IMF: Declining Incomes, Low Investments Slow Nigeria’s Economic Recovery

The International Monetary Fund has said that the pace of economic recovery adopted by the federal government is slow adding that weak investment mars the country’s economic activities.

The IMF disclosed this in the preliminary findings of IMF staff teams on Article IV, dated February 17, 2020.

In the statement, the Senior Representative and Mission Chief for Nigeria, Amine Mati, argued that real income in the country is declining and that the unattractive state of the economy has resulted to weak investment.

The commission also insisted that external vulnerabilities are increasing, consequently, the country is witnessing a rising current account deficit and fall in the country’s reserves.

She, however, praised the country’s foreign exchange which has been stable despite the pressures on the economy, adding that the stability was due to frequent sales of foreign exchange through different windows available to the country.

“The pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity.

“Inflation—driven by higher food prices—has risen, marking the end of the disinflationary trend seen in 2019.

“External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals. The exchange rate has remained stable, helped by steady sales of foreign exchange in various windows,” Mati said.

The IMF representative further warned that the country’s fiscal deficits are complicating the Central Bank of Nigeria’s monetary policy.

The commission said, “Weak non-oil revenue mobilization led to further deterioration of the fiscal deficit, which was mostly financed by Central Bank of Nigeria (CBN) overdrafts.”

Mati also warned of a challenging outlook under the current FG economic policies, adding that, “Inflation is expected to pick up, while deteriorating terms of trade and capital outflows will weaken the country’s external position,” he said.

The IMF in the statement praised FG intervention to boost revenue in the country, which in turn will reduce the vulnerabilities in the economy.

Measures Taken By FG To Boost Revenue

 President Muhammadu Buhari had approved the Finance Bill and Deep offshore Act to boost FG revenue.

The CBN had in January 2020 tightened its monetary policy by raising cash reserve ratio of banks from 22.5 to 27%, which was an action to curb the rising inflation which is currently at 12.13% according to the Nigerian Bureau of Statistics (NBS).

The FG also approved the 2020 budget in 2019 to improve budget performance.

However, the commission maintained that the government needed to make policy adjustments to curb short term vulnerabilities, to allow the economy could grow.