Nigerian economy has started to recover moderately from the negative effect of the Coronavirus Disease, says the International Monetary Fund.
A team of IMF mission, lead by Ms Jesmin Rahman, which visited Nigeria on Friday, said the Nigerian government deserved commendation for its efforts at containing the pandemic.
Rahman noted that following sharp output contractions in the second and third quarters of 2020, the country’s Gross Domestic Product growth turned positive in the fourth quarter and reached 0.5 per cent Year-on-Year in Q1 2021.
While this was supported by agriculture and services sectors, however, employment level continues to fall dramatically and together with other socio-economic indicators, far below pre-pandemic levels, the Bretton Woods institution stated.
“Inflation slightly decelerated in May, but remained elevated at 17.9 per cent, owing to high food price,” Rahman noted.
With the recovery in oil prices and remittance flows, she said the pressures on the balance of payments had somewhat abated.
She also observed that though imports were rebounding faster than exports, foreign investor appetite remained subdued resulting in continued foreign exchange shortage.
The incipient recovery in economic activity is projected to take root and broaden among sectors, with GDP growth expected to reach 2.5 per cent in 2021.
Inflation is expected to remain elevated in 2021, but likely to decelerate in the second half of the year to reach about 15.5 per cent, following the removal of border controls and the elimination of base effect from elevated food price levels, she said.
Other observations put forward by the team included that with fuel subsidies resurfacing, additional spending for COVID-19 vaccines and security challenges, the fiscal deficit of the government was expected to remain elevated at 5.5 per cent of GDP.
They, however, recommended that the government steps up efforts towards strengthening tax administration to mobilise additional revenues and help address priority spending pressures.
“The mission urged the authorities to keep reliance on Central Bank of Nigeria overdrafts for deficit financing within legal limits, while the government continues to make efforts to strengthen budget planning and public finance management practices. This is to allow for flexible financing from domestic markets and better integration of cash and debt management.
“The recent removal of the official exchange rate from the CBN website and measures to enhance transparency in the setting of the NAFEX exchange rate are encouraging,” the team said.
It urged the authorities to maintain the momentum towards fully unifying all exchange rate windows and establishing a market-clearing exchange rate.
The team also suggested that the extension of the moratorium on principal payments of qualifying credit facilities on a case-by-case basis through March 2022 be limited to viable debtors with strong pre-crisis fundamentals.
“CBN stress tests purport that the banking system would remain adequately capitalised except in case of a severe deterioration of credit quality.
“Nevertheless, it remains to be seen what share of forborne loans may turn non-performing as the impact of the pandemic abates.
“Since Non-Performing Loans often rise at the later part of economic crisis, CBN’s strong oversight remains critical to safeguarding financial sector stability,” the IMF mission added.
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