- Analysts React as IMF Says Threats to Nigeria’s Economic Recovery High
The International Monetary Fund has predicted that the Nigerian economy will be out of recession this year with growth of 0.8 per cent though it says risks to the recovery remain high.
It, however, said the growth would not be sufficient to reduce unemployment and poverty in the country.
It said its staff team, led by the Senior Resident Representative and Mission Chief for Nigeria, Mr. Amine Mati, visited the country from July 20 to 31 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.
After shrinking by 1.5 per cent in 2016, the nation’s economy contracted by 0.52 per cent in the first quarter of this year, which is the fifth consecutive quarter of contraction.
According to Mati, the economic backdrop remains challenging despite some signs of relief in the first half of 2017.
He said following four quarters of negative growth, the non-oil economy grew by 0.6 per cent (year-on-year) on the back of a rebound in manufacturing and continued strong performance in agriculture.
He stated that various indicators suggested an uptick in activity in the second quarter of the year, adding that the headline inflation, which decreased to 16.1 per cent in June, remained high despite tight liquidity conditions.
Mati said, “Preliminary data for the first half of the year indicate significant revenue shortfalls, with the interest-payments to revenue ratio remaining high (40 per cent at end-June) and projected to increase further under current policies. High domestic bond yields and tight liquidity continue to crowd out private sector credit.
“Given Nigeria’s low growth environment and the banking system’s exposure to the oil and gas sector, non-performing loans increased from six per cent in 2015 to 15 per cent in March 2017 (eight per cent after excluding the four undercapitalised banks).”
He noted that the government had started implementing a number of important measures, with the Economic Recovery and Growth Plan driving the diversification strategy, and security in the Niger Delta improved through strengthened engagement.
He said the new Investor and Exporter FX window of the Central Bank of Nigeria had provided impetus to portfolio inflows, helped increase reserves above $30bn, and contributed to reducing the parallel market premium.
Mati added, “However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated.
“Concerns about delays in policy implementation, a reversal of favourable external market conditions, possible shortfalls in agricultural and oil production, additional fiscal pressures, continued market segmentation in a foreign exchange market that remains dependent on central bank interventions, and banking system fragilities represent the main risks to the outlook.”
According to him, in the near term, a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues will be needed to create space for infrastructure spending, social protection and private sector credit.
He said this should be simultaneously accompanied by a monetary policy “that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural.”
“Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy,” Mati added.
Reacting to the IMF’s position, the Board Chairman, Nigerian Economic Summit Group, a private sector think tank and policy advocacy group, Mr. Kyari Bukar, said the NESG had, at the start of the year, predicted that the economy would grow by 0.8 per cent.
He stated, “But we still have lack of clarity of the foreign exchange policy; we still have not coordinated our fiscal and monetary policies; and there is the debt burden.
“It is not just the borrowing that is the problem; if you’re borrowing for investment, that’s fine. We need to pay attention to our debt servicing, which is increasing.”
The Managing Director, Financial Derivatives Limited, Mr. Bismarck Rewane, said, “Even though the recovery has started, and we are going to have positive growth, the economy is still vulnerable to many domestic and exogenous variables.
“One major risk is the exchange rate falling below a particular level, and we are leaving the question of growth, the question of output and the question of economic activity, and those things are potent. It is one-dimensional diagnosis, and exchange rate being the critical variable.”
According to him, the government is aware of the risks and it has a team of people who can respond to them.
A professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Sheriffdeen Tella, said the delay in the passage of the budget had contributed in slowing down the recovery of the economy, adding that inflation had not fallen at the rate it should.
“Also, the Central Bank of Nigeria still retains high interest rate, which is inimical to the demand for credit in the economy; most businesses are still borrowing at very high interest rates, and, therefore, they will not borrow as much as they need to. So, the economy cannot expand on the basis of that,” he said.
He stressed the need for the harmonisation of the fiscal and monetary policies, adding that the CBN needed to bring down the interest rates to “enable investors who want to borrow money to run their businesses properly.”
The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said nothing fundamental had changed about the Nigerian economy to give one the assurance of a sustained growth or recovery.
He said the recovery of the economy so far was largely driven by the price of crude oil and volume of oil production, which he described as major risks.
“We know that even the Niger Delta militants are threatening again that they may resume bombing; so that is a major threat to the oil production volume. Once we begin to see growth in the oil and gas sector, which has been on the decline, then the economy should continue to grow.” he added.
Last month, the Monetary Policy Committee of the CBN said available forecasts of key macroeconomic indicators pointed to a fragile economic recovery in the second quarter of the year.
But the committee cautioned that the recovery could relapse into a more protracted recession if strong and bold monetary and fiscal policies were not activated immediately to sustain it.
ECOWAS@46: Commission Seeks Trade Partnership With OPS To Deepen Intra-African Trade
The Economic Community of West African States (ECOWAS) in commemoration of its 46th anniversary has sought partnership with the Organised Private Sector (OPS) to deepen intra-African trade and lift millions out of poverty.
This was revealed yesterday by the president of the ECOWAS Commission, Mr. Jean-Claude Brou, at a webinar organised in collaboration with the Lagos Chamber of Commerce and Industry (LCCI) yesterday.
The theme of the webinar is “Optimising Sustainable Trade, Investment and Regional Economic Integration through Effective Partnership between ECOWAS Institutions and the Organised Private Sector”.
Jean-Claude, represented by Mr. Kolawole Sopola, Acting Director, Trade, ECOWAS, said the commission, in recognition of the private sector’s role, created a stronger framework to boost the sector’s capacity for enhanced trade.
He said that the commission had also adopted more than 100 regional standards with 70 others under development on some products.
Brou listed mango, cassava, textile and garments as well as information and communication technology among such products.
“The growing importance of informal trade compels the ECOWAS to create a framework expected to engender more availability and reliability of up to date information on informal trade.
“The framework also seeks to implement reform that is essential to eliminate obstacles to informal trade among others.
“It is important to improve investment, particularly, private investment, in all sectors and I stress that digitalization must be at the center of activities for economic recovery.
“Infrastructural deficit must be addressed as well as sustainable and cheaper energy for the competitiveness of products.”
“The commission is developing projects on roads, renewable energy and education, needed for private sector development; all these to lift millions in the sub-region out of poverty,” he said.
Dr. George Donkor, President of, ECOWAS Bank for Investment and Development (EBID) said that many western states showed numerous hurdles to overcome as countries continue to export raw materials, therefore maintaining low levels of development.
Donkor, however, said that reforms were already underway to accelerate the capacities of the Micro, Small and Medium Enterprises (MSME) to spur private sector development for intra-African trade.
He noted that the EBID 2025 strategy was aimed at ensuring that the private sector benefitted up to 65 percent of the $1.6 billion available facilities.
“A vibrant private sector is key in driving regional integration and securing its active participation and has the potential to create a win-win situation for all participants.
“Increasing credit to the private sector will enhance capacity and the EBID is ready with strategies to ensure that the sector’s capacity is boosted,” he said.
Also, Otunba Niyi Adebayo, Minister of Industry, Trade and Investment, said that collaboration across societal sectors had emerged as one of the defining concepts of international development in the 21st century.
He stressed the need for ECOWAS member states to work together as a bloc to take advantage of the opportunities in the African Continental Free Trade Area.
“Since the establishment of ECOWAS in 1975, various protocols and supplementary protocols regulating member countries conduct have been signed.
“Our world has limited resources — whether financial, natural, or human — and as a society we must optimize their use.
“The fundamental of a good partnership is the ability to bring together diverse resources in ways that we can together achieve more impact, greater sustainability and increased value for all.
“This is so because it emphasises the need to work together as a bloc to leverage and take advantage of the opportunities offered by the African Continental Free Trade Area.
“My Ministry will do everything possible to ensure that the vision of the commission is taken to the next level,” he said.
IMF Retains 2.5 Percent Economic Growth Estimate For Nigeria
The International Monetary Fund (IMF) has retained Nigeria’s 2.5 percent economic growth forecast for 2021.
The institution said this in its World Economic Outlook (WEO) for July titled “Fault Lines Widen in the Global Recovery” released on Tuesday in Washington DC.
According to it, the slow rollout of vaccines is the main factor weighing on the recovery for Low-Income Developing Countries (LIDCs) which Nigeria is part of.
It also retained its 6.0 percent growth forecast for the global economy for 2021 and 4.9 percent in 2022, adding that though the global forecast was unchanged from the April 2021 WEO, there were offsetting revisions.
The IMF had at its 2021 Virtual Spring Meetings in April, projected a 2.5 percent growth for Nigeria’s economy in 2021, up from 1.5 percent it projected in January.
It said that in LIDCs, the overall fiscal deficit in 2021 was revised up by 0.3 percentage points from the April 2021 WEO, mainly because of the re-emergence of fuel subsidies as well as the additional COVID-19 and security related support in Nigeria.
“Still, at 5.2 percent of Gross Domestic Product (GDP), the overall fiscal deficit remains well below that of advanced and emerging market economies, reflecting financing constraints, about 60 percent of LIDCs are assessed to be at high risk of or in debt distress.
“The public debt-to-GDP ratio for 2021 is projected at 48.5 percent.
“Several LIDCs have announced an intention to restructure their debts and some have sought debt relief under the G20 Common Framework (Chad, Ethiopia, and Zambia),” it said.
On the global scene, the IMF said that uncertainty surrounding the global baseline remain high, primarily related to the prospects of emerging market and developing economies.
It added that although growth could turn out to be stronger than projected, downside risks dominated in the near term.
“On the upside, better global cooperation on vaccines could help prevent renewed waves of infection and the emergence of new variants, end the health crisis sooner than assumed, and allow for faster normalisation of activity, particularly among emerging market and developing economies.
“Moreover, a sooner-than-anticipated end to the health crisis could lead to a faster-than-expected release of excess savings by households, higher confidence and more front-loaded investment spending by firms.”
On the downside, it said growth would be weaker than projected if logistical hurdles in procuring and distributing vaccines in emerging markets and developing economies led to an even slower pace of vaccination than assumed.
The report added that such delays would allow new variants to spread, with possibly higher risks of breakthrough infections among vaccinated populations.
“Emerging market and developing economies, in particular, could face a double hit from tighter external financial conditions and the worsening health crisis, further widening the fault lines in the global recovery.
“Weaker growth would, in turn, further adversely affect debt dynamics and compound fiscal risks.
“Finally, social unrest, geopolitical tensions, cyber-attacks on critical infrastructure, or weather-related natural disasters, which have increased in frequency and intensity due to climate change could further weigh on the recovery.”
On ensuring a fast-paced recovery, the IMF said the highest priority was to ensure rapid, worldwide access to vaccines and substantially hasten the timeline of rollout relative to the assumed baseline pace.
According to it, the global community needs to vastly step up efforts to vaccinate adequate numbers of people and ensure global herd immunity.
This, it said, would save lives, prevent new variants from emerging and add trillions to the global economic recovery.
FG to Put an End to N360 Billion Annual Electricity Subsidy Payments in 2022 – Osinbajo
Vice President Yemi Osinbajo on Monday said the Federal Government will end an estimated N360 billion annual subsidy payments in the electricity sector in 2022. This represents a monthly subsidy payment of N30 billion.
Osinbajo disclosed this while speaking at the 14th Nigerian Association for Energy Economics/IAEE conference in Abuja on Monday.
At the conference titled “Strategic responses of energy sector to COVID-19 impacts on African economies“, the vice president, who was represented by Engr. Ahmad Zakari, the Special Assistant to the President on Infrastructure, said the federal government would be investing over $3 billion in the sector to strengthen distribution and transmission infrastructure across the nation.
He stated that the numerous efforts of President Muhammadu Buhari at ensuring the power sector plays a critical role in the growth of the nation’s social and economic well-being will materialise fully once the ongoing reform in the energy sector is complete.
He said: “Electricity tariff reforms with service-based tariff has led to collections from the electricity sector by 63 per cent, increasing revenue assurance for gas producers and stabilizing the value chain.
“It is anticipated that all electricity market revenues will be obtained from the market with limited subsidy from next year as reforms in metering and efficiency with the DISCOs continue to improve.
“Accelerated investment in transmission and distribution, over $3 billion will be out into this sub-segment of the electricity value chain that will put us on the path to delivering 10 gigawatts through the interventions of the Central Bank of Nigeria, Siemens partnership, World Bank and Africa Development Bank, and others.”
He said as the electricity sector continued to be stabilized, more power was needed for the country’s large population.
“That is why this administration continues to invest in generation to cater for our current and future needs,” he said.
Osinbajo charged the participants to come up with solutions to key energy challenges facing the country, especially with the COVID-19 pandemic and energy transition.
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