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ECONOMIC RECOVERY: IMF advocates structural reforms, tight monetary policy

By Babajide Komolafe

THE International Monetary Fund, IMF, yesterday called for urgent structural reforms and sustenance of tight monetary policy in Nigeria to sustain the nation’s recovery from economic recession.

The IMF made this call at the end of its 2018 Article IV consultation mission to Nigeria led by its Senior Resident Representative and Mission Chief for Nigeria, Mr. Amine Mati.

“Containing vulnerabilities and achieving growth rates that can make a significant dent in reducing poverty and unemployment require a comprehensive set of policy measures,” Mati in a statement.

Speaking further he said:  “Fiscal consolidation should be accompanied by a monetary policy stance that remains tight to further reduce inflation and anchor inflation expectations. Moving toward a unified and market-based exchange rate as soon as possible while continuing to strengthen external buffers would be necessary to increase confidence and reduce potential risks from capital flow reversals.

“Such a policy package – along with structural reform implementation, including by building on recent successes to improve the business environment, closing infrastructure gaps, and implementing the power sector reform plan – would lay the foundation for a diversified private-sector led economy. Strengthening governance and transparency initiatives, and lowering gender inequality and fostering financial inclusion would also be important.”

Commenting on the nation’s exit from recession, Mati said: “Overall growth is slowly picking up but recovery remains challenging. Economic activity expanded by 1.4 percent year-on-year in the third quarter of 2017 – the second consecutive quarter of positive growth after five quarters of recession – driven by recovering oil production and agriculture.

“However, growth in the non-oil-non-agricultural sector (representing about 65 percent of the economy), contracted in the first three quarters of 2017 relative to the same period last year. Difficulties in accessing financing and high inflation continued to weigh on companies’ performance and consumer demand. Headline inflation declined to 15.9 percent by end-November, from 18½ percent at end-2016, but remains sticky despite tight liquidity conditions.

“High fiscal deficits – driven by weak revenue mobilization – generated large financing needs, which, when combined with tight monetary policy necessary to reduce inflationary pressures, increased pressure on bond yields and crowded out private sector credit. These factors contributed to raising the ratio of interest payments to federal government revenue to unsustainable levels.


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