The International Monetary Fund (IMF) has lauded the Federal Government’s proactive management of the COVID-19 pandemic and its economic impacts.
The commendation is contained in the organisation’s Executive Board’s conclusion of the 2021 Article IV Consultation with Nigeria, obtained from its website on Tuesday.
According to the board, in spite of the management of the pandemic, the outlook remains subject to significant risks, including from the pandemic trajectory, oil price uncertainty and security challenges.
It recognised that the Nigerian economy was recovering from a historic downturn benefitting from government policy support, rising oil prices and international financial assistance.
“After registering a historic deficit in 2020, the current account improved in 2021 and gross foreign exchange reserves have improved, supported by the IMF’s Special Drawing Rights (SDR) allocation and Eurobond placements in September 2021.
“Notwithstanding the authorities’ proactive approach to contain COVID-19 infection rates and fatalities and the recent growth improvement, socio-economic conditions remain a challenge.
“Levels of food insecurity have risen and the poverty rate is estimated to have risen during the pandemic,” it said.
IMF said the outlook faces balanced risks as on the downside, low vaccination rates expose Nigeria to future pandemic waves and new variants, while higher debt service to government revenues pose risks for fiscal sustainability.
It added that a worsening of violence and insecurity could also derail the recovery.
“On the upside, the non-oil sector could be stronger, benefitting from its recent growth momentum, supportive credit policies, and higher production from the new Dangote refinery.
“Nigeria’s ratification of the African Continental Free Trade Agreement (AfCFTA) could also yield a positive boost to the non-oil sector while oil production could rebound, supported by the more generous terms of the Petroleum Industry Act,” it said.
IMF, however, emphasised the need for major reforms in the fiscal, exchange rate, trade and governance areas to lift long-term, inclusive growth.
On exchange rate, the directors welcomed the removal of the official exchange rate and recommended further measures towards a unified and market-clearing exchange rate.
This, they said, was to help strengthen Nigeria’s external position, taking advantage of the current favorable conditions.
They also noted that exchange rate reforms should be accompanied by macroeconomic policies to contain inflation, structural reforms to improve transparency and governance, and clear communications regarding exchange rate policy.
The directors highlighted the urgency of fiscal consolidation to create policy space and reduce debt sustainability risks.
“In this regard, they called for significant domestic revenue mobilisation, including by further increasing the Value Added Tax (VAT) rate, improving tax compliance and rationalising tax incentives.
“Directors also urged the removal of untargeted fuel subsidies, with compensatory measures for the poor and transparent use of saved resources.
“They stressed the importance of further strengthening social safety nets,” it said.
According to IMF, it considers it appropriate to maintain a supportive monetary policy in the near term, with continue vigilance against inflation and balance of payments risks.
It also encouraged the Federal Government to stand ready to adjust the monetary stance if inflationary pressures increase.
To this end, it recommended strengthening the monetary operational framework over the medium term by focusing on the primacy of price stability and scaling back the central bank’s quasi-fiscal operations.
The fund commended the banking sector’s resilience in the face of the pandemic and the planned expiration of pandemic-related support measures.
It added that directors agreed that while the newly launched eNaira could help foster financial inclusion and improve the delivery of social assistance, close monitoring of associated risks would be important.
They also encouraged further efforts to address deficiencies in the Anti Money Laundering/Combating Financing of Terrorism (AML/CFT) framework.
“Directors emphasised the need for bold reforms in the trade regime and agricultural sector, as well as investments, to promote diversification and job-rich growth and harness the gains from the AfCFTA.
“Improvement in transparency and governance are also crucial for strengthening business confidence and public trust,” it said.
The directors called for stronger efforts to improve transparency of COVID-19 emergency spending.
They also agreed that Nigeria’s capacity to repay the IMF was adequate, while encouraging addressing data gaps to allow timely and clear assessments of reserve adequacy.