Nigeria beginning to recover from effects of COVID-19 – IMF

The International Monetary Fund (IMF) mission to Nigeria says the Nigerian economy has started to gradually recover from the negative effects of the COVID-19 pandemic.

Ms Jesmin Rahman, team lead of the IMF mission to Nigeria who led staff virtual meetings with Nigerian authorities, said this in a statement on Friday in Washington D. C.

The meeting, which held from June 1 to 8, was to discuss recent economic, financial developments and outlook of the country.

Rahman commended the Federal Government’ measures to contain the transmission of Covid-19 in Nigeria, including the ongoing vaccination programme under the COVAX initiative.

She also supported the Federal Government’s efforts to acquire additional doses from countries with surplus stocks.

She said following sharp output contractions in the second and third quarters, Gross Domestic Product (GDP) growth turned positive in Q4 2020 and growth reached 0.5 per cent (year-on-year) in Q1 2021.

This, she said, was supported by agriculture and services sectors.

“Nevertheless, the 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,” she noted.

She, however, said with the recovery in oil prices and remittance flows, the strong pressures on the balance of payments had somewhat abated.

She added that although imports were rebounding faster than exports, foreign investor appetite remained subdued resulting in continued foreign exchange shortage.

The team lead said the incipient recovery in economic activity was projected to take root and broaden among sectors, with GDP growth expected to reach 2.5 per cent in 2021.

According to her, inflation is expected to remain elevated in 2021, but likely to decelerate in the second half of the year to reach about 15.5 per cent, following the removal of border controls and the elimination of base effects from elevated food price levels.

She said tax revenue collections were gradually recovering but, with fuel subsidies resurfacing, additional spending for Covid-19 vaccines, and addressing security challenges, the fiscal deficit of the government was expected to remain elevated at 5.5 per cent of GDP.

She added that downside risks to the near-term arose from further deterioration of security conditions and the still uncertain course of the pandemic both globally and in Nigeria.

Rahman expressed concern over the resurgence of fuel subsidies, reiterating the importance of introducing market-based fuel pricing mechanism and the need to deploy well-targeted social support to cushion any impact on the poor.

She recommended stepping up efforts to strengthen tax administration to mobilise additional revenues and help address priority spending pressures.

“The mission urged the authorities to keep reliance on Central Bank of Nigeria (CBN) overdrafts for deficit financing within legal limits, while the government continues to make efforts to strengthen budget planning and public finance management practices.

“This is 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 are encouraging,” said Rahman.

She added that the mission recommended maintaining the momentum toward fully unifying all exchange rate windows and establishing a market-clearing exchange rate.

Speaking on monetary policy, she said 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.

Rahman said the banking sector remained liquid and well-capitalised while Non-Performing Loans (NPLs) were contained.

According to her, 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 economic crisis, CBN’s strong oversight remains critical to safeguarding financial sector stability,” she added.

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