Lagos — The International Monetary Fund (IMF) said that Nigeria must adapt its budget for 2025 to lower oil costs and increase cash transfers in order to protect the most vulnerable sections of its population who face hunger and extreme poverty.
The IMF released the results of the routine “Article IV”, assessment of Nigerian economic policies. It said that the growth was steady, but low in terms of per capita and inflation remained high. The Fund forecast that the economy of Nigeria would grow at 3.4% in this year, and 3.2% by 2026.
Nigeria, Africa’s biggest oil producer, is being squeezed by the relatively low crude prices on international markets. On Wednesday, they were trading at $68 per barrel.
Axel Schimmelpfennig is the mission chief of the Fund for Nigeria. He said: “The international economy environment in which Nigeria lives and operates is marked by very, very high uncertainty. In particular, international oil prices volatility impacts Nigeria directly on the fiscal and external balances, as well as the inflation.”
It was important that policymakers build and maintain buffers, while remaining ready to react to shocks and seize opportunities.
He said that the main challenge is to combat high poverty and food security.
Since 2007, the Nigerian government has been providing direct cash transfers to the poorest section of its population. However, it has had difficulty in scaling up the program due to a lack data about their impact as well as the fact that a large number of people do not have a bank account.
Nigeria’s assumptions of oil production at 2 million barrels a day and oil prices of $75 per barrel have a significant impact on the 2025 budget.
International Brent crude futures soared last month as a result of tensions in the Middle East. However, they are now under pressure due to a change in policy from the OPEC+, a group that includes Nigeria, in order to regain share on the market rather than to curtail the supply.
Schimmelpfennig told journalists that “achieving the government’s budget targets for 2025 will require additional actions, reflecting largely the fall in oil prices since the budget was approved.”
He added that it was important to keep the fiscal deficit as a percentage of GDP the same in 2024 compared to the year before.
Fund stated that recouping savings on fuel subsidies and making administrative gains can mobilize some revenues at home. However, to reduce inflation and maintain stability, central banks must maintain a strict stance with a positive rate of real interest.
The savings from fuel subsides would be 2% of the GDP in 2024.
Schimmelpfennig, when asked about the naira and Nigeria’s forex markets, said that the central bank and government had made fundamental and far-reaching reforms. As a result of these reforms the supply and demand has been more balanced.
When we speak to investors, the mood is positive. He said that they could invest in Nigeria and then withdraw their profits whenever they wanted. You can see that the parallel market rate and the official rate are aligned.
*Karin Strohecker, editing: Dhara Raasinghe & Barbara Lewis – Reuters
