The International Monetary Fund (IMF) has advised emerging market economies and oil exporting countries, including Nigeria, to take advantage of current opportunities created by the stability in oil prices to reform their economies. It says the advice has become expedient because the “present good times” might not last long.
Last month, the global financial institution specifically cautioned the Federal Government to take urgent, sound economic policy initiatives to address inherent imbalances in the economy, stating that the Nigerian economy still remains vulnerable to external shocks despite the recent celebration of exiting recession. The latest advisory came from the Economic Counselor and Director of the Research Department of the Fund, Mr. Maurice Obstfeld, during the just-concluded IMF/World Bank Spring meetings in Washington DC, USA, during which the institutions unveiled the 2018 World Economic Outlook.
The Federal Government should heed the advice by the IMF because it is risky to ignore it. Nigeria can benefit more from heeding the advice and build buffers around our economy through diversification and less dependence on oil revenue. According to IMF, the advice to oil exporting countries should serve as a strong message for policymakers in these countries to use the present upswing in oil prices to formulate policies that will reduce the disruptive effects whenever crude prices take a tumble.
Coincidentally, the IMF advice came just as renowned economist and Nigeria’s former Minister for Education, Dr. Oby Ezekwesili, averred that the current over-dependence on oil and gas resources was fraught with great economic risks, as this would not take the country out of the economic doldrums. She spoke in Lagos last week at the first National Education Summit organised by the Oil and Gas Trainers’ Association of Nigeria.
Rather than the present over-dependence on oil, Ezekwesili advised that Nigeria should focus on developing the human capital and local content, without which the vast oil and gas resources will count for nothing.
The IMF and Ezekwesili’s advice should be taken as a wake-up call to rebuild our fiscal buffers, enact structural reforms, diversify and steer our monetary policy cautiously because Nigeria’s environment is “already complex and challenging.” We urge our policymakers not to behave like those that have forgotten their past. The worst mistake the present administration can make is not to diversify the economy.
We also agree with the IMF that our economy “is yet to receive boost from policy implementations that can withstand the shocks that pushed it into recession.”
As the IMF and the World Bank observed, the exit from recession came on the heels of the new foreign exchange (FX) measures by the Central Bank of Nigeria (CBN), rising oil prices, attractive yields on government securities, a tighter monetary policy and increased external reserve put at a little above $43bn.
In spite of this, Nigeria could relapse into recession if the government fails to reform and utilise the windfall from oil revenue that is now $72 per barrel, against the projected benchmark of $48 per barrel. Our Gross Domestic Product (GDP), according to the National Bureau of Statistics (NBS), still remains in the negative territory and below our population growth.
There is also the need for the Federal Government to address the rising national debt, which may hurt Nigeria, if not checked. We also share the same concern. For instance, our external debt has increased so much in the last one year. Not long ago, Fitch, a financial ratings agency, disclosed that the Federal Government’s debt had hit a staggering 320 per cent of its annual revenue. This is arguably one of the highest figures in the world. Government admitted that much during the unveiling of the Economic Recovery and Growth Plan (ERGP) last year.
No doubt, our economy remains vulnerable due to deterioration in debt sustainability and rising Non-Performing Loans (NPLs) in the banking industry.
This is in addition to low capital adequacy ratios and weak quality assets, which measure the soundness of banks. Disturbingly, too, Nigeria still retains higher fiscal deficits, driven by weak revenue generation amid tighter domestic financing conditions, including bond yields that have crowded out the private sector credits.
In all, policymakers should examine what the global financial institutions have said concerning our economy. Inevitably, our economy requires a comprehensive action and a fiscal adjustment that will focus on non-oil revenue generation through exports.