May 10, (THEWILL) – The International Monetary Fund (IMF), says it remains positive with Nigeria’s bold economic reforms.
Highlighting the autonomy of the Central Bank of Nigeria (CBN), the Fund cautioned against the proposed amendment to the Act establishing the apex bank.
These positions were expressed in the Article IV Staff Consultation Report of the Board of Governors of the IMF, released in Washington, on Thursday.
The report noted that Nigeria under its new administration, has set out on an ambitious reform path to restore macroeconomic stability and support inclusive growth.
It noted that the authorities reformed the fuel price subsidies, unified official foreign exchange windows and are focused on revenue mobilisation, governance and enhancing the monetary and exchange rate policy frameworks, as well as strengthening social safety nets.
“Over the last decade, limited reforms, security challenges, weak growth and now high inflation have worsened poverty and food insecurity. While Nigeria swiftly exited the Covid-19 recession, per-capita income has stagnated.
“Data showed that Nigeria’s real gross domestic product (GDP) growth slowed to 2.9 percent in 2023, with weak agriculture and trade and despite the improvement in oil production and financial services”, IMF noted.
The Fund, however, projected economic growth of 3.3% for 2024, saying that both oil and agriculture outputs are expected to improve with better security.
IMF said determined and well-sequenced implementation of policy intentions would pave the way for faster, more inclusive, resilient growth. It also noted that the financial sector has remained stable, despite heightened risks.
While Inflation reached 33.2% percent year-on-year in March, with continued monetary tightening, IMF projected that inflation would gradually decline to 24 percent year-on-year at the end of 2024.
Noting that the fiscal position strengthened in 2023, the IMF said government revenues benefited from naira depreciation and enhanced revenue administration. Meanwhile, expenditure rationalisation and restraint allowed for a one-off wage increase to mitigate the impact of high inflation on public officials.
The Fund noted that the social cash transfer system has been strengthened and initial payments have been made. It added that gross international reserves declined in 2023 amid persistent capital outflow pressures.
The naira depreciated sharply after unifying the official foreign exchange windows in June 2023. The fund said, however, that the naira has started to stabilise following monetary policy, tightening in February and March 2024 and a resumption of FX interventions.
“Near-term risks are tilted to the downside, but determined and well-sequenced implementation of the authorities’ policy intentions would pave the way for faster, more inclusive and resilient growth. Food insecurity could worsen with further adverse shocks to agriculture or global food prices.
“Adverse shocks to oil production or prices would hit growth, the fiscal and external position, and exacerbate inflationary and exchange rate pressures”, it said.
A statement by the Fund said that its Executive Directors welcomed the bold reforms implemented by the President Bola Tinubu-led administration and commended the authorities focus on revenue mobilisation, governance, social safety nets and upgrading policy frameworks in the face of Nigeria’s significant economic and social challenges.
“In view of the downside risks, Directors stressed the importance of steadfast, well-sequenced and well-communicated reforms, to restore macroeconomic stability, reduce poverty, support social cohesion and pave the way for faster, inclusive and resilient growth.
“IMF directors commended the authorities’ actions to rein in inflation and restore market confidence. They stressed the importance of keeping a tight monetary policy stance to put inflation on a downward path, maintaining exchange rate flexibility, and building reserves.
“Directors welcomed the removal of foreign exchange market distortions and encouraged the authorities to continue improving the functioning of the FX market, including by adopting a well-designed FX intervention framework.
“Some Directors also noted that carefully and sequentially phasing out capital flow management measures when warranted would be important. Directors supported the authorities’ intentions to shift to an inflation targeting regime and recommended strengthening central bank independence and communication to ensure a successful transition”, the statement said.
They, however, cautioned against amendments to the CBN Act that might weaken the autonomy of the apex bank. They encouraged further progress in implementing the outstanding recommendations from the 2021 safeguards assessment.
In the official statement, directors said they appreciated the authorities’ commitment to discontinue deficit monetisation and positively noted progress in macroeconomic policy coordination.
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