IMF Staff Concludes Article IV Consultation to Nigeria

IMF News, February 17, 2020

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Press Release No. 20/53 — February 17, 2020.
IMF staff team led by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria.
Mission visited Lagos and Abuja from January 29-February 12, 2020 to conduct annual Article IV consultations.
End-of-Mission statements convey preliminary findings; staff will prepare a report for the IMF’s Executive Board subject to Management approval.

"The pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity."
Inflation has risen—driven by higher food prices—ending the disinflationary trend seen in 2019.
External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals.
The exchange rate has remained stable, helped by steady sales of foreign exchange in various windows.
High fiscal deficits are complicating monetary policy.
Weak non-oil revenue mobilization led to further deterioration of the fiscal deficit, which was mostly financed by Central Bank of Nigeria (CBN) overdrafts.
The interest payments to revenue ratio remains high at about 60 percent.

Under current policies, the mission’s growth forecast for 2020 was revised down to 2 percent to reflect the impact of lower international oil prices.
Inflation is expected to pick up.
Deteriorating terms of trade and capital outflows will weaken the country’s external position.

Authorities have taken welcome steps including:
- Measures to boost revenue through the adoption of the Finance Bill and Deep Offshore Basin Act.
- Improved budget execution by adopting the 2020 budget by end-December 2019.
- Tightening of monetary policy in January 2020 through higher cash reserve requirements to respond to looming inflationary pressures.
- Progress on structural reforms—particularly in Doing Business, finalizing power sector reforms, and strengthening governance.

Non-oil revenue mobilization—including through tax policy and administration improvements—remains urgent to ensure financing constraints are contained and the interest payments to revenue ratio sustainable.
Recourse to central bank overdrafts should be limited.
Mission supports the authorities’ plans to use the low domestic yield environment to front load their financing requirements.

Further tightening of monetary policy—albeit through more conventional methods—is needed to contain domestic and external pressures arising from large amounts of maturing CBN bills.
The mission reiterated advice on:
- Ending direct central bank interventions.
- Securitizing overdrafts to introduce longer-term government instruments to mop up excess liquidity.
- Moving towards a uniform and more flexible exchange rate.
- Removing restrictions on access to foreign exchange for the 42 categories of imported goods to encourage long-term investment.

Banking system vulnerabilities should continue to be addressed.
Mission welcomed recent efforts to reduce legacy non-performing loans.
The introduction of risk-based minimum capital requirements would help strengthen bank resilience.
Notwithstanding the significant increase in lending, concerns about shortened maturity, asset quality and conflicting monetary policy signals call for revisiting the minimum lending to deposit ratio directive.

Structural reforms remain essential to boost inclusive growth, with emphasis on:
- Executing the much-delayed power sector recovery plan.
- Implementing the anti-corruption and financial inclusion strategy.
- Addressing infrastructure and gender gaps.

"Nigeria’s border closure will continue to have significant economic consequences on the country’s neighbors."
It is important that all involved parties quickly resolve the issues keeping the borders closed—including to stop the smuggling of banned products.

The team held productive discussions with senior government and central bank officials.
The team met with representatives of the banking system, the private sector, civil society organizations and development partners.

IMF Communications Department — Press Release No. 20/53 (February 17, 2020).