Like many other countries, Nigeria is experiencing several internal and external challenges, as recognized by the International Monetary Fund (IMF). The country’s per capita growth has halted, leading to high levels of poverty and food insecurity. This has further worsened the already existing cost-of-living crisis. The IMF also noted that Nigeria is facing a scarcity of external financing from both markets and official sources, while global food prices have risen due to conflicts and geo-economic divisions. According to a recent financial assessment, the authorities’ options are limited due to low reserves and a lack of fiscal flexibility.
Given the current situation, the government’s efforts to improve overall economic stability and foster an environment conducive to long-term, widespread growth are justified. After completing the Post Financing Assessment (PFA) 1 on January 12, the Executive Board of the IMF approved the staff’s evaluation of Nigeria’s ability to repay the loan, stating that the country can do so. Once more, it is recognized that President Bola Tinubu has taken steps towards significant structural changes by eliminating fuel subsidies and consolidating the different official foreign exchange channels.
Inadequate revenue collection is hindering the government’s ability.
The IMF reported that Nigeria swiftly escaped the COVID-19 recession; however, growth remains sluggish due to reliance on the hydrocarbon economy and struggles to keep pace with population growth. Inadequate revenue collection is hindering the government’s ability to provide services and invest in public projects. The ongoing security issues in the northern region negatively impact agriculture and food security, with approximately 25 million people (13 percent of population) currently experiencing food insecurity. In 2022, the poverty rate stood at 37 percent. Forecasts predict a growth of 2.9 percent in 2023 and three percent in 2024, driven by improved hydrocarbon performance due to more effective measures against theft.
Great determination has been shown by the new leadership in addressing long-standing structural problems despite difficult conditions. Right off the start, they implemented two policy changes that previous administrations had avoided, which were removing fuel subsidies and unifying exchange rates. Following this, the new team at CBN has shifted its focus to prioritizing price stability and has proven its dedication by stepping back from its previous involvement in development financing. The government is working on increasing revenue collection domestically while the Central Bank has embarked on a beneficial monetary tightening policy.
Public services and long-term fiscal stability must be ensured.
Also, the governor has pledged to prioritize price stability as the main goal of the monetary policy, and the CBN has implemented measures to remove surplus funds from the economy. The board’s evaluation report stated that raising the monetary policy rate until it becomes positive in real terms would significantly indicate the monetary policy direction. The IMF has suggested that Nigeria needs to consider various strategies to improve its reserve position. Caution is advised to prevent any unexpected negative outcomes. Resolving the CBN’s outstanding dollar debts is highlighted as a key step to restoring trust in the central bank and the national currency.
Providing detailed data on Nigeria’s reserves status is crucial for better understanding the external environment. By prioritizing revenue generation and digital transformation, the government can enhance the quality of public services and ensure long-term fiscal stability. Additionally, reducing the overall deficit by 2024 as suggested by the fund will strengthen the country’s financial position and reduce reliance on CBN funding. In the current situation of high living expenses, it is important to provide short-term and specific assistance to those in need through social benefits.
Related Article: IMF urges Tinubu to generate more revenue
Subsidizing fuel and electricity comes at a high cost and fails to assist those who require government assistance effectively. They believe that Nigeria has sufficient capacity to repay the fund as per the current circumstances. The government’s policy objectives are commendable in mitigating risks of a negative outcome where challenging decisions may be made between meeting pressing humanitarian demands and repaying debts, including to the fund. Under these conditions, a combination of aggressive monetary tightening and fiscal adjustment, along with assistance from development partners, would be necessary in order to bring back macroeconomic stability.
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