THE International Monetary Fund, IMF, has observed that non-performing loans, NPLs, across Nigerian banks have increased by more than double since 2015. It also said that the current 0.8 percent growth in the Nigerian economy in the first half of 2017 is still not sufficient to end poverty and reduce unemployment in the country.

The IMF said preliminary data for the first half of the year indicate significant revenue shortfalls, with the interest-payments to revenue ratio remaining high (40 percent at end-June) and projected to increase further under current policies. “High domestic bond yields and tight liquidity continue to crowd out private sector credit. Given Nigeria’s low growth environment and the banking system’s exposure to the oil and gas sector, non-performing loans increased from 6 percent in 2015 to 15 percent in March 2017 (8 percent after excluding the four undercapitalized banks).”

According to the IMF, “the economic backdrop remains challenging, despite some signs of relief in the first half of 2017. Economic activity contracted in the first quarter of the year by 0.6 percent, mainly as maintenance stoppages reduced oil production.”

The IMF also noted in a statement issued at the end of its staff visit to Nigeria on Wednesday, August 2, that the country’s economic challenges persist in spite of the federal government’s implementation of a number of important measures, including Economic Recovery and Growth Plan, ERGP. The federal government launched the ERGP to drive its economic diversification strategy and pull the economy out of recession.

The IMF visiting team led by Amine Mati, senior resident representative and mission chief for Nigeria, was in Nigeria between July 20 and 31 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.

It said following four quarters of negative growth, the non-oil economy grew by 0.6 per cent between last year and this year, amid a rebound in manufacturing and continued strong performance in agriculture. Although various indicators suggest an uptick in activity in the second quarter of the year, helped by favourable base effects, it said headline inflation, which decreased to 16.1 percent in June 2017, from 17.28 percent in April, remained high despite tight liquidity conditions.

The IMF noted significant revenue shortfalls in the first half of the year, with high interest-payments to revenue ratio of 40 percent at end of June, and projected to increase further under current government policies. High domestic bond yields and tight liquidity policies by government and the Central Bank of Nigeria, CBN, it stated, continue to crowd out private sector credit.

The IMF noted the improved security in the Niger Delta through strengthened engagement by the federal government and commended the monetary policy intervention by the CBN through its new investor and exporter FOREX window, saying it not only provided impetus to portfolio inflows but also helped increase the country’s foreign reserves above $30 billion, as well as reduce parallel market premium.

It also noted steps taken in implementing the power sector recovery plan, introducing a voluntary income and asset declaration programme and moving forward the 60-day national action plan to improve the business environment.

Besides, it said, progress was also ongoing within the oil and energy sector through the implementation of a new funding mechanism for cash calls.

“However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated. At 0.8 percent, growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty,” it stated.

It also expressed concerns about delays in policy implementation in the budget, which led to a reversal of favourable external market conditions, possible shortfalls in agricultural and oil production. Such delays, it said also brought additional fiscal pressures, continued market segmentation in a foreign exchange market that has continued to depend on CBN interventions, with banking system fragility representing the main risks to the outlook.

To bring about urgent economic recovery, the IMF proposed adoption of coherent policies, particularly the immediate implementation of specific priorities to help realise the ERGP goals. In the short term, the IMF called for a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues to create space for infrastructure spending, social protection, and private sector credit.

Other recommendations included a tight monetary policy that avoids direct financing of the government, promotion of a unified and market-based exchange rate, and rapid implementation of structural reforms. “Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy,” it said.

Aug 14, 2017 @ 01:00 GMT