The International Monetary Fund (IMF) has concluded an Article IV consultation with the Nigerian government and has welcomed the notable reforms undertaken in the fiscal sector, including the removal of a fuel subsidy and steps to implement cost-reflective tariff increases in the power sector.
The IMF states that Nigeria’s economy had been hit hard by the Covid-19 pandemic. Following a sharp drop in oil prices and capital outflows, real gross domestic product (GDP) is estimated to have contracted by 3.2 per cent in 2020.
The country’s headline inflation rose to 14.9 per cent in November 2020, which marked a 33-month high, reflecting core and food inflation increases emanating from supply shortages due to the lockdown effected to curb infections, alongside the land-border closure and continued import restrictions.
The unemployment rate reached 27 per cent in the second quarter of the year, with youth unemployment at 41 per cent.
The Nigerian authorities acted swiftly to adopt a pandemic-related support package equivalent to 0.3 per cent of Gross Domestic Product (GDP) in the 2020 revised federal Budget despite limited fiscal space.
External vulnerabilities owing to lower oil prices and weak global demand have increased, with the current account remaining in deficit in the first half of 2021.
In April 2020, Nigeria received IMF emergency financial assistance of $3.5-billion under the Rapid Financing Instrument to help cushion the impact of the pandemic.
The IMF notes that socioeconomic conditions have deteriorated, with rising food inflation, elevated youth unemployment and mass protests in October last year, and says surveys show worsening food insecurity with a significant impact on the vulnerable.
Risks are tilted to the downside and include the resurgence of the pandemic, security situation and unfavourable external environment.
Capital outflow risks arise from the record-low domestic interest rates and large foreign holdings of domestic securities.
On the upside, recovering oil prices and the completion of the Dangote oil refinery could catalyse more domestic crude oil production and boost growth.
The IMF executive directors agreed with the thrust of the staff appraisal. They commended the authorities for the measures taken to address the health and economic impacts of the Covid-19 pandemic which have exacerbated pre-existing weaknesses.
