The International Monetary Fund (IMF) has again asked Nigeria to remove subsidies, further devalue the naira, and minimise borrowing from the Central Bank of Nigeria (CBN).
The IMF officials, led by Ms Jesmin Rahman held virtual meetings with the authorities from June 1-8, 2021 and in their End-of-Mission press statement on Thursday, expressed concern with the resurgence of fuel subsidies.
While reiterating the need to introduce a market-based fuel pricing mechanism and to deploy well-targeted social support to cushion any impact on the poor, its mission recommended stepping up efforts to strengthen tax administration to mobilize additional revenues and help address priority spending pressures.
“The mission urges the authorities to keep reliance on CBN overdrafts for deficit financing within legal limits, while the government continues to make efforts to strengthen budget planning and public finance management practices to allow for flexible financing from domestic markets and better integration of cash and debt management.
“The recent removal of the official exchange rate from the CBN website and measures to enhance transparency in the setting of the NAFEX exchange rate is encouraging.
The mission recommended maintaining the momentum toward fully unifying all exchange rate windows and establishing a market-clearing exchange rate.
To strengthen the monetary targeting regime, the mission recommended integrating the interbank and debt markets and using central bank or government bills of short-maturity as the main liquidity management tool, instead of the cash reserve requirements.
“The banking sector remains liquid and well-capitalized while non-performing loans (NPLs) are contained.
The extension of the moratorium on principal payments of qualifying credit facilities on a case-by-case basis through March 2022 should be limited to viable debtors with strong pre-crisis fundamentals.
CBN stress tests purport that the banking system would remain adequately capitalised except in case of a severe deterioration of credit quality.
Nevertheless, it remains to be seen what share of forborne loans may turn non-performing as the impact of the pandemic abates.
Since NPLs often rise at the later part of the economic crisis, CBN’s strong oversight remains critical to safeguarding financial sector stability.
The Mission noted that incipient recovery in economic activity is projected to take root and broaden among sectors, with GDP growth expected to reach 2.5 per cent in 2021 but stated that “employment level continues to fall dramatically and, together with other socio-economic indicators, is far below pre-pandemic levels.”
“Inflation slightly decelerated in May but remained elevated at 17.9 per cent, owing to high food price inflation.”
While observing that the country was benefiting from the recovery in oil prices and remittance flows and that strong pressures on the balance of payments have somewhat abated, it stated that imports were rebounding faster than exports and foreign investor appetite remains subdued resulting in continued FX shortage.
It identified downside risks to economic growth as possible further deterioration of security conditions, and the still uncertain course of the pandemic both globally and in Nigeria.
– Media Report