In the just concluded week, the International Monetary Fund (IMF)’s Executive Board released the report of their assessment of the 2020 Article IV Consultation with Nigeria, highlighting the weakened state of the economy and proffering ways to improve fiscal policy sustainability, exchange rate stability, price stability and sustainable output growth.
The Executive Directors urged the Nigerian authorities to reduce fiscal sustainability risks by increasing revenue mobilization via progressive taxation and improved efficiency in tax administration.
The suggested fiscal measures, meant to complement ongoing reforms by the Federal Government to reduce inefficiencies via removal of subsidies in the downstream oil & gas and power sectors, were to be accompanied by the provision of social safety nets to cushion potential negative impacts on the poor.
With regard to exchange rate stability, the Directors recommended a gradual and multi-step approach to establishing a harmonized, market-determined exchange rate regime with the short-term objectives of, inter alia, removing backlogs of foreign exchange demand, eliminating premium in the parallel market and increasing non-CBNparticipation in the Investors & Exporters Foreign Exchange Window.
They further called on the Monetary authority to keep watch on general price levels with a readiness to tighten monetary policy in the event that current accommodative monetary policy stance results in increased pressure on the balance of payments or inflation.
The Directors also welcomed the ratification of the African Continental Free Trade Area and stressed the need to implement reforms necessary to facilitate international trade for a more sustainable growth rate.
While IMF staff projected a 3.2% decline in real output in 2020, it nevertheless forecasted a 1.5% output growth in 2021; albeit, noting that protectionist capital flow measures were yet to deliver a job-rich growth given a structural dependency on the oil sector which remained vulnerable to periodic global price shocks.
According to the Staffers, subdued global recovery and decarbonization trends are expected to keep oil prices low and OPEC quotas in place, thus limiting oil-related activities, fiscal revenues and export proceeds over the medium term.
In a related development, global crude oil prices continued to trend higher amid improving market fundamentals on the back of tighter oil production and inventories.
According to the U.S. Energy Information Administration, U.S. crude oil stock (excluding SPR) fell week-on-week by 1.41% to 469 million barrels in the week ended Wednesday, February 05, 2021 while input to U.S. refineries rose by 0.25% to 14.73 million barrels per day.
West Texas Intermediate (WTI) crude price rose by 1.51% w-o-w to USD57.71 a barrel while Brent crude oil price buoyed by 2.09% to USD60.58 a barrel. Nigeria’s crude grade (Bonny Light) increased by 2.49% to USD60.40 per barrel as at February 12, 2021.
We agree with recommendations of the IMF Executive Directors while also acknowledging reforms and other efforts by the Nigerian authorities to fast track Nigeria’s exit from the recession and to deliver sustainable growth.
For us, the critical risks remain domestic insecurity and exchange rate vulnerability, both of which have fueled inflation and worsened the economic wellbeing of citizens.
We are happy with the ongoing investment in infrastructure by government – due to its desire to make Nigeria energy and economically independent – and the much-anticipated developments in the oil and gas sector such as the Dangote Oil Refinery and the likely nearterm passage of the Petroleum Industry Bill which would be game changers as these would support government’s efforts to diversify the economy using oil as a fulcrum, create employment and stimulate a more robust growth