The International Monetary Fund (IMF) has again warned governments and central banks in the world against “storm clouds” over global economy. The Deputy Managing Director of the Fund, Mr. David Lipton, gave the warning last week during a banking conference hosted by Bloomberg media network in the United States.
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According to him, the threat to global economy in the year ahead could be such that governments and their central banks might not be well-equipped to cope. He also disclosed that in the past two years, the Fund had urged governments across the world to diversify their economies. We believe the warning should be heeded by Nigeria and other developing economies.
Therefore, the Federal Government should regard it as a wake-up call to rejig the economy. The nation’s economy is not doing well as President Muhammadu Buhari recently admitted. Apart from the economic performance falling short of expectations for 2018, the CBN has also predicted a gloomy outlook for the economy next year. This can explain why the IMF has enjoined the Federal Government to embrace fiscal reforms and diversification.
It also warned against rising debt crisis. We recall that in the first quarter of 2018, the IMF advised oil exporting countries, including Nigeria, to take advantage of high oil prices and reform their economies. It appears that the IMF has been vindicated as oil prices which rose to $70 and $80 per barrel in the first and second quarters of 2018 respectively had declined to $59 per barrel in the last two weeks, fueling economic uncertainty for oil dependent economies like Nigeria and other members of the Organisation of Petroleum Exporting Countries (OPEC).
The OPEC member-states’ agreement to limit oil production to a six-month 1.2 million barrel per day production levels may likely put Nigeria in a cliffhanger because the 2018 budget was predicated on 1.6m bpd. Also, in March 2018, the IMF advised the Federal Government to take urgent initiatives to address inherent imbalances in the economy. Nigeria’s debt profile stood at N22.3trn as at June 30, 2018, and about two-thirds of the government’s revenues go into servicing interest payments.
Although the latest figures from the National Bureau of Statistics (NBS) show that the economy witnessed marginal growth in the third quarter of 2018, the road ahead may be stormy as economic results in the last three years and the Gross Domestic Product (GDP) were not encouraging. Since every economy does not act in isolation, the IMF’s anxiety over global economy means that the government must take steps to avert the ugly prediction.
The fear over the economy should not be dismissed. For the third consecutive quarter this year, economic growth has declined, causing economists to worry if the same trend will continue in the last quarter of the year. Without doubt, a further decline in the growth performance could pull Nigeria’s economy closer to negative territory, perhaps much closer to the ‘storm clouds’ predicted by the IMF. The IMF and the World Bank have cut Nigeria’s growth projection to less than 2 per cent and inflation rise to 13.5 per cent in 2019. The CBN has also projected inflation rate to rise above 13.5 percent in 2019. These are signs that our economy may experience bad times in 2019.
The government should embark on structural reforms that would lead to the diversification of the economy. Apart from dependence on oil, government should focus on growth-friendly fiscal adjustment with a shift towards production of goods, broadening the tax base and strengthening revenue administration.
We believe that boosting the non-oil revenues and continuing fiscal consolidation plans must be pursued by oil exporting country like Nigeria. It is interesting that the 2.05 per cent growth of the non-oil sector in the second quarter of the year can be traced to the implementation of the Economic Recovery and Growth Plan (ERGP).
Therefore, the Federal Government must put in place strong fiscal and monetary policies that will withstand the gathering ‘storm clouds’ forewarned by IMF. Government should assemble economic experts that can fix the economy and make it withstand the effects of the global economic uncertainty.