IMF Executive Board Concludes 2018 Article IV Consultation with Nigeria
IMF News, March 7, 2018
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- Published: March 7, 2018
Executive Board assessment
- Executive Directors agreed with the thrust of the staff appraisal.
- Welcomed Nigeria’s exit from recession and the strong recovery in foreign exchange reserves, helped by rising oil prices and new foreign exchange measures.
- Commended progress implementing the Economic Recovery and Growth Plan, including:
- start of a convergence in foreign exchange windows,
- tight monetary policy,
- improvements in tax administration,
- significant strides in improving the business environment.
- Noted remaining challenges: non‑oil, non‑agricultural sector has not picked up; inflation remains high and sticky; unemployment is rising; poverty is high.
- Urged comprehensive and coherent policy actions as urgent.
Macroeconomic outlook and growth
- The Nigerian economy is exiting recession but remains vulnerable.
- Economic growth reached 0.8 percent in 2017, driven mainly by recovering oil production.
- Growth projections:
- 2018: 2.1 percent
- 2019: 1.9 percent
- Improved oil prices expected to provide relief for external and fiscal accounts and support growth recovery.
- Medium-term projections indicate growth would remain relatively flat and per capita real GDP would continue to decline under unchanged policies.
Inflation, monetary policy, and reserves
- Inflation developments:
- annual average CPI: 16.5 (2016), 14.0 (2017), 14.8 (2018 projection)
- CPI end of period: 18.5 (end-2016), 15.4 (end-2017), 14.5 (end-2018), 16.6 (end-2019)
- Central Bank actions:
- Tight monetary policy contributed to better foreign exchange availability, increased reserves to a four-year high, and contained inflationary pressures.
- Directors commended the tightening bias in 2017 and recommended continuation until inflation is within the single digit target range.
- Recommended continued strengthening of the monetary policy framework and transparency; some Directors urged consideration of a higher monetary policy rate, a symmetric application of reserve requirements, and no direct central bank financing of the economy.
- Gross international reserves (US$ billions):
- 27.0 (2016), 39.2 (2017), 36.6 (2018 projection)
- Equivalent months of imports of G&Ss: 6.7 (2016), 7.3 (2017), 6.2 (2018 projection)
Fiscal position and public debt
- Fiscal balances and revenue:
- Total revenues and grants (percent of GDP): 5.6 (2016), 7.4 (2017), 7.1 (2018 projection)
- Of which: oil and gas revenue (percent of GDP): 2.5 (2016), 3.7 (2017), 3.3 (2018 projection)
- Total expenditure and net lending (percent of GDP): 11.2 (2016), 11.9 (2017), 11.6 (2018 projection)
- Overall balance (percent of GDP): -3.9 (2016), -5.5 (2017), -4.5 (2018 projection), -4.4 (2019 projection)
- Non-oil primary balance (percent of non-oil GDP): -5.1 (2016), -7.0 (2017), -7.6 (2018 projection), -6.7 (2019 projection)
- Non-oil revenue (percent of non-oil GDP): 3.6 (2016), 3.4 (2017), 3.9 (2018 projection), 4.0 (2019 projection)
- Public debt metrics:
- Public gross debt (percent of GDP): 19.6 (2016), 22.3 (2017), 25.3 (2018 projection), 26.0 (2019 projection)
- FGN debt (percent of GDP): 16.7 (2016), 18.4 (2017), 20.8 (2018 projection), 20.7 (2019 projection)
- FGN interest payments (percent of FGN revenue): 61.7 (2016), 71.9 (2017), 59.7 (2018 projection), 68.0 (2019 projection)
- Directors emphasized a growth‑friendly fiscal adjustment:
- Frontload non‑oil revenue mobilization and rationalize current expenditure to reduce the ratio of interest payments to revenue.
- Improve tax administration; consider more ambitious tax policy measures including reforming the value‑added tax, increasing excises, and rationalizing tax incentives.
- Implement an automatic fuel price‑setting mechanism, sound cash and debt management, improved transparency in the oil sector, increased monitoring of state and local government fiscal positions, and substantially scaled-up social safety nets.
External sector and oil
- Oil and production:
- Production of crude oil (million barrels per day): 1.81 (2016), 1.90 (2017), 2.10 (2018 projection), 2.20 (2019 projection)
- Price of Nigerian oil (US dollar per barrel): 44.6 (2016), 54.4 (2017), 67.8 (2018 projection), 63.9 (2019 projection)
- Trade and current account:
- Exports of goods and services (annual percent change): -21.6 (2016), 25.7 (2017), 30.1 (2018 projection), 0.0 (2019 projection)
- Imports of goods and services (annual percent change): -34.7 (2016), 34.3 (2017)
- Current account balance (percent of GDP): 0.7 (2016), 2.0 (2017), 0.1 (2018 projection)
- Directors welcomed recent foreign exchange measures and efforts to strengthen external buffers; urged unification of the exchange rate and removal of remaining restrictions and multiple exchange rate practices.
- After arrears clearance in 2018, fiscal deficit would narrow and public debt levels would remain relatively low, but interest payments-to-Federal Government revenue ratio would remain high.
- Stress scenarios highlight sensitivity of external and public debt to oil exports and naira depreciation; upside risk from faster implementation of infrastructure projects and higher international oil prices.
Financial sector and banking risks
- Banking sector vulnerabilities noted: rising banking sector risks should be contained.
- Directors welcomed central bank commitment to increase capital buffers by stopping dividend payments by weak banks.
- Recommended an asset quality review to identify potential capital needs.
- Called for enhanced risk‑based banking supervision, strict enforcement of prudential requirements, and a revamped resolution framework.
Structural reforms and governance
- Continued structural reform implementation needed to diversify the economy and promote private‑sector‑led growth.
- Priority actions include:
- Implement power sector recovery plan,
- Invest in infrastructure,
- Accelerate anti‑corruption and transparency initiatives,
- Update and implement financial inclusion and gender strategies.
- Commended improvements in quality and availability of economic statistics and encouraged further efforts to address remaining gaps.
Key indicators (selected)
- Real GDP (at 2010 market prices): -1.6 (2016), 0.8 (2017), 2.1 (2018 projection), 1.9 (2019 projection)
- Oil and Gas GDP: -14.4 (2016), 7.6 (2017), 10.8 (2018 projection), 5.7 (2019 projection)
- Non‑oil GDP: -0.3 (2016), 0.2 (2017), 1.3 (2018 projection), 1.5 (2019 projection)
- Nominal GDP at market prices (trillions of naira): 102.6 (2016), 121.0 (2017), 142.9 (2018 projection), 166.2 (2019 projection)
- Nominal non-oil GDP (trillions of naira): 97.2 (2016), 113.1 (2017), 131.4 (2018 projection), 154.7 (2019 projection)
- Nominal GDP per capita (US$): 2,254 (2016), 2,099 (2017), 2,268 (2018 projection), 2,567 (2019 projection)
- Gross national savings (percent of GDP): 13.2 (2016), 14.9 (2017), 13.3 (2018 projection), 13.6 (2019 projection)
- Investment (percent of GDP): 12.6 (2016), 12.9 (2017), 13.4 (2018 projection)
- Credit to the private sector (y-o-y,%): -3.3 (2016), 1.0 (2017)
Risks
- Balanced risks with main downside risks:
- Lower oil prices,
- Tighter external market conditions.
- Domestic downside risks include:
- Heightened security tensions,
- Delayed fiscal policy response,
- Weak implementation of structural reforms.
- Upside risks:
- Faster than expected implementation of infrastructure projects,
- Further uptick in international oil prices providing positive spillovers into the non-oil economy.
Source: IMF press release "IMF Executive Board Concludes 2018 Article IV Consultation with Nigeria", March 7, 2018.