The International Monetary Fund (IMF) has warned that implicit fuel subsidy and higher security spending will widen the Federal Government’s fiscal deficit to 5.9 percent of country’s Gross Domestic Product(GDP), despite the recovery in oil prices.
This was contained in a statement released by Eva Graf, IMF’s spokesperson on the sideline of the conclusion of the IMF’s Article IV consultation with Nigeria, which reflects the organization’s perspective.
The IMF’s statement stated that the country’s economy is recovering from a historic downturn benefiting from government policy support, rising oil prices and international financial assistance.
According to the statement the IMF Executive Board called for the removal of untargeted fuel subsidies, with compensatory measures for the poor and transparent use of saved resources.
The IMF Director asked the CBN to unify the exchange rate by abandoning the official exchange rate in favour of the parallel market rate.
The Government had in January 24, 2022, announced its decision to extend plan to eliminate fuel subsidy by 18 months, while the Central Bank of Nigeria has devalued the naira to N415 per United States’ dollar , while black market is around N570 to a dollar.
The IMF emphasized the need for major reforms in the fiscal, exchange rate, trade, and governance to lift long-term, inclusive growth.
It also said, “Higher debt service to government revenues (through higher US interest rates and/or increased borrowing) pose risks for fiscal sustainability.
They noted that Nigeria’s economic recovery could be stronger on the sideline of higher petroleum products production from the new Dangote refinery, adding that the non-oil sector could be stronger, benefitting from its recent growth momentum and supportive credit policies.
The Board also projected that Nigeria’s oil production could rebound, supported by the more generous terms of the Petroleum Industry Act, suggesting also that the country’s ratification of the African Continental Free Trade Agreement could also yield a positive boost to the non-oil sector.
The bank noted that the country’s economic outlook remains positive, but subject to significant risks, from the oil price uncertainty, pandemic trajectory, and security challenges.
IMF also projected that the country’s oil and gas contribution to GDP will grow by 3.2 percent in 2022.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.