The International Monetary Fund (IMF) on Monday announced the downward review of growth forecast for Nigeria’s economy in 2020.
In a press statement obtained by Business Post today, the global lender said it was cutting the forecast to 2 percent “to reflect the impact of lower international oil prices.”
IMF warned that under current policies of the local authorities, “the outlook is challenging,” noting that, “High fiscal deficits are complicating monetary policy.”
It further said, “Weak non-oil revenue mobilisation led to further deterioration of the fiscal deficit, which was mostly financed by Central Bank of Nigeria (CBN) overdrafts. The interest payments to revenue ratio remains high at about 60 percent.”
The lender also said the pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity.
“Inflation—driven by higher food prices—has risen, marking the end of the disinflationary trend seen in 2019. External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals. The exchange rate has remained stable, helped by steady sales of foreign exchange in various windows,” the statement said.
While it identified efforts made by government to make thing better, the IMF stressed that, “Further tightening of monetary policy—albeit through more conventional methods—is needed to contain domestic and external pressures arising from large amounts of maturing CBN bills.”
It urged the CBN to end its interventions in the foreign exchange market, advising the apex bank to securitise overdrafts to introduce longer-term government instruments to mop up excess liquidity and move towards a uniform and more flexible exchange rate.
“Removing restrictions on access to foreign exchange for the 42 categories of imported goods would be needed to encourage long-term investment,” it submitted.
The IMF said, “Nigeria’s border closure will continue to have significant economic consequences on the country’s neighbours. It is important that all involved parties quickly resolve the issues keeping the borders closed—including to stop the smuggling of banned products.”
On the banking system, the IMF “welcomed recent efforts to reduce legacy non-performing loans,” saying the “introduction of risk-based minimum capital requirements would also help strengthen bank resilience.
“Notwithstanding the significant increase in lending, concerns about shortened maturity, asset quality and conflicting monetary policy signals call for revisiting the minimum lending to deposit ratio directive,” it averred.
Business Post gathered that from January 29 to February 12, 2020, an IMF staff team led by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, visited Lagos and Abuja to conduct its annual Article IV Consultation discussions on Nigeria’s economy.