The International Monetary Fund (IMF) has stressed on the need for the Nigerian government to focus on implementing reforms critical to enhance the business environment as well position the nation as preferred destination for foreign investments.
In a report released on Thursday, the organization commended the Nigerian authorities’ actions to rein in inflation and restore market confidence, noting the importance of keeping a tight monetary policy stance to put inflation on a downward path, maintaining exchange rate flexibility, and building reserves.
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Commenting on the report, during a press briefing, Axel Schimmelpfennig, the assistant director, African Department and Mission Chief to Nigeria noted that there was need for the Nigerian government to implement policies needed to promote a macroeconomic stability, efficient tax system and public services that allows smooth of operation of their business.
According to Schimmelpfennig, reforms to attract foreign direct investments should form part of the reforms to be implemented by the Nigerian government. The report 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 According to him 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.
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“Attracting investments is something that clearly has to be part of the reforms program that the government is working on implementing. For portfolio investment, portfolio investment comes and goes, and that is not a steady source of financing long term growth but necessary for market to function. But Foreign Direct Investments (FDI) can support long term growth. And you will have seen and heard about many conversations that the authorities have with investors to see if they want to come in, what are they are looking for?
“What are investors looking for; I think they are looking for macroeconomic stability, low inflation, and predictable inflation. They will look for an efficient tax system, they will look for public services that allow them to produce; they will look for infrastructure and processes to import maybe inputs and export some of what they are producing as well as infrastructure to allow them to sell domestically,” he said.
The Organization 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. It noted that carefully and sequentially phasing out capital flow management measures when warranted would be important.
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It acknowledged the reforms implemented by the Tinubu-led 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, the organization stressed on 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.
“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. Real GDP growth slowed to 2.9 percent in 2023, with weak agriculture and trade, and despite the improvement in oil production and financial services.
“Growth is projected at 3.3 percent for 2024 as both oil and agriculture outputs are expected to improve with better security. The financial sector has remained stable, despite heightened risks. Determined and well-sequenced implementation of the authorities’ policy intentions would pave the way for faster, more inclusive, resilient growth,” it stated.
“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, inflation is projected to gradually decline to 24 percent year-on-year at end-2024. The fiscal position strengthened in 2023. 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 social cash transfer system has been strengthened and initial payments have been made,” it stated.
Schimmelpfennig noted that food insecurity could worsen with further adverse shocks to agriculture or global food prices, adding that adverse shocks to oil production or prices would hit growth, the fiscal and external position, and exacerbate inflationary and exchange rate pressures.
He said that the 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. Following monetary policy tightening in February and March 2024 and a resumption of FX interventions, the naira has started to stabilize.
According to the report, the oil and gas contribution to GDP is expected to 5.6 percent in 2024, up from -2.2 in 203, while the non-oil to GDP is expected to remain at 3.2 percent. The Agricultural sector is expected to reach 3.9 percent, up from 3.2 in 2023.
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