Higher oil prices and portfolio flows have helped strengthen fiscal and external buffers in Nigeria, stated the International Monetary Fund (IMF) staff team led by Amine Mati, senior resident representative and mission chief for Nigeria, after concluding the visit from 27 June- 9 July 2018
The team held discussions with senior government and central bank officials and met with representatives of the banking system, the private sector, civil society and international development partners to discuss recent economic and financial developments, update macroeconomic projections and review reform implementation in Nigeria.
“Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. International reserves remained stable at about US$47bn, supported by some convergence in existing foreign exchange windows, and despite some reversal of foreign inflows since April. Inflation declined to its lowest level in more than two years. Real GDP expanded by two per cent in the Q1 2018 compared to the Q1 2017,” Mati added.
However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.
“Revenue from higher oil prices is limited by net losses from retail fuel sales while non-oil revenue remains below expectations, with yields from tax administration measures—including the Voluntary Asset Income Declaration Scheme (VAID) and increased tax audits—yet to fully materialise,” Mati said.
“Current spending remains in line with expectations. Carryover from 2017 to 2018 helped increase capital spending in the first four months of 2018, despite delayed approval of the 2018 budget. Lower yields have kept interest payments within the budgeted envelope, but the Federal Government’s interest-to-revenue ratio is expected to absorb more than half of revenues this year.”
“Growth would pick up to about two per cent in 2018, weighed down by lower than expected oil production and relatively weak agriculture growth. The fiscal deficit would narrow slightly, with higher oil revenues offsetting increased spending, including those planned in a supplementary budget. Inflation would pick up in the second half of 2018 as base effects dissipate and higher spending and supply constraints in agriculture put pressure on prices. Increased oil exports would keep the current account in surplus, helping stabilize gross international reserves even if the current pace of foreign portfolio outflows continues.”
“A coherent set of policies to reduce vulnerabilities and increase growth remains urgent. This includes specific and sustainable measures to increase the currently low tax revenue—including through avoiding new tax exemptions — and ensuring budget targets are adhered to even in an election year. This process should be supported by keeping monetary policy tight through appropriate monetary policy tools that will help contain inflationary pressures and support a move towards a uniform market-determined exchange rate,” he further noted.
