IMF identifies 2015 elections, others as threat to Nigeria’s economy in 2014

The IMF projected Nigeria’s inflation in 2014 to remain at single digit.

The International Monetary Fund, IMF, has said that increased focus on campaigns towards 2015 elections is one of the factors likely to divert the world’s attention from issues that would promote the growth of Nigeria’s economy in 2014.

The IMF, in its 2013 consultative discussion on the outlook and risks on Nigeria’s economy, said the political environment towards 2015 elections would become less conducive for reforms that would sustain the growth of the economy in 2014.

While the organisation noted that under the proposed 2014 – 2016 Medium Term Expenditure Framework, MTEF, the 2014 non-oil primary deficit, NOPD, would improve, it expressed fears that the early start of electioneering activities will pose significant challenges to the implementation of the MTEF and structural reforms.

The IMF, in the document, identified 17 issues likely to moderate the performance of the economy during the year and noted that the key challenge would be how Nigeria would leverage her oil resources to promote sustained inclusive growth, reduce poverty, inequity, unemployment and improve the living standards of all Nigerians.

The organisation listed high unemployment rate, poverty, insecurity and social tensions as some of the major concerns Nigerians would have to contend with in 2014.

Income inequality, high unemployment, growth disparities among regions, significant infrastructure gaps and limited institutional capacity, the IMF said, have limited the implementation of the Transformation Agenda and the progress towards the national goal of emerging as one of the top 20 world economies by 2020.

While the economy is expected to grow from 6.4 per cent in 2013 to 7.3 per cent in 2014, the IMF said this growth would be driven partially by an expected rebound in oil production and the positive impact of reforms in power and agriculture sectors.

It projected inflation to remain at single digit in line with a tight monetary policy and continued fiscal consolidation by the Central Bank of Nigeria, CBN.

Apart from the uncertainty of global economic recovery and the unpredictability of oil price movement at the international oil market, the IMF said domestic risks were capable of adversely impacting investors’ confidence and economic performance in the medium term.

The domestic risks include concerns about insecurity in the northern part of the country; declining oil production capacity as a result of forced closure from vandalism and oil theft, and difficulty in reaching political consensus for key reforms including removal of petrol subsidy, establishment of Sovereign Wealth Fund, SWF, and passage of the Petroleum Industry Bill, PIB.

“The inadequate or slow pace of implementation of these and other key reforms could derail fiscal consolidation, slow growth and weaken macro-economic stability,” the IMF said.

Noting that reducing identified threats requires increased transparency and good corporate governance, the IMF pointed out that oil theft, which accounted for the bulk of the production losses, was

largely associated with quality of governance in the oil sector, which worsened the problems of poverty, unemployment and inadequate social amenities.

It promised to continue to provide technical assistance to broaden the value added tax, VAT, base; extension of automated tax collection system, simplification of tax laws to boost non-oil revenue and reduce dependence of the budget on earnings from oil.

The IMF also recommended the incorporation into the Fiscal Responsibility Law of a rule-based approach in determining the budget oil price to depoliticize the process of setting the benchmark price and enhance its credibility.

While the lawmakers had proposed a $79 per barrel oil price benchmark for the 2014 budget, the executive wanted $75, but ended up with $77.5 in the final appropriation.

In its proposal towards fiscal consolidation, the IMF had supported the assumption that the 2014 budget should be based on oil price of $79 per barrel in line with the 2014-2016 MTEF.

It pointed out that this would ensure that the Federal Government deficit in the budget would decline from 1.8 per cent to 1.1 per cent of non-oil gross domestic product, GDP, while non-oil primary deficit would fall to about 18.1 per cent of non-oil GDP from 24 per cent in 2013, and excess crude account, ECA, balance increased from $3 billion to $15 billion.

The IMF said Nigeria needs to pay attention to the monetary and exchange rate policy, financial stability, and efforts to improve competitiveness and productivity.

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