By Kunle Aderinokun and Obinna Chima
The International Monetary Fund (IMF) has said it welcomed the establishment of the Sovereign Wealth Fund (SWF), stressing that a rule-based approach to setting the oil-price benchmark will strengthen the budgetary process and operation of the Fund.
The IMF also stated that growth would be robust this year but with inflation rising temporarily due to the increase in prices of fuel. It however pointed out that the main downside risks to the short-term outlook were “a further deterioration in the global environment and an exacerbation of current violence in northern Nigeria.”
The IMF Executive Board which concluded its 2011 Article IV Consultation with Nigeria on February 22, said in a statement made available to THISDAY that its “directors highlighted the importance of improving public financial management, including a stronger framework for managing Nigeria’s oil wealth.”
In welcoming the establishment of the SWF, the IMF directors recommended that “outlays from the SWF’s infrastructure fund be integrated into the budget and medium-term expenditure plans.”
THISDAY had reported last Tuesday that barring any unforeseen hitches, the SWF would commence operation in May this year as the Federal Government had started engaging the chief executive officer, chief investment officer and the chief risk officer of the body through KPMG.
KPMG was appointed to hunt for officers that will manage the fund under the Nigeria Sovereign Investment Authority (NSIA).
Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, had informed THISDAY in Beijing, China, last week, that it would take about three months from now before the SWF could become operational.
The NSIA is expected to help in realising the full benefits of the nation’s oil wealth by collecting the excess revenue earned from oil exports.
The NSIA is the agency to be set up by the Federal Government to manage the SWF. The SWF will be run by the private sector, which is expected to give a high level of efficiency in the usage of resources. The NSIA is expected to make targeted infrastructure investments that will serve as the backbone of a vibrant, dynamic and diversified economy. It will help the private sector and do much to attract foreign direct investment into Nigeria.
The IMF insisted that Nigeria’s economic growth remained strong, with non-oil real Gross Domestic Product (GDP) estimated to have grown at 8.3 per cent in 2011 and overall real GDP at about 6.7 per cent.
The Fund also revealed that the economy recorded a modest fiscal consolidation 2011, saying that non-oil primary deficit (NOPD) grew slightly from about 34.6 per cent of non-oil GDP in 2010 to 32.9 per cent in 2011, mainly due to expenditure restraint at the federal government level.
“Higher oil prices helped shrink the overall fiscal deficit from 7.7 per cent of GDP in 2010 to about 0.2 per cent of GDP in 2011. Monetary policy was tightened substantially in 2011 in response to high inflation and strong foreign exchange demand.
“The central bank has gradually increased its overnight deposit rate by 900 basis points since September 2010 and tightened regulatory requirements. In November, it adjusted downward its soft band around the naira-US dollar exchange rate, and depreciation pressures on the naira have since abated. Financial soundness indicators point to continued improvements in the health of the banking system,” it submitted.
The IMF directors considered that the medium-term growth outlook remained favourable, saying that there was need for policies to safeguard macroeconomic stability, diversify the economy, and make growth more inclusive.