Oil Production to Boost Nigeria’s Economic Recovery by 0.8%

• Oil Production to Boost Nigeria’s Economic Recovery by 0.8%

A significant increase in Nigeria’s crude oil production is expected to push economic recovery upward by 0.8 per cent this year, according to the International Monetary Fund (IMF) 2017 Article IV Consultation with Nigeria.

IMF in the report released yesterday, noted that with oil receipts dominating fiscal revenue and exports, the Nigerian economy was hit hard by low oil prices and falling production, adding that under unchanged policies, the outlook remains challenging.

According to the agency, 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, but policy uncertainty, crowding out, and foreign exchange (FX) market distortions would be expected to drag activity.

Nigeria’s crude oil production reached two million barrels per day in January and February, but dropped to 1.6 million barrels per day in March, due to the Turnaround Maintenance at Bonga by Shell Nigeria Exploration and Production Company (SNEPCo).

SNEPCO has since completed the repair and crude oil production is expected to increase from April 2017.

In terms of strategy, IMF said: “Accommodative monetary policy would keep inflation in double digits. Financing constraints and banks’ risk aversion would crowd out private sector credit and increase the Federal Government’s already high debt service burden.

“A continued policy of prioritizing exchange rate stability would lead to an increasingly overvalued exchange rate, leading to a deterioration in the non-oil trade balance and gross reserves below adequate levels,” it added.

But the Fund commended efforts already made by the authorities to reduce vulnerabilities and enhance resilience, including fuel prices, raising the monetary policy rate, and allowing the exchange rate to depreciate.

It equally recognised the recent easing of some exchange restrictions and urged the authorities to remove others including the multiple currency practices, thus unifying the foreign exchange market and helping regain investor confidence.

Such policies, IMF continued, 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.

In the light of the persisting internal and external challenges, it emphasised that stronger macroeconomic policies are urgently needed to rebuild confidence and foster an economic recovery, and stressed the need for a front-loaded, revenue-based fiscal consolidation starting in this year.

This, it said, will reduce the Government’s interest payments-to-revenue ratio to sustainable levels.

The IMF also advised that priority be given to increasing non-oil revenue, including raising Value Added Tax (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,” it added.

Furthermore, states and local governments were advised to contain the fiscal deficit through improved transparency and monitoring, while external adjustment is necessary to protect foreign currency buffers and reduce vulnerabilities.

It noted that ambitious structural reforms are key to achieving a competitive, investment-driven economy that is less dependent on oil. “Priority should be given to improving infrastructure, enhancing the business environment, improving access to financing for small enterprises, and strengthening governance and anti-corruption efforts. Timely and effective implementation of these measures would promote sustainable and inclusive growth,” it added.

IMF concluded by calling for improvement in the quality and availability of economic statistics, and encouraged further efforts to compile subnational fiscal accounts.