The International Monetary Fund (IMF) has cut down its 2020 Gross Domestic Product (GDP) forecast for Nigeria to two percent, from the 2.5 per cent it had predicted earlier.
According to the IMF, the cut reflects the impact of lower international oil prices while inflation in the country is expected to pick up.
Data released by the National Bureau of Statistics (NBS) on Tuesday showed that Nigeria’s inflation for the month of January 2020 hit 12.13 percent, recording five months of consecutive rise.
A statement posted on IMF website on Monday said that the review was necessitated after its staff team led by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, visited Lagos and Abuja recently to conduct its annual Article IV Consultation discussions on Nigeria’s economy.
Mr Mati stated that the pace of economic recovery remains slow, as declining real incomes and weak investment continues to weigh on economic activity.
“Inflation—driven by higher food prices—has risen, marking the end of the disinflationary trend seen in 2019. External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals. The exchange rate has remained stable, helped by steady sales of foreign exchange in various windows.
“Under current policies, the outlook is challenging. The mission’s growth forecast for 2020 was revised down to 2 percent to reflect the impact of lower international oil prices. Inflation is expected to pick up while deteriorating terms of trade and capital outflows will weaken the country’s external position,” the statement read in part.
The IMF lauded the Federal Government for taking a number of steps to boost revenue through the adoption of the Finance Bill and Deep Offshore Basin Act and improve budget execution by adopting the 2020 budget by end-December 2019.
However, it maintained that tightening of monetary policy in January 2020 through higher cash reserve requirements in a response to looming inflationary pressures is welcome.
“Major policy adjustments remain necessary to contain short-term vulnerabilities, build resilience, and unlock growth potential.
“Non-oil revenue mobilization—including through tax policy and administration improvements—remains urgent to ensure financing constraints are contained and the interest payments to revenue ratio sustainable.”
The mission reiterated its advice on ending direct central bank interventions, securitizing overdrafts to introduce longer-term government instruments to mop up excess liquidity and moving towards a uniform and more flexible exchange rate.
“Removing restrictions on access to foreign exchange for the 42 categories of imported goods would be needed to encourage long-term investment,” it stated.