…Raises concern on banks’ rising NPLs •As experts insist economy’ll rebound
By Amechi Ogbonna
The International Monetary Fund (IMF) yesterday, said Nigeria would emerge from its economic recession this year, but warned that threats to recovery remained significant as the economy will not grow enough to reduce unemployment and poverty.
The Fund projected however that Nigeria’s economy will grow by 0.8 percent this year, as various indicators suggest an uptick in economic activity in the second half.
This was even as it expressed concern that Nigerian banks’ stock of Non-Performing Loans (NPLs) have more than doubled since 2015. It then warned that the nation’s 0.8 per cent growth in the first half of 2017 would not be sufficient to reduce unemployment and end poverty in the country.
The above sentiments were part of the report by the IMF staff team, which visited Nigeria from July 20 to July 31, to review recent economic and financial developments, update macroeconomic projections and reform implementation.
The team, led by Amine Mati, senior resident representative and mission chief to Nigeria at the IMF, said Nigerian banks’ NPLs grew from 6 per cent in 2015 to 15 per cent in 2017.
“Preliminary data for the first half of the year indicate significant revenue shortfalls, with interest-payments to revenue ratio remaining high (40 per cent at end-June) and projected to increase further under current policies,” the statement by the team read.
“High domestic bond yields and tight liquidity continue to crowd out private sector credit. Nigeria’s low growth environment and the banking system’s exposure to the oil and gas sector, increased from 6 per cent in 2015 to 15 per cent.”
The team also said “helped by favourable base effects, headline inflation decreased to 16.1 per cent in June 2017, but remains high despite tight liquidity conditions.”
It commended the Central Bank of Nigeria (CBN)’s new foreign exchange window, which it said has improved forex inflows.
“Faced with these challenges, the government has started implementing a number of important measures. The Economic Recovery and Growth Plan (ERGP) is driving the diversification strategy and security in the Niger Delta improved through strengthened engagement.
“The new investor and exporter forex window has provided impetus to portfolio inflows, helped increase reserves above $30 billion and contributed to reducing the parallel market premium.
The IMF team also noted that, “progress is also ongoing within the oil and energy sector through implementation of a new funding mechanism for cash calls.
“However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated. At 0.8 per cent, growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty,” it stated.
It advised that “Acting on an appropriate and coherent set of policies to enhance an economic recovery remains urgent, including implementing immediately specific priorities that will help achieve the goals of the ERGP.”
The Fund called for “a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues that would create space for infrastructure spending, social protection and private sector credit.
“This should be simultaneously accompanied by a monetary policy that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural reforms.
“Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy,” it advised.
But reacting to the IMF projections, the Chief Executive Officer (CEO), Financial Derivatives Limited, Mr. Bismarck Rewane, said he was optimistic that the country would exit recession this year in line with IMF prediction if only some risk mitigants are put in place. He allayed fears on the risks highlighted by IMF, saying there is no country insulated from such.
Rewane advised that all that needs be done at this stage was for government to identify the risks and manage them better with robust policies.
He disclosed that when the undercapitalised banks are taking away, the Non- performing Loan (NPL) ratio will drop to 8 percent, adding that the banking sector vulnerability remained responsible for the high level of NPL.
The Financial Derivatives boss said the current level of interest rate makes loan recovery process slow and difficult, stressing that the situation has forced banks to stop lending to the private sector, while concentrating on public sector. “I have no doubt in me that the managers of the economy will come up with the right policies needed.And at the end of the day, we will exit recession,’’ he said.
But according to Odilim Enwegbara, an Abuja-based development economist, Nigeria is a vertically-grown economy and not horizontally-grown economy. Vertically-grown economies are economies that have high multiplier effect. They don’t have high trickle-down effect. The result is that so many people are disadvantaged. Very few people are better of in the economy, because they are monopolists or they are very close to the government. It is when many people participate in the economy that the economy grows and creates lots of jobs.