Nigeria ranks among those countries with the lowest level of food security, the International Monetary Fund (IMF) stated on Wednesday.
“The spillover effects of the war in Ukraine, which have been transmitted mainly through higher domestic food prices, worsened the effects of the pandemic, particularly on the most vulnerable— with Nigeria being among the countries with the lowest food security,” the Fund stated in its just concluded Article IV consultation with Nigerian authorities.
The Fund therefore highlighted the importance of improving the performance of the agricultural sector for job creation and food security.
Notwithstanding the authorities’ success in containing and managing the COVID-19 infections, socio-economic conditions remain difficult.
Gross domestic product (GDP) adjusted for inflation has already reached its pre-crisis level and the third quarter of 2022 marked the eighth consecutive quarter of positive growth — despite continued challenges in the oil sector. Growth is estimated at 3 percent for 2022.
Headline inflation which declined in December 2022 for the first time in 11 months, stalling at 21.3 percent, still remains high — driven by elevated international food prices, large parallel market premiums and monetary policy accommodation.
The near-term economic outlook faces downside risks. Upside risks are seen in the medium term, as higher international food and fertilizer prices. The continued widening of the parallel market premium could also culminate in the de-anchoring of inflation expectations.
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According to the IMF, 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.
Further widening in sovereign premia could increase debt servicing costs. In the medium term, there are upside risks from a potential stronger reform momentum and a larger-than-expected rebound in oil and gas production.
The Fund said it welcomes the broadening of Nigeria’s economic recovery but regretted that the opportunity to reap the benefits from higher global oil prices was missed.
They underscored near-term downside risks arising from elevated inflation, high debt-servicing costs, external sector pressures, and oil sector volatility.
Looking ahead, the IMF recommended decisive fiscal and monetary tightening to secure macroeconomic stability, combined with structural reforms to improve governance, strengthen the agricultural sector, and boost inclusive, sustainable growth.
It equally highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities.
Specifically, it urged the Nigerian authorities to deliver on their commitment to remove fuel subsidies by mid-2023, and to increase well-targeted social spending.
Strengthening revenue mobilization, including through tax administration reforms, expanding the tax automation system and strengthening taxpayer segmentation, and improving tax compliance is also a priority.
But in the medium term, there would be a need to modernize customs administration, rationalize tax incentives, and raise tax rates to the levels of the Economic Community of West African States (ECOWAS) .
…calls for further interest rate, tax hike
On the Monetary policy, the IMF urged a decisive and effective tightening stance to avoid a de-anchoring of inflation expectations.
The IMF encouraged the Central Bank of Nigeria (CBN) to stand ready to further increase the policy rate if needed, and to implement additional actions, including fully sterilizing its financing of fiscal deficits and phasing out credit intervention programs.
The Fund also believes that strengthening the CBN’s independence and establishing price stability as its primary objective is critical.
… cautions CBN on budget financing
It also urged the authorities to finalise securitisation of the CBN’s existing overdrafts stock to the federal government and emphasized that the apex bank’s budget financing should strictly adhere to the statutory limits.
The IMF further encouraged a continued move towards a unified and market-clearing exchange rate by dismantling various exchange rate windows at the CBN. Providing clarity on exchange rate policy would help boost investor confidence, quell capital outflow pressures, and rebuild buffers, it noted.
While observing the resilience of the banking sector and encouraging increased vigilance given potential risks associated with dynamic retail credit growth, it also
emphasized the need to enhance the effectiveness of the AML/CFT framework and to avoid public listing by the FATF.
The Fund welcomed ongoing efforts to foster financial inclusion, including through the use of mobile money with appropriate regulation and supervision.
But it 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.”
