• Thursday, March 28, 2024
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Updated: IMF asks FG’s economic team, advisory council to provide growth plan

Updated: IMF asks FG’s economic team, advisory council to provide growth plan

Nigeria must turn to its economic team and the new advisory council to design and monitor a comprehensive package that would spur growth and reduce the effects of external shocks, a visiting International Monetary Fund team has said.

The team called for action on a coherent and coordinated set of policies in the face of slow economic recovery, increasing external vulnerabilities, and elevated fiscal deficits that have seen the Federal Government rely on the central bank for bailouts, thereby complicating monetary policy.

“A comprehensive package of measures – whose design and implementation will require close coordination within the economic team and newly-appointed Economic Advisory Council – is urgently needed to reduce vulnerabilities and raise growth,” said Amine Mati, the team lead, after a two-week visit which ended Monday.

Reacting to the IMF report, spokesman for the Honorable Minister of Finance, Budget and Planning Yunusa Tanko Abdullahi said overall the report was good because it acknowledged the effort of government in improving the economy through transparency and inclusiveness.
“Particularly also the IMF team acknowledged the decreasing inflation rate which has continued to fall for nine consecutive quarters and emphasized that growth is expected to pick up to 2.3% this year” Abdullahi told BusinessDay on phone.

Buhari in September scrapped the former economic management team headed by Vice President Yemi Osinbajo and set up an economic advisory council led by Adedoyin Salami, a central bank board member until 2017 and associate professor of economics at the Lagos Business School.

The council has Chukwuma Soludo, a former central bank governor, and Bismarck Rewane, a leading economist, as members of the eight-person team.

Recommendations of the Washington-based fund follows observation that constrained purchasing power of Nigerians coupled with heightened cautiousness of foreign investors in committing to Nigeria’s economy continues to drag growth below population expansion, dampening outlook under current policies.

The team noted that deficit in Nigeria’s current account, triggered by a one-off import surge, would likely persist while the pace of capital outflows would still weigh on Nigeria’s foreign reserves which have fallen below $42 billion as at the end of August as foreign holdings of short-term securities and equity decline.

The continued dependence of the Federal Government on the CBN to plug deficits of its “over-optimistic revenue projections” is seeing more than half of government earnings go to interest repayment and requires an ambitious revenue-based fiscal consolidation, the IMF team noted.

In their assessment, plans to generate more revenue through a VAT reform which increases rate, exempts basic food products and businesses with a turnover of N25m and below will help to partially offset declining oil revenue and support implementation of the minimum wage, helping the government achieve greater fiscal consolidation.

The IMF team, however, warned that inflation would likely increase despite a tight monetary policy.

Nigeria’s central bank was advised to employ more conventional tools in maintaining a tight monetary policy. The CBN would have to cease direct intervention, introduce longer-term instruments, and move towards a uniformed market-determined exchange rate to manage vulnerabilities arising from large amounts of maturing CBN bills and mop up excess liquidity, the team said.

Structural reforms on governance and corruption, especially implementation of the long-due power sector recovery plan, were catalysts identified for higher and more inclusive growth.

The team also said the reliance of the Federal Government on CBN financing should be addressed by an ambitious fiscal consolidation plan built on plans outlined in the Strategic Revenue Growth Initiative. It called for more conventional tools for tightening monetary policy.

The fund also asked the CBN to carefully assess the policy that demands banks to have minimum Loan-to-Deposit Ratio (LDR) of 65 percent to avoid unintended consequences.

“Banking sector prudential ratios are improving. However, new regulations to spur lending-which has recently increased-should be carefully assessed and may need to be revisited in view of the potential unintended consequences on the bank,” the IMF staff team said.

The team said unintended consequences of the CBNs new minimum loan to deposit directive could affect the “banks’ asset quality, maturity structure, prudential buffers and the inflation target.”

 

ENDURANCE OKAFOR & SEGUN ADAMS