The report, as Reuters explains, gives candid opinions as to what the international lender believes policy makers are currently doing wrong, and what must be done for economic growth to be stimulated and foreign direct investment (FDIs) expanded. The main highlights includes the call to discard the multiple exchange rates in existence now and remove forex restrictions.
Here are takeaways we can deduce from the report.
Nigerian Banks are not the strongest financial institutions presently. These banks have had to battle with an abnormal increase in the number of bad loans and other shocks, as most of their debtors are oil companies which suffered the dual blow of dropping oil prices and forex scarcity. According to the IMF, “quickly increasing the capital of undercapitalized banks and putting a time limit on regulatory forbearance” should be a matter of urgency.
Policy making in Nigeria remains weak. The majority of the IMF’s recommendations hinged on policy issues, indicating that the country’s policy making capabilities are still grossly deficient. In fact, a portion of the report reads “…stronger macroeconomic policies are urgently needed to rebuild confidence and foster an economic recovery.” Without the right policies, monetary, fiscal or otherwise, the task of making Nigeria’s economy one of the most formidable in the world will essentially remain a dream. Complaints about how unclear policy direction at all levels have resulted in the closure of many MSMEs abound. With these representing about half of the GDP, the right policies to foster their existence and growth are required.
Nigeria may run out of willing creditors soon: Spending its way out of the recession has been the Federal Government’s approach, and with the decline in revenue, this has been tough. To counter this problem, the FG has had to extensively borrow from both domestic and international lenders; and this has seen the country’s fiscal deficit increase to 4.7 percent of GDP in 2016, up from 3.5 percent in 2015. The report suggests that unless key reforms are taken, Nigeria may soon find itself unable to access borrowings internationally. The country’s inability to access neither the $1 billion loan from the World Bank nor the $400 million from the African Development Bank for highlights these points. Keeping these lenders happy is essential to infrastructural growth needed to boost the econmy.
Either way, economic growth is likely this year: It seems that given current conditions, Nigeria’s economy is on course to reverse its contraction in 2016. The question, though, is ‘by how much?’ While refusal to implement these reforms will likely result in a 0.8% growth, there is a possibility that with the right policies, FDI can increase sufficiently to boost the growth rate by a much higher percentage. However, given the uncertainties of the latter option, it remains a gray area.