An International Monetary Fund (IMF) staff team led by Amine Mati, Senior
Resident Representative and Mission Chief for Nigeria, visited Nigeria from
June 27 to July 9, 2018 to discuss recent economic and financial
developments, update macroeconomic projections, and review reform
implementation. At the end of the visit, Mr. Mati issued the following
statement:
“Higher oil prices and short-term portfolio inflows have provided relief
from external and fiscal pressures but the recovery remains challenging.
International reserves remained stable at about $47 billion, supported by
some convergence in existing foreign exchange windows, and despite some
reversal of foreign inflows since April. Inflation declined to its lowest
level in more than two years. Real GDP expanded by 2 percent in the first
quarter of 2018 compared to the first quarter of last year. However,
activity in the non-oil non-agricultural sector remains weak as lower
purchasing power weighs on consumer demand and as credit risk continues to
limit bank lending.
“Corporate tax collection efforts improved but revenue shortfalls and the
late adoption of the 2018 budget impede its implementation. Revenue from
higher oil prices is limited by net losses from retail fuel sales while
non-oil revenue remains below expectations, with yields from tax
administration measures—including the Voluntary Asset Income Declaration
Scheme (VAID) and increased tax audits—yet to fully materialize. Current
spending remains in line with expectations. Carryover from 2017 to 2018
helped increase capital spending in the first four months of 2018, despite
delayed approval of the 2018 budget. Lower yields have kept interest
payments within the budgeted envelope, but the Federal Government’s
interest-to-revenue ratio is expected to absorb more than half of revenues
this year.
“Reforms to improve the business environment are progressing, including
through identification of priority investment projects and the adoption of
the Company and Allied Matters Act (CAMA)—a legislative landmark for
private sector development. The implementation of the Power Sector Recovery
Plan is advancing through a mini-grid policy, and regulations on eligible
customers and meter asset providers.
“Under current policies, the outlook remains challenging. Growth would pick
up to about 2 percent in 2018, weighed down by lower than expected oil
production and relatively weak agriculture growth. The fiscal deficit would
narrow slightly, with higher oil revenues offsetting increased spending,
including those planned in a supplementary budget. Inflation would pick up
in the second half of 2018 as base effects dissipate and higher spending
and supply constraints in agriculture put pressure on prices. Increased oil
exports would keep the current account in surplus, helping stabilize gross
international reserves even if the current pace of foreign portfolio
outflows continues.
“A coherent set of policies to reduce vulnerabilities and increase growth
remains urgent. This includes specific and sustainable measures to increase
the currently low tax revenue—including through avoiding new tax exemptions
— and ensuring budget targets are adhered to even in an election year. This
process should be supported by keeping monetary policy tight through
appropriate monetary policy tools that will help contain inflationary
pressures and support a move towards a uniform market-determined exchange
rate. Moving ahead with structural reforms is needed to invigorate
inclusive growth, particularly in the power sector where faster progress
would be needed to ensure financing shortfalls in the sector are met in a
sustainable manner.
“The team held productive discussions with senior government and central
bank officials. It also met with representatives of the banking system, the
private sector, civil society, and international development partners. The
team wishes to thank the authorities and all those with whom they met for
the productive discussions, excellent cooperation, and warm hospitality.”
