IMF Lauds Nigeria’s Bold Reform, Highlights CBN Autonomy
International Monetary Fund (IMF) remains positive with Nigeria’s bold economic reform, according to a statement released after the fund concluded the Article IV consultation with country.
The fund said 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 mobilization, 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”, IMF stated.
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 projected economic growth of 3.3 percent for 2024, saying that both oil and agriculture outputs are expected to improve with better security.
The fund also noted that the financial sector has remained stable, despite heightened risks. IMF said determined and well-sequenced implementation of the authorities’ policy intentions would pave the way for faster, more inclusive, resilient growth.
Inflation reached 32 percent year-on-year in February 2024, driven mainly by food price inflation (38 percent) and loose financial conditions. With continued monetary tightening, IMF projected that inflation would gradually decline to 24 percent year-on-year at end-2024.
Noting that the fiscal position strengthened in 2023, IMF said government revenues benefited from naira depreciation and enhanced revenue administration, while expenditure rationalization and restraint allowed for a one-off wage increase to mitigate the impact of high inflation for public officials.
The multilateral lender noted that the social cash transfer system has been strengthened and initial payments have been made. It added that that gross international reserves declined in 2023 amid persistent capital outflow pressures.
The naira depreciated sharply after the unification of the official foreign exchange windows in June 2023. The fund said however, following monetary policy tightening in February and March 2024 and a resumption of FX interventions, the naira has started to stabilize.
“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”.
Executive Directors of IMF welcomed the bold reforms implemented by the new administration and commended the authorities’ focus on revenue mobilization, 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”.
They recommended caution regarding amendments to the Central Bank of Nigeria (CBN) Act that might weaken the central bank’s autonomy. They encouraged further progress in implementing the outstanding recommendations from the 2021 safeguards assessment.
IMF also commended the authorities for restarting the cash transfer program and emphasized the urgency of scaling it up to mitigate acute food insecurity. They welcomed the authorities’ work on a comprehensive revenue mobilization strategy including boosting tax enforcement and broadening the tax base.
Nigeria has continued to mobilizing revenue and reprioritizing expenditure, including phasing out costly and regressive energy subsidies. According to IMF, these are critical to creating fiscal space for development spending and strengthening social protection, while maintaining debt sustainability.
In the official statement, directors said they appreciated the authorities’ commitment to discontinue deficit monetization and positively noted progress in macroeconomic policy coordination.
IMF emphasized the importance of close monitoring of financial sector risks, supported the increase in the minimum capital for banks and urged the CBN to unwind the regulatory forbearance introduced during the pandemic.
Furthermore, IMF directors acknowledged the recent improvements in the AML/CFT framework and called for sustained action to exit the FATF grey list. They supported the authorities’ efforts to foster financial inclusion and deepen the capital market.
In the statement, IMF highlighted the importance of reforms to enhance the business environment, improve security, implement key governance measures, develop human capital, boost agricultural productivity, and build climate resilience.
“These reforms are crucial to boost investor confidence, unlock Nigeria’s growth potential and diversify the economy, address food insecurity, and underpin sustainable job creation. Directors welcomed the IMF’s capacity development to support the authorities’ reform efforts”, IMF said. #IMF Lauds Nigeria’s Bold Reform, Highlights CBN Autonomy
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