The International Monetary Fund (IMF) has stressed the critical need for Nigeria to raise non oil revenues to ensure fiscal sustainability while maintaining infrastructure and social spending. This is contained in a statement released yesterday by the Board of the multilateral institution on its assessment in its Article IV Consultation with Nigeria on March 30.
The IMF Executive Board in a statement said it welcomed the renewed effort of the federal government to adopt legislation to spur investment in the oil and gas sector, and promote policies to strengthen governance of the sector. The Fund noted that the Nigerian economy was facing substantial challenges because it had been hit hard by the decline in oil prices, with the resultant slowed growth and macroeconomic imbalances. The IMF said
“The Nigerian economy is facing substantial challenges. While the non-oil sector accounts for 90 percent of GDP, the oil sector plays a central role in the economy. Lower oil prices have significantly affected the fiscal and external accounts, decimating government revenues to just 7.8 per cent of GDP and resulting in the doubling of the general government deficit to about 3.7 per cent of GDP in 2015. Exports dropped about 40 per cent in 2015, pushing the current account from a surplus of 0.2 per cent of GDP to a deficit projected at 2.4 per cent of GDP.
“With foreign portfolio inflows slowing significantly, reserves fell to $28.3 billion at end-2015. Exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies. Coupled with fuel shortages in the first half of the year and lower investor confidence, growth slowed sharply from 6.3 percent in 2014 to an estimated 2.7 percent in 2015, weakening corporate balance sheets, lowering the resilience of the banking system, and likely reversing progress in reducing unemployment and poverty. Inflation increased to 9.6 percent in January (up from 7.9 percent in December, 2014), above the CBN’s medium-term target range of 6–9 percent. “The recovery in economic activity is likely to be modest over the medium term, but with significant downside risks.
Growth in 2016 is expected to decline further to 2.3 percent, with non-oil sector growth projected to slow from 3.6 percent in 2015 to 3.1 percent in 2016 before recovering to 3.5 percent in 2017, based on the results of policies under implementation—particularly in the oil sector—as well as an improvement in the terms of trade. The general government deficit is projected to widen somewhat in 2016 before improving in 2017, while the external current account deficit is likely to worsen further. Key risks to the outlook include lower oil prices, shortfalls in non-oil revenues, a further deterioration in finances of state and local Governments, deepening disruptions in private sector activity due to constraints on access to foreign exchange, and resurgence in security concerns.
Source: Vanguard
