre-pandemic levels.
Balance of payments and external sector:
- Recovery in oil prices and remittance flows has eased strong pressures on the balance of payments.
- Imports are rebounding faster than exports and foreign investor appetite remains subdued, resulting in continued FX shortage.

Inflation:
- Inflation slightly decelerated in May but remained elevated at 17.9 percent, owing to high food price inflation.
- Inflation is expected to remain elevated in 2021, but likely to decelerate in the second half of the year to reach about 15.5 percent, following the removal of border controls and elimination of base effects from elevated food price levels.

Revenues and spending:
- Tax revenue collections are gradually recovering.
- Fuel subsidies have resurfaced, raising concerns given low revenue mobilization.
- Additional spending needs cited for Covid-19 vaccines and to address security challenges.
Fiscal balance:
- Fiscal deficit of the Consolidated Government is expected to remain elevated at 5.5 percent of GDP.
Downside risks:
- Further deterioration of security conditions.
- The still uncertain course of the pandemic globally and in Nigeria.

Exchange rate measures:
- Recent removal of the official exchange rate from the CBN website and measures to enhance transparency in setting the NAFEX exchange rate are described as encouraging.
- Continued recommendation to maintain momentum toward fully unifying all exchange rate windows and establishing a market-clearing exchange rate.
Monetary operations and liquidity management:
- To strengthen the monetary targeting regime, the mission recommended integrating the interbank and debt markets and using central bank or government bills of short maturity as the main liquidity management tool, instead of the cash reserve requirements.
Fiscal financing from the central bank:
- The mission urged authorities to keep reliance on CBN overdrafts for deficit financing within legal limits while strengthening budget planning and public finance management to allow flexible financing from domestic markets and better integration of cash and debt management.

Soundness indicators:
- The banking sector remains liquid and well-capitalized while non-performing loans (NPLs) are contained.
Forbearance and moratoria:
- The extension of the moratorium on principal payments of qualifying credit facilities on a case-by-case basis through March 2022 should be limited to viable debtors with strong pre-crisis fundamentals.
Risk assessment:
- CBN stress tests indicate the banking system would remain adequately capitalized except in case of a severe deterioration of credit quality.
- Concern that some share of forborne loans may turn non-performing as the impact of the pandemic abates; NPLs often rise in the later part of economic crises.
- CBN’s strong oversight remains critical to safeguarding financial sector stability.

Covid-19 containment and vaccination:
- Mission commended authorities’ measures to contain transmission of Covid-19, including the ongoing vaccination program under the COVAX initiative.
- Mission strongly supported efforts to acquire additional doses from countries with surplus stocks.

Exchange rate and FX policy:
- Continue unifying exchange rate windows and establish a market-clearing exchange rate.
- Enhance transparency in exchange rate setting.
Fiscal policy and revenue mobilization:
- Refrain from reintroducing fuel subsidies; introduce market-based fuel pricing mechanism.
- Deploy well-targeted social support to cushion the impact on the poor.
- Step up efforts to strengthen tax administration to mobilize additional revenues.
Monetary policy and liquidity tools:
- Integrate interbank and debt markets.
- Use central bank or government bills of short maturity as main liquidity management tools instead of cash reserve requirements.
Public finance management and financing:
- Keep reliance on CBN overdrafts within legal limits.
- Strengthen budget planning and public finance management to allow flexible domestic financing and better integrate cash and debt management.
Banking sector supervision:
- Limit moratorium extensions through March 2022 to viable debtors with strong pre-crisis fundamentals.
- Maintain strong CBN oversight to monitor forborne loans and potential rises in NPLs.

Source: IMF Staff Press Release No. 21/184, June 17, 2021.