Joseph Inokotong – Abuja
The International Monetary Fund (IMF) has urged the Federal Government to finalise securitisation of the Central Bank of Nigeria (CBN) existing stock of overdrafts (Ways & Means) and stressed that the apex bank’s budget financing should strictly adhere to the statutory limits.
The IMF also advised the authorities to deliver on their commitment to remove fuel subsidies by mid-2023, and to increase well-targeted social spending.
This is contained in the IMF Executive Board 2022 Article IV Consultation with Nigeria, which was released on Wednesday in Abuja.
In one of its recommendations, the IMF stressed the need for “strengthening revenue mobilisation, including tax administration reforms, expanding the tax automation system and strengthening taxpayer segmentation”, noting that “improving tax compliance is also a priority”.
In the medium term, the IMF Directors recommended “modernizing customs administration, rationalizing tax incentives, and raising tax rates to the levels of the Economic Community of West African States (ECOWAS)”.
The Executive Directors agreed with the thrust of the staff appraisal, and welcomed the broadening of Nigeria’s economic recovery but noted that the opportunity to reap the benefits from higher global oil prices was missed.
They underscored near-term downside risks arising from elevated inflation, high debt-servicing costs, external sector pressures, and oil sector volatility.
Looking ahead, the Directors recommended decisive fiscal and monetary tightening to secure macroeconomic stability, combined with structural reforms to improve governance, strengthen the agricultural sector, and boost inclusive, sustainable growth.
They also highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities.
Tte Directors urged decisive and effective monetary policy tightening to avoid a de-anchoring of inflation expectations, and noting recent increases in the policy rate, they encouraged the CBN to “stand ready to further increase the policy rate if needed, and to implement additional actions, including fully sterilizing central bank financing of fiscal deficits and phasing out credit intervention programmes”, noting that “Strengthening the CBN’s independence and establishing price stability as its primary objective is critical”.
Also, the IMF “Directors encouraged a continued move toward a unified and market-clearing exchange rate by dismantling various exchange rate windows at the CBN”, pointing out that “providing clarity on exchange rate policy would help boost investor confidence, quell capital outflow pressures, and rebuild buffers”.
They welcomed Nigeria’s intention to participate in the African Continental Free Trade Agreement, and the resilience of the banking sector and encouraged increased vigilance given potential risks associated with dynamic retail credit growth.
They also emphasized the need to enhance the “effectiveness of the AML/CFT framework and to avoid public listing by the FATF”, and welcomed “ongoing efforts to foster financial inclusion, including through the use of mobile money with appropriate regulation and supervision”.
The Directors highlighted the importance of improving the performance of the agricultural sector for job creation and food security, and urged the authorities to implement governance reforms, including delivering on commitments from the 2020 Rapid Financing Instrument. “Improving transparency and accountability in the oil sector is also key to strengthening governance”.
After the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation (1) with Nigeria on February 6, 2023, they observed that Nigeria’s economy has recouped the output losses sustained during the COVID-19 pandemic supported by favorable oil prices and buoyant consumption activities.
The IMF pointed out that the near-term outlook faces downside risks, while there are upside risks in the medium term, stressing that “Higher international food and fertilizer prices and continued widening of the parallel market premium could culminate in the de-anchoring of inflation expectations. The oil sector faces downside risks from possible production and price volatility, while climate-related natural disasters (e.g., floods) pose the same risks to agricultural production”.
The IMF warned that further widening in sovereign premia could increase debt servicing costs, and “in the medium term, there are upside risks from a potential stronger reform momentum and a larger-than-expected rebound in oil and gas production”.
