In a detailed assessment by the International Monetary Fund (IMF), Nigeria’s economic challenges including stalled per-capita growth, high poverty levels, and significant food insecurity have been highlighted, amidst efforts by President Bola Tinubu’s administration to implement crucial structural reforms.
Also, the IMF’s Executive Board concluded the Post Financing Assessment (PFA) and endorsed the Staff Appraisal, confirming Nigeria’s adequate capacity to repay the Fund a $3.4 billion loan approved in 2020, but pointed out several areas needing urgent attention.
A statement from the IMF read:
- “Like many other countries, Nigeria faces a difficult external environment and wide-ranging domestic challenges. External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation.
- “Per-capita growth in Nigeria has stalled, poverty and food insecurity are high, exacerbating the cost-of-living crisis. Low reserves and very limited fiscal space constrain the authorities’ option space.
- “Against this backdrop, the authorities’ focus on restoring macroeconomic stability and creating conditions for sustained, high and inclusive growth is appropriate.”
Structural Reforms Under Tinubu
In an attempt to revitalize Nigeria’s economy, Tinubu has initiated key reforms aimed at improving the country’s fiscal health and addressing longstanding economic challenges.
Notable among these reforms is the removal of fuel subsidies and the unification of the country’s multiple official foreign exchange windows.
Additionally, a Presidential Fiscal Policy and Tax Reforms Committee has been established to propose measures for increasing domestic revenue, which is crucial for supporting investments in infrastructure, health, and education sectors.
The IMF also noted that the government has taken several steps to mitigate the adverse effects of rising inflation, which has escalated living costs dramatically.
These include releasing cereals from the national grain reserve, providing subsidized fertilizer to farmers, capping retail fuel and electricity prices, awarding civil service wage increases, and suspending the value-added tax (VAT) on diesel.
Economic Outlook and Challenges
The IMF also noted that despite exiting the COVID-19-induced recession swiftly, Nigeria’s economic growth has been sluggish, barely keeping pace with the population growth.
The reliance on the hydrocarbon economy has been a significant drag on overall growth. Security concerns, especially in the northern regions, have severely impacted agriculture and food security, with 25 million Nigerians (13% of the population) currently facing food insecurity.
The poverty rate stood at 37% in 2022, underscoring the severity of the economic challenges.
The IMF projects a slight improvement in growth to 2.9% for 2023 and 3% in 2024, contingent on better hydrocarbon sector performance and control over oil theft.
It noted:
- “Growth is projected at 2.9% for 2023, and 3% in 2024, as hydrocarbon performance revives, including from better control of theft.
- “If the authorities succeed in developing and implementing a comprehensive reform agenda, the medium-term outlook would be much improved.”
IMF’s Recommendations
The IMF’s Executive Board acknowledged the strong start by the new administration in addressing deep-rooted structural issues. The focus on price stability, fiscal responsibility, and revenue mobilization was commended.
However, Nigeria’s battle against a difficult external environment, low reserves, and limited fiscal space remains daunting.
The IMF underscored the importance of monetary tightening and fiscal adjustments to restore macroeconomic stability.
The government’s ambition to digitize and improve revenue collection is seen as crucial for enhancing public service delivery and ensuring fiscal sustainability.
Moreover, the IMF advised on the complete phase-out of fuel and electricity subsidies, which are costly and inefficient, advocating for targeted support to the most vulnerable populations through social transfers.
As Nigeria navigates through these challenging times, the IMF’s assessment and recommendations offer a roadmap for sustainable growth and stability.
The emphasis on comprehensive reforms, fiscal discipline, and targeted support for the vulnerable underscores the complex balancing act required to address Nigeria’s economic dilemmas.