- Nigeria’s Economic Crisis May Spill to West Africa
The International Monetary Fund has warned that the current economic crisis in Nigeria may spill over to the rest of West Africa with negative consequences.
It also raised the alarm that Nigeria was spending too much of her revenue to service debts, noting that this was not sustainable.
The Assistant Director and Head of Fiscal Policy and Surveillance Division, Fiscal Affairs Department, IMF, Catherine Pattillo; and the Director, Fiscal Affairs Department, IMF, Vitor Gaspar, said this on Wednesday at a press conference on the IMF Fiscal Monitoring Report as part of the World Bank/IMF Annual Meetings in Washington DC, United States.
Pattillo said, “The slump in oil production and slow growth have created challenges for Nigeria. But one statistic that is quite striking to me is that the debt profile is weakening and the interest account payment is more than 45 per cent of the Federal Government’s revenue. The priority is a big challenge.
“On the fiscal side, the important priority should be in safeguarding fiscal sustainability, which means, importantly to increase non-oil revenues and implement an independent price-setting mechanism that minimises fuel subsidy. So, these are two priorities, while also of course, improving public service delivery so that citizens can see the benefits of good governance and services financed by the government.
“So, these are the challenges. As you know, Nigeria is a very important economy in the African region and its success has positive spill over for the region, particularly in West Africa, and its challenges create difficulties for its neighbours.”
On his part, Gaspar said, “Message number one is that if you look at the global debt and deficit landscape in the world, you’ll see that the countries that have the highest public sector deficit are oil exporters; Nigeria is in debt and it is a country much hit by very low oil prices.
“That is a general message because it applies to oil exporters in general; the group of oil exporters have shared some characteristics.
“The most important point, in my view, is that for countries in sub-Saharan Africa to deliver on the SDGs, the key challenge is the building up of revenue mobilisation capacity through tax capacity building; that’s a key priority.”
He added, “These countries must improve their capacities to raise revenue, and why is that so? Because there is such need in term of public infrastructure, there is such need in terms of public education; there is such need in terms of health.
“For these group of countries, public finance/fiscal policy is part of the overall development strategy, and in that, tax capacity is a fundamental cornerstone.”
Meanwhile, the Minister of Finance, Mrs. Kemi Adeosun, has condemned multilateral funding agencies and Western nations for blocking an attempt by Nigeria to generate electricity from coal on the excuse that the project is not ‘green’.
She said this at the ongoing annual meetings of the World Bank/International Monetary Fund in Washington DC, United States of America on Wednesday.
According to her, it is hypocritical to block the project at a time Nigeria needs power most.
Although Adeosun did not give details of the project, she said it was blocked because of its likely contribution to carbon emission, but noted that most developed countries still relied on coal as a means of generating electricity.
The minister, who spoke on infrastructure funding for Africa, said, “I think there is a need for consistency around bankable projects that can attract investments. Yes, we do need macroeconomic stability. We also do need consistency of policies by the multilateral institutions and Western countries.
“Let me give you an example. In Nigeria, we have coal and there is power inadequacy. It doesn’t take a genius to work out what it will take to get coal-fired power. Yet, we are being blocked. I think there is some hypocrisy in that. We have an entire Western industrialisation that was built on coal-fired energy and that is the competitive advantage that has been used to develop Britain, where I grew up. Now, Africa wants to do it, and they are saying it’s not green, we can’t do it and that we should go and do solar and wind, which are the most expensive power projects in the world.
“Yes, we are going to have the narrative around infrastructure; we must invest in infrastructure, but we must also make sure the playing field is level. The West, after polluting the atmosphere for 100 years, and when Africa wants to explore its resources, they say no.
“Yes, we would come up with bankable projects and we would behave ourselves, but I think we also need to be firm.”
IMF Staff Completes Virtual Mission to Lesotho
Lesotho has been struggling with the fallout from the pandemic and a sharp decline in revenues from the Southern African Customs Union (SACU); The authorities and the mission team made significant progress in their discussions on policies that could be supported by the IMF under a financial arrangement.
A team from the International Monetary Fund (IMF), led by Mr. Aqib Aslam, conducted a series of virtual missions, most recently from September 7 to October 15, 2021, to discuss the authorities’ economic and financial program and their request for IMF financial support.
The authorities and the mission team had productive discussions on policies that could be supported by the IMF under a financial arrangement. The program under discussion would aim to support a durable post-pandemic recovery, restore fiscal sustainability, strengthen public financial management, and ensure the protection of the most vulnerable. Other key structural reforms to be implemented include strengthening governance and fostering private sector investment to spur inclusive growth and employment over the medium term.
At the end of the visit, Mr. Aslam issued the following statement:
“Lesotho has been experiencing twin economic shocks resulting from the pandemic and a decline in revenues from the Southern African Customs Union (SACU) that have proved to be highly volatile. Public expenditures have been increasing while SACU revenues were buoyant but have not adapted to their decline and the limited growth in other revenue sources. At the same time, the economy has been in recession since 2017. The resulting fiscal and external imbalances, if left unaddressed, would continue to put pressure on international reserves and lead to government payment arrears.
“Discussions emphasized the need to support a robust and inclusive post-pandemic recovery. To this end, the mission discussed with the authorities a number of options for containing the fiscal deficit to a level that is sustainable and can be fully financed. The team noted that the adjustment should be focused on expenditure measures while boosting poverty-reducing social spending to protect the most vulnerable. Complementary actions include efforts to broaden financial access and inclusion; strengthen financial supervision; modernize the legal frameworks for bank lending, business rescue, and restructuring, and digitalize payment systems.
“On the fiscal front, efforts should focus on addressing the public sector wage bill, which is one of the largest in the world compared to the size of the economy; saving on public sector and official allowances; better targeting education loans; streamlining the capital budget and initiating gender-responsive budgeting. Discussions also considered measures to modernize tax policy and improve domestic revenue mobilization. The mission noted the need to address long-standing PFM issues to ensure the provision of reliable fiscal data, the integrity of government systems, and the sound use of public resources.
“Significant progress was made during the visit, and discussions will continue in the coming weeks. If agreement is reached on policy measures in support of the reform program, an arrangement to support Lesotho’s economic program would be proposed for the IMF Executive Board’s consideration.
“The IMF team thanks the authorities for their hospitality and constructive discussions.”
The IMF mission met with Prime Minister Majoro, Minister of Finance Sophonea, Central Bank Governor Matlanyane, and other senior government officials. The team also met with representatives of the diplomatic community, private sector, civil society, and multilateral development partners.
Nigeria’s Inflation: Prices Increase at Slower Pace in September 2021
Prices of goods and services moderated further in Africa’s largest economy, Nigeria in the month of September 2021, the latest report from the National Bureau of Statistics (NBS) has revealed.
Consumer Price Index (CPI), which measures the inflation rate, grew at 16.63 percent year-on-year in September, slower than the 17.01 percent rate achieved in the month of August.
On a monthly basis, inflation rose by 1.15 percent in September 2021, representing an increase of 0.13 percent from 1.02 percent filed in August 2021.
Food Index that gauges price of food items grew at 19.57 percent rate in the month, below the 20.30 percent rate recorded in August 2021.
The increase in the food index was caused by increases in prices of oils and fats, bread and cereals, food product N.E.C., fish, coffee, tea and cocoa, potatoes, yam and other tuber and milk, cheese and egg.
However, on a monthly basis, the price of food index rose by 0.20 percent from 1.06 percent filed in August 2021 to 1.26 percent in September 2021.
The more stable twelve months average ending in September 2021 revealed that prices of food items grew by 0.21 percent from 20.50 percent in August to 20.71 percent in September.
Prices of goods and services have been on the decline in Nigeria in recent months, according to the NBS. However. on masses are complaining of the persistent rise in prices of goods and services across the nation.
Some experts attributed the increase to Nigeria’s weak foreign exchange rate given it is largely an import-dependent economy.
Global Debt Rises by $27 Trillion to $226 Trillion in 2020 – IMF
The pandemic has led to an unprecedented increase in debt—issued by governments, nonfinancial corporations, and households the IMF estimated in the latest Fiscal Monitor report. In 2020 global debt reached $226 trillion and increased by $27 trillion, the IMF estimated Wednesday (October 13) in Washington, DC.
High and growing levels of public and private debt are associated with risks to financial stability and public finances, said Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department.
“According to preliminary estimates from the Global Debt Database, global debt by governments, households, and non-financial corporations reached $226 trillion. That represents an increase of $27 trillion relative to 2019. Both the level and the pace of increase are record highs. We know that high and rising debts increase risks to financial stability and public finances,” Gaspar said ahead of the Fiscal Monitor release.
Gaspar emphasized that countries with a high credibility fiscal framework benefit from better bond market access. They also experience lower interest rates on sovereign bonds.
“A strong message from the fiscal monitor is that fiscal credibility pays off. Countries that have credible fiscal frameworks benefit from better and cheaper access to bond markets. That’s a precious asset to have in an uncertain and difficult times like COVID 19. Fiscal credibility pays off!,” added Gaspar.
He also recognized that while the international community has provided critical support to alleviate fiscal vulnerabilities in low-income countries, still more is needed.
“In 2020, the IMF’s rapid financing and the G20 Debt Service Suspension Initiative contribute to make resources available to the countries that need it the most. But more is needed. With a general allocation of SDRs of $650 billion, liquidity has been provided, but much more could be achieved if rich countries would make part of their resources available to the developing world. By doing so, donors would be contributing to fighting the pandemic and to the achievement of sustainable and inclusive growth,” said Gaspar
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