The Executive Board of the International Monetary Fund (IMF) has urged the Nigerian government to phase out fuel subsidy and use savings to strengthen social safety nets to mitigate its impact on the most vulnerable, arguing that this would help reduce the poverty gap in Nigeria where close to 90 million people live in extreme poverty. The lender’s position was made known in its Article IV Consultation report.
Under Article IV of the IMF’s Articles of Agreement, the organisation holds annual bilateral discussions with members.
However, the IMF lauded Nigeria’s ongoing economic recovery, which has come with lower inflation and improved reserve buffers, but noted that under current policies, the outlook remains muted, with growth expected to hover around 2.5 percent over the medium term, except strong reforms are introduced.
The Nigerian economy grew by 1.9 percent in 2018 up from 0.8 percent in 2017, following growth in manufacturing and services, helped by efforts to improve the ease of doing business in the country, as well as higher oil prices, among other bright moves to grow the economy. The year 2018 also ended with headline inflation down to 11.4 percent, reflecting declining food price inflation. While it remains outside of the central bank’s target range of 6- 9 percent, it is a sign of policy impact as it continues to drop despite the general elections earlier that held over the past one month. By February 2019, inflation had dropped to 11.31 percent. The IMF expects this drop to continue with the country’s monetary policy focused on exchange rate stability. However, the lender says this stance will worsen competitiveness if flexibility in the exchange rate regime is not allowed when necessary.
The IMF Directors also urged the Nigerian government to reinvigorate implementation of structural reforms to diversify the economy and achieve the Sustainable Development Goals.
“Long standing structural and policy challenges need to be tackled more decisively to reduce vulnerabilities, raise per capita growth, and bring down poverty,” the IMF notes, with its Directors, urging the Nigerian government to redouble reform efforts and accelerate implementation of its Economic Recovery and Growth Plan (ERGP).
Launched in 2017 following a 2016 recession, the ERGP is designed to achieve three broad objectives dear to the Nigerian government — restore growth to a positive path and sustain it to, at least, 7 percent by 2020; invest in Nigerians and improve their living standards; and build an economy that is globally competitive. At the current pace, it will take a miracle for Nigeria to achieve its economic growth objectives by 2020, but it can start improving living standards and competitiveness of its economy.
While the lender backs some of the ERGP priorities, particularly on non-oil revenue mobilization, power sector reforms, anti-corruption, and the business environment, the body advised on a comprehensive package of policy reforms to address vulnerabilities in the Nigerian economy and raise growth to about 4.5 percent within a five-year period, including revenue-based fiscal consolidation, maintaining a tight monetary policy while improving the policy framework and adopting a unified market-determined exchange rate, as well as enhancing banking sector resilience through strengthened capital buffers and banking resolution framework. The IMF also advises Nigeria to address structural challenges that will help tackle longstanding weaknesses that inhibit economic diversification, including in the business environment, governance, public investment efficiency, health and education, power sector and financial inclusion.