<p>Just
as President Muhammadu Buhari, in a strategic economic rebound move,
administered oaths of office on members of the newly
constituted ;Presidential Economic Advisory Council (PEAC), ;with a
charge on them  ;to initiative sustainable
 ;ideas on how to fulfill his promise of
lifting 100 million Nigerians out of poverty in 10 years, the International Monetary
Fund, IMF, in a statement, signed by Laraba Bonet and made available to
OpenLife, gave a damning verdict on Nigeria’s economy, describing it as
unhealthy.</p>



<p>The IMF
staff team led by Amine Mati, Senior Resident Representative and Mission Chief
for Nigeria, had visited Lagos and Abuja from September 25 to October 7, 2019
to discuss recent economic and financial developments, update macroeconomic
projections, and review reform implementation.</p>



<p>At the end
of the visit, Mr. Mati issued the following statement: “The pace of economic
recovery remains slow, as depressed private consumption and investors’
wait-and-see attitude kept growth in the first half of the year at 2 percent, a
rate significantly below population growth. Headline inflation has fallen,
reaching its lowest level since January 2016, helped by lower food price
inflation. “Spurred by one-off increases in imports, the current account turned
into a deficit in the first half of 2019 after three years of surpluses. Gross
international reserves have fallen to below $42 billion at end-August 2019,
mainly reflecting a decline in foreign holdings of short-term securities and
equity. </p>



<p>The exchange
rate in various windows remained stable, helped by steady sales of foreign
exchange by the Central Bank of Nigeria (CBN).</p>



<p>“Carryover
from 2018 to 2019 helped increase public investment spending in the first half
of 2019, but revenue underperformed significantly relative to the budget target
in the first half of 2019. Over-optimistic revenue projections have led to
higher financing needs than initially envisaged, resulting in overreliance on
expensive borrowing from the CBN to finance the fiscal deficit. Federal
Government interest payments continue to absorb more than half of revenues in
2019. </p>



<p>“The
outlook under current policies remains challenging. Growth is expected to pick
up to 2.3 percent this year on the strength of a continuing recovery in the oil
sector and the regaining of momentum in agriculture following a good harvest.
Revenue initiatives planned under the 2020 budget—including a VAT reform that
increases the rate, introduces a minimum registration threshold and exempts
basic food products—will help partially offset declining oil revenues and the
impact of higher minimum wages, thus keeping the overall consolidated fiscal
deficit elevated. </p>



<p>The
current account’s shift to a deficit is expected to persist while the pace of
capital outflows continues to weigh on international reserves. Inflation will
likely pick up in 2020 following rising minimum wages and a higher VAT rate,
despite a tight monetary policy. “A comprehensive package of measures—whose
design and implementation will require close coordination within the economic
team and the newly-appointed Economic Advisory Council—is urgently needed to
reduce vulnerabilities and raise growth. </p>



<p>“The
increasing CBN financing of the government reinforces the need for an ambitious
revenue-based fiscal consolidation that should build on the initiatives laid
out in the Strategic Revenue Growth Initiative. A tight monetary policy should
be maintained through more conventional tools. Managing vulnerabilities arising
from large amounts of maturing CBN bills—including those held by
non-residents—requires stopping direct central bank interventions, the
introduction of longer-term government instruments to mop up excess liquidity
and moving towards a uniform market-determined exchange rate. “Banking sector
prudential ratios are improving. However, new regulations to spur lending—
which has recently increased—should be carefully assessed and may need to be
revisited in view of the potential unintended consequences on banks’ asset quality,
maturity structure, prudential buffers and the inflation target. </p>



<p>Continued
strengthening of banks’ capital buffers would enhance banking sector
resilience. “Structural reforms, particularly on governance and corruption and
in implementing the much-delayed power sector recovery plan, remain essential
to boosting prospects for higher and more inclusive growth.” </p>



<p>“The team
held productive discussions with senior government and central bank officials.
It also met with representatives of the banking system, the private sector, and
international development partners. The team wishes to thank the authorities
and all those it met for the productive discussions, excellent cooperation, and
warm hospitality.”</p>

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