The International Monetary Fund (IMF) says Nigeria’s economy
is “recovering gradually” from the negative impact of COVID-19 but noted that
both unemployment and inflation rates remain elevated.
The IMF, in a statement at the end of its virtual meetings
with the Nigerian authorities to discuss recent economic, financial
developments and outlook, described the recent removal of the official exchange
rate from the Central Bank of Nigeria (CBN) website as “encouraging”.
The IMF mission said following the sharp output contractions
in the second and third quarters, gross domestic product (GDP) turned positive
in Q4 2020 and growth reached 0.5 percent year-on-year in Q1 2021 — 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 percent, owing to high food price inflation,” the statement reads.
IMF said with the recovery in oil prices and remittance
flows, the strong pressures on the balance of payments have somewhat abated,
but noted that imports are rebounding faster than exports and foreign investor
appetite remains subdued resulting in continued FX shortage.
The IMF mission noted that Nigeria’s GDP growth is expected
to reach 2.5 percent in 2021, while inflation is expected to remain elevated in
2021 — but likely to decelerate in the second half of the year to reach about
15.5 percent — following the removal of border controls and the elimination of
base effects from elevated food price levels.
IMF, however, expressed concern with the resurgence of fuel
subsidies in the country noting 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.
“Tax revenue collections are gradually recovering but, with
fuel subsidies resurfacing, additional spending for Covid-19 vaccines, and to
address security challenges, the fiscal deficit of the Consolidated Government
is expected to remain elevated at 5.5 percent of GDP,” the statement added.
“The mission urged 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 mission commended the authorities’ measures to contain
the transmission of Covid-19 in Nigeria, including the ongoing vaccination
program under the COVAX initiative, and strongly supported the authorities’
efforts to acquire additional doses from countries with surplus stocks.
“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.
“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 capitalized
except in case of a severe deterioration of credit quality.”
In a recently released report, the World Bank said an
estimated 7 million Nigerians may have been pushed into poverty in 2020 due to
rising prices alone in the country. The bank noted that high inflation rate is worsening
poverty and depressing business activities in Nigeria.
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