IMF Concludes Post Financing Assessment with NigeriaThank you for reading this post, don't forget to subscribe!
February 9, 2024 – Washington, DC
The Executive Board of the International Monetary Fund (IMF) wrapped up its Post Financing Assessment (PFA) with Nigeria on January 12, 2024, endorsing the Staff Appraisal in a timely manner. Nigeria’s ability to meet its financial obligations to the IMF was deemed sufficient.
President Tinubu’s administration has forged ahead with significant structural reforms, notably the elimination of fuel subsidies and the consolidation of various official foreign exchange platforms. Additionally, a Presidential Fiscal Policy and Tax Reforms Committee was established to propose measures for bolstering domestic revenue to support investments in crucial sectors like infrastructure, health, and education. To alleviate the impact of soaring inflation on living standards, the government has taken steps such as releasing cereals from grain reserves, providing subsidized fertilizer to farmers, and capping retail fuel and electricity prices.
While Nigeria swiftly emerged from the Covid-19-induced recession, economic growth, hindered by the reliance on hydrocarbon resources, is barely keeping pace with population growth. Inadequate revenue collection poses challenges to service provision and public investment. Security issues persist in the northern region, adversely affecting agriculture and food security, with an estimated 25 million people, or 13 percent of the population, facing food insecurity. The poverty rate stood at 37 percent in 2022.
The growth forecast for Nigeria is projected at 2.9 percent for 2023 and 3 percent for 2024, driven by a revival in hydrocarbon performance, including better control of theft. However, sustained progress hinges on the successful development and implementation of comprehensive reform measures. Inflationary pressures, exacerbated by fuel subsidy removal, exchange rate depreciation, and poor agricultural production, remain a concern. Despite a surplus in the current account during the first half of 2023, gross international reserves reported by the Central Bank of Nigeria declined to $33 billion in October, covering six months of imports.
The Executive Board commended the new administration for its proactive approach in addressing deep-seated structural issues amidst challenging circumstances. Notably, it embraced policy reforms that previous administrations had avoided, such as fuel subsidy removal and exchange rate unification. The Central Bank of Nigeria has prioritized price stability and transitioned away from its previous role in development finance. On the fiscal front, efforts are underway to enhance domestic revenue mobilization.
Acknowledging the formidable external and domestic challenges confronting Nigeria, the Executive Board endorsed the authorities’ focus on restoring macroeconomic stability and fostering sustained, inclusive growth. The Central Bank’s commitment to monetary tightening and efforts to strengthen reserves were lauded. Additionally, the government’s emphasis on revenue mobilization, digitalization, and targeted social transfers to vulnerable populations received support.
Staff assessments indicate that Nigeria’s capacity to repay the IMF is adequate under the current circumstances. However, risks remain, and the authorities must navigate potential trade-offs between humanitarian needs and debt service obligations in a downside scenario. Aggressive monetary tightening, fiscal adjustment, and support from development partners may be necessary to restore macroeconomic stability in such circumstances.