07 December 2013, Abuja – An International Monetary Fund, IMF, mission visited Nigeria during November 13-26 to conduct discussions for the 2013 Article IV consultation.
The mission met with Finance Minister and Coordinator Minister of the Economy Ngozi Okonjo-Iweala, Central Bank of Nigeria Governor Sanusi Lamido Sanusi, senior government officials, members of the Legislature, and representatives of the private sector. At the conclusion of the visit, Mr. Gene Leon, the Fund’s mission chief and senior resident representative in Nigeria, issued the following statement:
“Nigeria’s economy has continued to perform strongly in 2013. Real GDP grew by 6.8 percent in the third quarter of 2013 (compared to third quarter 2012), supported by robust performances in agriculture, services, and trade.
Oil theft/production losses have adversely impacted export receipts and government revenues, leading to a significant drawdown from the Excess Crude Account.
Inflation declined to 7.8 percent (end-September 2013) from 12 percent at end 2012, in part owing to lower food prices and monetary policy implemented by the Central Bank of Nigeria, CBN. The exchange rate has been stable, and the banking sector is well capitalized with low levels of non-performing loans.
“Although the outlook is positive, risks need to be managed. Growth is projected to increase to about 7 percent in 2014, while inflation should remain subdued in the single digits.
Nigeria could be affected, however, by a decline in oil prices, the pace of recovery in global economic and financial conditions, capital outflows, continued losses in oil production, or increased security concerns.
At the same time, the economy can manage such shocks given a relatively flexible exchange rate regime, improved financial crisis management capacity, and a stable banking system. But fiscal buffers are low and a sustained high rate of growth is needed to reduce unemployment, and poverty.
“Fiscal consolidation is progressing well, and the momentum needs to be preserved through the ongoing election cycle. Key public financial management reforms are underway, including the implementation of a Treasury Single Account (TSA) and integrated information management systems, but lower-than-budgeted oil revenues are impacting budgetary plans at Federal, State, and Local levels and highlighting the need for rebuilding fiscal buffers to manage oil revenue volatility.
Moving toward a sustainable non-oil primary deficit path will require resolve in continuing fiscal consolidation, including through resisting procyclical election spending, mobilizing non-oil revenue, improving efficiency in the public sector, and strengthening transparency in oil sector governance.
“The current monetary stance is appropriate and should remain geared towards sustaining low inflation and a stable financial system.
Managing liquidity in the banking system remains a priority, and will be aided by the implementation of the TSA and prudent fiscal management. Likewise, the CBN has maintained stability of the naira, containing inflation and facilitating business confidence.
However, the continued importance of oil receipts and the magnitude of portfolio flows present potential vulnerabilities, and exchange rate flexibility may be a useful tool in the event of persistent pressures.
Ongoing initiatives to strengthen the supervisory framework, including supervision of banking groups, should continue, and Asset Management Corporation of Nigeria’s activities phased out gradually.
“To promote inclusive growth and mitigate the impact of vulnerabilities, ongoing structural and institutional reforms should be pursued resolutely.
The 20/20 Vision and the Transformation Agenda provide a framework for ongoing reforms, including the privatization of the generation and distribution of energy, initiatives to increase food security and viability of agriculture, and programs funded through the Universal Basic Education Commission to improve human capital development.
In addition, access to financial services for small-and medium-size enterprises, which have been key in many countries to enabling all to benefit from growth, could be improved.
Other initiatives to improve the business environment and investment promotion could support diversification across sectors, but should be underpinned mainly by improvements in productivity and competitiveness.
Growth in the next decade will need to rely on the continued implementation of reforms to strengthen institutions, improve efficiency, and prioritize quality infrastructure investments.
“The mission would like to thank the authorities and technical staff for their excellent cooperation.”