- IMF Projects 2.1% GDP Growth for 2018, Welcomes Reforms
The International Monetary Fund (IMF) has stressed the need for urgent macroeconomic and structural reforms in Nigeria, in order to place the country on a sustainable growth path as well as help achieve its quest for economic diversification.
This formed part of the recommendations by an IMF staff team led by Amine Mati, that visited Nigeria between December 6-20th, 2017, to conduct the 2018 Article IV consultation.
Following the conclusion of the visit, Mati, who is a Senior Resident Representative and Mission Chief for Nigeria at the IMF, in a statement that was posted on the multilateral institution’s website yesterday, noted that overall growth in the country was slowly picking up, but that recovery remained challenging.
“Economic activity expanded by 1.4 per cent year-on-year in the third quarter of 2017—the second consecutive quarter of positive growth after five quarters of recession—driven by recovering oil production and agriculture.
“However, growth in the non-oil-non-agricultural sector (representing about 65 percent of the economy), contracted in the first three quarters of 2017 relative to the same period last year,” said the IMF.
It pointed out that difficulty in accessing financing and high inflation continued to weigh on companies’ performance and consumer demand. “Headline inflation declined to 15.9 percent by end-November, from 18.5 per cent at end-2016, but remains sticky despite tight liquidity conditions.
“High fiscal deficits—driven by weak revenue mobilisation—generated large financing needs, which, when combined with tight monetary policy necessary to reduce inflationary pressures, increased pressure on bond yields and crowded out private sector credit.
“These factors contributed to raising the ratio of interest payments to federal government revenue to unsustainable levels.
“Reflecting the low growth environment and exposure to the oil and gas sector, the banking industry’s solvency ratios have declined from almost 15 to 10.5 percent between December 2016 and October 2017, and non-performing loans have increased from 5 percent in June 2015 to 15 percent as of October 2017, although with provisioning coverage of about 82 percent.
“The authorities have begun addressing macroeconomic imbalances and structural impediments through the implementation of policies underpinning the Economic Recovery and Growth Plan (ERGP),” it added.
Supported by recovering oil prices, the IMF states that the Investors’ and Exporters’ foreign exchange window had increased investor confidence and provided impetus to portfolio inflows, which have helped to increase external buffers to a four-year high, and contributed to reducing the parallel market premium.
Furthermore, it noted that “important actions under the Power Sector Recovery Program increased power supply generation and ensured government agencies pay their electricity bills.”
The Fund also welcomed steps “taken to improve the business environment and to address longstanding corruption issues, including through the adoption of the National Anti-Corruption Strategy in August 2017.”
It however stressed that in the absence of new policies, the near-term outlook remained challenging.
“Growth is expected to continue to pick up in 2018 to 2.1 per cent, helped by the full year impact of greater availability of foreign exchange and higher oil production, but to stay relatively flat in the medium term.
“Risks to the outlook include lower oil prices, tighter external market conditions, heightened security issues, and delayed policy responses.
“Containing vulnerabilities and achieving growth rates that can make a significant dent in reducing poverty and unemployment requires a comprehensive set of policy measures.
“On the fiscal front, the mission welcomes the recent tax reforms aimed at improving tax administration, planned increases in excises, and latest steps taken to lower debt servicing costs and lengthen maturities.
“However, with oil prices expected to remain lower than in the past, upfront actions to mobilise non-oil revenues, including through reforming the VAT and removing exemptions, are needed while safeguarding priority expenditures, including scaling up social safety nets and infrastructure investment.
“Fiscal consolidation should be accompanied by a monetary policy stance that remains tight to further reduce inflation and anchor inflation expectations. Moving toward a unified and market-based exchange rate as soon as possible while continuing to strengthen external buffers would be necessary to increase confidence and reduce potential risks from capital flow reversals.
“Such a policy package – along with structural reform implementation, including by building on recent successes to improve the business environment, closing infrastructure gaps, and implementing the power sector reform plan – would lay the foundation for a diversified private sector-led economy.
“Strengthening governance and transparency initiatives, and lowering gender inequality and fostering financial inclusion would also be important,” it added.
The IMF team stated that they held productive discussions with senior government and central bank officials. They also met with members of parliament, representatives of the banking system, private sector, civil society, and international development partners. The team thanked the authorities and those with whom they met for the open and productive discussions, excellent cooperation, and warm hospitality.
Brent Crude Oil Approaches $70 Per Barrel on Friday
Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension
Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.
Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.
Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.
While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.
According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.
“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”
Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.
“The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.
“I do believe we’re headed for a much healthier supply and demand environment” she said.
Oil Jumps to $67.70 as OPEC+ Extends Production Cuts
Oil Jumps to $67.70 as OPEC+ Extends Production Cuts
Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.
OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.
Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”
Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.
Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.
Experts have started predicting $75 a barrel by April.
“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”
Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin
Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges
Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.
The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.
The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.
“We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.
Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.
Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.
In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.
The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.
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