The executive board of the International Monetary Fund is satisfied with the way the Nigerian economy is being managed and predicts its accelerated growth to be driven by agriculture, trade and services this year
| By Anayo Ezugwu | Mar. 17, 2014 @ 01:00 GMT
THE growth of Nigeria’s economy will accelerate this year. This is the prediction of the executive board of the International Monetary Fund, IMF. It said the expected economic growth will be driven by agriculture, trade and services. IMF also predicted that inflation would continue to decline, with lower food prices from higher rice and wheat production and supported by a tight monetary policy and a budget execution that maintains medium-term consolidation objectives.
The IMF welcomed Nigeria’s continued strong macroeconomic performance, underpinned particularly by sustained high growth in the non- oil sector. Inflation has continued to decline and the reserves position is adequate. While the economic outlook remains favourable, key risks include continued lower oil revenues from oil production losses and lower oil prices, the impact from the unwinding of unconventional monetary policy in advanced economies, and domestic political and security uncertainties. The IMF directors emphasized that steadfast implementation of prudent macroeconomic policies and reforms would be essential to address the risks and vulnerabilities, generate more inclusive and balanced growth, and reduce unemployment.
The directors welcomed the authorities’ continued commitment to fiscal consolidation and noted the improvements made to the fiscal framework. However, to ensure macroeconomic stability, they emphasised the need to rebuild fiscal buffers and to strengthen the framework further. “Efforts should be geared towards boosting non oil revenue by broadening the tax base, improving tax administration and curtailing exemptions, and further reducing oil subsidies.” Directors underscored that adopting a rule based reference oil price in fiscal projections and further strengthening public financial management should help the authorities achieve their consolidation objectives.
They also highlighted the need for improving oil revenue management by completing the transition from the Excess Crude Account to the Sovereign Wealth Fund. “These measures should be supported by full implementation of the Treasury Single Account and the integrated information management systems, maintaining fiscal discipline in the run up to the elections is also important.”
The IMF directors also called for strong action to address oil theft and production losses. They advised the authorities to strengthen the regulatory framework by passing a sound Petroleum Industry Bill with enhanced oversight and transparency provisions. The framework for anti- money laundering and combating the financing of terrorism could support these efforts.
They commended the authorities for lowering inflation and considered the current tight monetary policy stance to be appropriate, given the risks associated with potential capital flow reversals. To better manage liquidity, they generally encouraged more reliance on open market operations to guide short term interest rates. With regard to exchange rate policy, the directors noted that greater exchange rate flexibility could serve as an important buffer against external shocks.
According to them, the financial system is well capitalised with low nonperforming loans. They recommended continued improvements in the supervisory framework, especially with regard to increased exposure from cross border financial activities. The Breton Wood directors encouraged the authorities to build on the progress made in strengthening prudential policies, by further enhancing the framework for anti- money laundering and combating the financing of terrorism, and implementing the remaining Financial Sector Assessment Program, FSAP, recommendations. They welcomed the plan to wind down the operations of the Asset Management Corporation of Nigeria.
However, the directors emphasised that structural reforms remain critical to improve competitiveness and productivity, and reduce poverty and inequality. They encouraged the authorities to persevere with their transformation agenda with continued focus on education and health reforms, the improvement of power supply, and broadening of agricultural production. Reform efforts should also aim at enhancing the business environment, improving productivity, boosting financial access to small and medium sized enterprises, and strengthening governance and institutional capacity. The upcoming release of re based GDP data and further improvements in statistical data collection should strengthen the basis for policy and private sector decision making in Nigeria.
“Sound and balanced economic policies over the medium term are critical. Policies should focus on rebuilding external and fiscal buffers, avoiding spending pressures from the political cycle, strengthening the transparency and governance of the oil sector, and enhancing financial stability, while promoting the availability of and access to finance. Over the medium term, it will be vital to ensure the steady implementation of the wide-range of structural reforms necessary to improve competitiveness and productivity, boost growth and job creation, strengthen governance, and build social cohesion,” the IMF report said.