Analysts Hail IMF Assessment of Nigeria’s Economic Recovery Plan

Kunle  Aderinokun

Reactions have continued to trail the International Monetary Fund  (IMF)  report of  the Article IV Consultation on Nigeria, with analysts agreeing with the Bretton Woods institution’s commendation for the recently launched Economic Recovery and Growth Plan (ERGP). The ERGP focuses on economic diversification driven by the private sector, and government initiatives to strengthen infrastructure—including the recently adopted power sector recovery plan.

The Bretton Woods institution, which released its report last Thursday at the conclusion of the 2017 Article IV Consultation with Nigeria, however,  pointed out that,  without stronger policies these objectives might not be achieved.

IMF said its directors stressed  the need for a front-loaded, revenue-based fiscal consolidation starting in 2017, to reduce the federal government interest payments-to-revenue ratio to sustainable levels.

“They underscored that priority should be given to increasing non-oil revenue, including through raising VAT and excise rates, strengthening compliance, and closing loopholes and exemptions. Administering an independent fuel price-setting mechanism to eliminate fuel subsidies, strengthening public financial management, and developing a well-targeted social safety net would also support the adjustment. Directors stressed the need to contain the fiscal deficit of state and local governments, including through improved transparency and monitoring,” it highlighted.

Similarly, IMF welcomed the  policy measures adopted by the Central Bank of Nigeria (CBN) to ease the pressures in the foreign exchange market  and significantly improve the value of the naira.

The fund, in hailing CBN’s efforts at easing some of the restrictions in the market, however, requested the monetary authority to remove the remaining restrictions and stop multiple currency practices with a view  to unifying the FX  market.

According to the multilateral development finance institution,    “Directors emphasised that these policies should be supported by tighter monetary policy and fiscal consolidation to anchor inflation expectations and to limit the risk of exchange rate overshooting, as well as structural reforms to improve competitiveness.”

The fund’s directors recognised that the Nigerian economy had been negatively impacted by low oil prices and production and commended efforts already made by the government to reduce vulnerabilities and enhance resilience, including by increasing fuel prices, raising the monetary policy rate, and allowing the exchange rate to depreciate.

“Under unchanged policies, the outlook remains challenging. Growth would pick up only slightly to 0.8 per cent in 2017, mostly reflecting some recovery in oil production and a continuing strong performance in agriculture,” the fund stated.

The IMF assessment immediately attracted the attention of economic analysts and market watchers, who agreed with its observations while also expressing their reservations in some areas.

In his analysis, the Chief Executive Officer, The CFG Advisory, Adetilewa Adebajo,  who noted that the IMF Article IV is a serious independent assessment of the state of the economy and a report global investors and rating agencies take serious about the state of the economy, believed,  “ The CBN is best served to build confidence in the flexible exchange rate system with a transparent bid and offer rate that can ensure a market driven system.”

Adebajo stated that, “The government policy to drive the economy out of recession is in alignment and now faced with the challenge of implementation and driving the policies through.”

Besides, the  Chief Executive Officer, Global Analytics Consulting Ltd, Tope Fasua, posited that, the CBN did well by ensuring  the critical segment of the market benefit, rather than allowing their demands to fuel the black market.  

“For me the real news is that the CBN, rather than excluding a critical segment of the market from having access to foreign exchange for legitimate uses (travels, school fees, medicals etc.), has done the right thing by providing a solution that will not have this critical segment fuelling the black market. Their demands may be relatively small, but very important for ‘price discovery’ in the market. And so, even manufacturers suffered when there was a premium of N200 between the official rates and the ‘real’ rates – the rates from the parallel market,” he noted.

Stating that,  the IMF was right in its observations, Fasua advised “the  CBN to harmonise these rates, and to reduce to a bare minimum the number of goods that cannot access official funds (I cannot propose a laissez faire regime because we have-not arrived yet).”

“The IMF has also been pushing for increase in VAT for years and there is a limit to which we can resist. The ERGP proposes VAT increases on luxury goods anyway. I am not sure it is right to increase Excise duties on exports for now. Everything is not about taxes, or money. If we could reorganise this economy from a multi-disciplinary way, we could generate a much higher growth rate than what the IMF thinks should be the case for us,” he added. 

For the  Director, Union Capital Markets Ltd, Egie Akpata, “I am not sure that there has been any material change in the CBN policies regarding FX.”

According to him, “ They have just made some administrative changes and supplied more FX into various markets (interbank, for personal use (PTA, school fees, foreign medical expenses), forward market etc.).

However, pointing out that, “Most of what the IMF would like to see is in line with what most local market participants have been asking for”, Akpata argued that, “It is unlikely that the CBN would make any radical shift in FX policy on the near term.”

“But it will be helpful if they came up with a new policy or administrative procedure that could give priority to foreign portfolio investors so they know that there will be liquidity for them to exit the market in the future. This would result in significant FX inflows that can help reduce the pressure on CBN reserves on the short term.”

BRIEFS

New FX Policy

The Central Bank of Nigeria on Monday introduced new Forex rates and said it would no longer trade the naira at N375 per dollar for invisibles, such as school fees, medical bills and travel allowances. The regulator said Nigerians could now get the dollar at N360 across all commercial banks within the country. “The CBN [is] to sell forex to banks at N357/$1, while banks will sell to their customers at N360/$1 for invisibles (BTA, medicals, fees, etc),” the apex bank said on Monday.

 Development Bank

The Development Bank of Nigeria, owned by the Federal Ministry of Finance, has been licensed by the Central Bank of Nigerian. The ministry announced this on Tuesday. DBN was conceived in 2014, but its take-off had been delayed. It is a wholesale financial institution that aims to increase access to finance for Micro, Small and Medium Enterprises (MSMEs) through eligible financial intermediaries, which are the participating financial institutions.

 Rail Concession

A consortium led by General Electric (GE) on Wednesday emerged as the sole bidder for a Nigerian railway concession project worth about $2 billion for two lines connecting some northern cities to cities in the South. GE was the only bidder when the bid officially closed on Wednesday.   Nigeria has been looking for partners to overhaul its ageing railway system, built mainly by the British colonial rulers before independence in 1960.

 IMF

The International Monetary Fund has commended the recent “easing of some exchange restrictions” in Nigeria. But IMF urged the Central Bank of Nigeria to “remove the remaining restrictions and multiple currency practices” to unify the foreign exchange market. The fund stated this Thursday in the 2017 Article IV Consultation with Nigeria. It added that it would help in regaining investor confidence in the Nigerian economy.

 Ministry of Finance

The Federal Ministry of Finance on Friday announced the members of the board and management of the newly licensed Development Bank of Nigeria. The management team is led by Tony Okpanachi, a banker and erstwhile Deputy Managing Director/Deputy Chief Executive Officer, Ecobank Nigeria Limited. Okpanachi will be supported by the Chief Financial Officer, Ijeoma Ozulumba, and Chief Risk Officer, Olu Adegbola. 

Foreign  Reserve

Nigeria’s forex reserves, Friday, fell to a two-week low as the naira eased on the black market. Reuters news agency reports that the development came after the central bank pledged to step up dollar sales but also said it would announce a new currency rate for retail exchange bureaus next week.  The central bank had on Tuesday set a rate of 362 naira for exchange bureaus to sell the U.S. currency to consumers, an 11 percent rise in the local currency from the last setting in January.

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