One year after Nigeria was reported to have exited economic recession, the International Monetary Fund (IMF) has passed a verdict on Nigeria’s economic reforms, stating that the economy remains vulnerable, even though some government policies and favourable oil prices have helped the country to overcome recession.
According to IMF, the Nigerian economy “is yet to receive boost from policy implementations” that can withstand the shocks that pushed it into recession. The international finance agency was probably referring to last year’s figures from the National Bureau of Statistics (NBS) that showed that the economy had recovered from recession after contracting for five consecutive quarters since 2016 with a new growth rate of 0.55 percent. The NBS figures indicated that the new growth rate (year-on-year) was 2.04 percent more than the rate of the corresponding quarter of 2016 (-1.49%) and higher by 1.46 percentage points recorded in the preceding quarter. These figures had since being revised to -091 percent from -052 percent due to fluctuations of crude output for March 2017.
But, the IMF in its review of the economy, stated that what the Nigerian government regarded as economic recovery came on the back of a combination of new foreign exchange measures by the Central Bank, rising oil prices in the international market, attractive yields on government securities, a tighter monetary policy regime and increased external reserves, which notched up to a 4-year high of about $43bn as at February 2018.
Nigeria, the financial agency observed, should not claim to have completely exited recession without addressing the current high interest rates in the banking industry, insecurity, delayed fiscal policy response and weak implementation of structural reforms, which are risks that beset realistic economic recovery.
We agree, to a large extent, with the views expressed by the IMF as well as the solutions it proffered for a sustained economic recovery of the country. Government may have celebrated too early the end of recession without addressing other contingent downside risks, which are necessary to sustain economic recovery. Similarly, the NBS boss, Dr. Yemi Kale, cautioned government not to “relax on the modest achievement because our GDP remains in the negative territory and below our population growth rate”.
Clearly, coming out of recession has not translated into meaningful improvement in the lives of our people.
We also share the observation of the IMF that although under government’s Economic Recovery and Growth Plan (ERGP), the business environment may have witnessed a lift with Nigeria’s recent improvement in the Ease of Doing Business index, the economic blueprint is yet to impact significantly on the non-oil and non-agricultural activities and inflation rate. The Federal Government is yet to fast track the implementation of the ERGP.
Also, our banking sector remains vulnerable, with high volume of Non Performing Loans (NPLs), low capital adequacy ratios and weak quality assets portfolio. Unemployment and poverty remain high.
Available statistics support the IMF position that Nigeria is still retaining higher fiscal deficits, driven by weak revenue generation amid continued tighter domestic financing conditions, including bond yields that have crowded out private sector credit. Therefore, there is urgent need to address the issue of asset quality in the banking sector. This has become necessary to identify potential capital needs, in addition to an enhanced risk-based banking supervision. There must be strict enforcement of prudential requirements and a revamped resolution framework that will check the risks in the industry.
Government must come up with a comprehensive and coherent policy actions and a growth-friendly fiscal adjustment that will focus on non-oil revenue mobilisation to reduce the ratio of interest payments to revenue. Government should also prioritise social infrastructure spending.
We agree with the agency that our economy has not fully recovered. Some of the shocks that pushed the country into recession are still in place and interest rates remain very high for small and medium business enterprises to obtain loans. Overall, our economy needs urgent diversification, to make it less dependent on crude oil.