By Favour Nnabugwu
The International Monetary Fund (IMF), yesterday, acknowledged efforts by the Federal Government to fast-track growth but warned that the “reemergence of fuel subsidies and slow progress in revenue mobilisation” exposes the country’s fiscal outlook to significant risks.
The observations were contained in a statement on preliminary findings by IMF staff at the end of an official staff visit (otherwise described as mission) to its member countries to monitor economic development.
The institution noted that the views expressed in the statement did not necessarily represent the position of the IMF’s Executive Board, saying another report would be prepared by the staff for the Executive Board’s “discussion and decision.”
The statement also observed that the continued dependence on administrative measures to address lingering foreign exchange (FX) shortages has a negative impact on confidence building.
The IMF, World Bank and other international institutions had previously called for broad reform of the FX market to achieve market-led and more dynamic operations.
In yesterday’s statement, IMF reiterated that there was a need for the urgent FX market, fiscal, trade and governance reforms to rescue the economy from muted recovery.
“Without urgent fiscal and exchange rate reforms, the medium-term outlook faces sub-par growth. There are significant downside risks to the near-term outlook arising from the uncertain course of the pandemic and the domestic security situation.
“In the medium term, there are upside risks from faster-than-expected reaching of the Dangote refinery’s production capacity along with the effective implementation of the 2021 Petroleum Industry Act in terms of higher manufacturing production and investment in the oil sector; major reforms in the fiscal, exchange rate, trade and governance are needed to alter the long-running lacklustre growth path.
“On the immediate front, fiscal and external imbalances require removal of regressive fuel and electricity subsidies, tax administration reforms and installing a fully unified market-clearing exchange rate. Over the medium term, moving away from inward-looking policies through trade, monetary and foreign exchange reforms, enhancing public trust through governance and fiscal transparency reforms and improving welfare through job creation and agricultural reforms are priorities.”
The Fund noted that the fiscal deficit could worsen in the near term and remain elevated over the medium term. According to the statement, the fiscal deficit is projected to widen in 2021 to 6.3 per cent of the Gross Domestic Product (GDP) despite the bullish oil prices.
IMF also called for aggressive tax reform to boost revenues, saying: “Nigeria will have to adopt tax rates compared to its peers in the Economic Community of West African States (ECOWAS) to raise revenues to levels targeted in the 2021-25 National Development Plan.”
The institution, however, commended the country’s “pro-active approach” in managing the COVID-19 crisis. The efforts, it admitted, has contained the infection and fatality rate.
“The COVID-19 pandemic has been well managed but there is a lasting imprint on the vulnerable. Like much of the rest of Sub-Saharan Africa (SSA), Nigeria underwent a third wave of the pandemic in August 2021. The authorities’ proactive actions, including a robust infection tracking system and a national strategy for vaccine procurement and rollout, have helped keep infection rates and fatalities lower than in many other countries,” it added.