…calls for tighter monetary, fiscal policies
The International Monetary Fund (IMF) has urged the Nigerian authorities to finalize securitization of the country’s Central Bank’s existing stock of overdrafts and emphasized that the the apex bank’s budget financing should strictly adhere to the statutory limits.
The Bretton Wood institution made the call in its 2022 Article IV Consultation with Nigeria released on Wednesday.
Despite the current high interest rate at 17.5 percent, IMF called for fiscal and monetary tightening to secure macroeconomic stability, combined with structural reforms to improve governance, strengthen the agricultural sector, and boost inclusive, sustainable growth.
The IMF also called for decisive and effective monetary policy tightening to avoid a de-anchoring of inflation expectations. Noting recent increases in the policy rate, they encouraged the CBN to stand ready to further increase the policy rate if needed, and to implement additional actions, including fully sterilizing central bank financing of fiscal deficits and phasing out credit intervention programs.
The Fund wants Nigeria to strengthen the CBN’s independence and establishing price stability, stating that its primary objective is critical.
IMF highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities.
The directors of IMF who held the visit to Nigeria urged the authorities to deliver on their commitment to remove fuel subsidies by mid-2023, and to increase well-targeted social spending.
IMF called on the authorities to strengthen revenue mobilization, including through tax administration reforms, expanding the tax automation system and strengthening taxpayer segmentation, and improving tax compliance is also a priority.
In the medium term, the directors recommended modernizing customs administration, rationalizing tax incentives, and raising tax rates to the levels of the Economic Community of West African States (ECOWAS).
IMF said socio-economic conditions remain difficult in Nigeria, notwithstanding the authorities’ success in containing and managing the COVID-19 infections. The spillover effects of the war in Ukraine, which have been transmitted mainly through higher domestic food prices, worsened the scarring effects of the pandemic, particularly on the most vulnerable—with Nigeria being among the countries with the lowest food security.
It stated that the near-term outlook faces downside risks, while there are upside risks in the medium term. Higher international food and fertilizer prices and continued widening of the parallel market premium could culminate in the de-anchoring of inflation expectations.
The oil sector faces downside risks from possible production and price volatility, while climate-related natural disasters (e.g., floods) pose the same risks to agricultural production.
Directors highlighted the importance of improving the performance of the agricultural sector for job creation and food security. They urged the authorities to implement governance reforms, including delivering on commitments from the 2020 Rapid Financing Instrument. Improving transparency and accountability in the oil sector is also key to strengthening governance.