According to a report released on Wednesday in Washington DC, the IMF Executive Directors welcomed the nation’s exit from recession and the strong recovery in foreign exchange reserves, as a result of rising oil prices and new foreign exchange measures.
They also commended the progress made in implementing the Economic Recovery and Growth Plan (ERGP), including the start of a convergence in foreign exchange windows, tight monetary policy, improvements in tax administration, and significant strides in improving the business environment.
The directors noted, however, that important challenges remain, as growth in the non-oil, non-agricultural sectors has not picked up, inflation remains high and sticky; unemployment is rising, and poverty is high.
To address these vulnerabilities, they warned the Federal Government that comprehensive and coherent policy actions remain urgent.
The IMF Directors emphasised the need for a growth-friendly fiscal adjustment, which front-loads non-oil revenue mobilisation and rationalises current expenditure to reduce the ratio of interest payments to revenue to a more sustainable level and create space for priority social and infrastructure spending.
In addition to ongoing efforts to improve tax administration, they underlined the need for more ambitious tax policy measures, including through reforming the value-added tax, increasing excises, and rationalising tax incentives.
“The implementation of an automatic fuel price-setting mechanism, sound cash and debt management, improved transparency in the oil sector, increased monitoring of the fiscal position of state and local governments, and substantially scaled-up social safety nets should support the adjustment.
The directors further commended the tightening bias of the Central Bank of Nigeria (CBN) in 2017, saying it should continue until inflation is within the single-digit target range.
They recommended the continued strengthening of the monetary policy framework and its transparency, with a number of directors urging consideration of a higher monetary policy rate, a symmetric application of reserve requirements, and no direct central bank financing of the economy.
A few IMF directors urged confirmation of the appointments of the CBN’s Board of Directors and members of the Monetary Policy Committee.
They also commended the recent foreign exchange measures and recent efforts to strengthen external buffers to mitigate risks from capital flow reversals.
The directors welcomed the authorities’ commitment to unify the exchange rate and urged additional actions to remove remaining restrictions and multiple exchange rate practices.
They stressed that rising banking sector risks should be contained, just as they welcomed the CBN’s commitment to helping increase capital buffers by stopping dividend payments by weak banks.
They also called for an asset quality review to identify any potential capital need, noting that an enhanced risk-based banking supervision, strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks.
The directors emphasised that structural reform implementation should continue to lay the foundation for a diversified private-sector-led economy.
They also said building on recent improvements in the business environment, implementing the power sector recovery plan, investing in infrastructure, accelerating efforts to strengthen anti-corruption and transparency initiatives, and updating and implementing the financial inclusion and gender strategies remain essential.
The IMF directors welcomed the continued improvement in the quality and availability of economic statistics and encouraged further efforts to address remaining gaps.