The IMF has now released the full report of its 2017 Article IV consultation with the FGN. The document has rather more substance than the anodyne press release that preceded it (Good Morning Nigeria, 04 April 2017). It offers baseline and adjustment scenarios for Nigeria through to 2020. The former has growth this year at 0.8%, inching up to 1.8% at the end of the forecast period. It is based upon few, if any changes to the current fiscal and monetary stance, and limited structural reforms.
In marked contrast, the adjustment scenario forecasts growth in 2017 of 2.2%, rising to a respectable 4.5%. The assumptions include a front-loaded fiscal consolidation equivalent to a 1.6% improvement in the non-oil primary balance; monetary expansion restricted to nominal GDP growth, without any quasi-fiscal activities from the CBN; and the immediate removal of fx restrictions, and a move to a more flexible fx regime.
The FGN’s Economic Recovery and Growth Plan 2017-2020, praised by the Fund for its vision, offers three scenarios. The first of “do nothing” has the economy contracting in 2020, and the second of “introduce basic macroeconomic reforms” has growth that year of 3.8%. The third of implementing the plan is comparable to the Fund’s adjustment scenario, and has growth at 7.0% in 2020 and a fall in the unemployment rate of five percentage points over the four years. This is the only option in the plan’s words if Nigeria is to achieve sustainable and inclusive growth.
The FGN argues that increases in tax rates would be politically difficult in the current circumstances, the Fund notes. We learn from the consultation that the authorities would consider such hikes from 2018 in VAT on telecoms and luxury items, along with asset sales and a continuing widening of the tax net.
The Fund estimates that CBN financing of the government through overdrafts and bond conversion amounted to N2.3trn in 2106.
The document highlights the status of core recommendations made in the 2016 exercise: among those not implemented was a call for an independent mechanism for the setting of fuel prices. We would welcome such a change along the lines of the system operating in South Africa and Kenya because it would “depoliticize” a highly sensitive area, make hundreds of officials available for redeployment and mark a large step towards full fuel deregulation.
From the very full consultation, we have extracted just one comparative indicator for future reference: the Nigerian authorities value the infrastructure stock at 35% of GDP, which would be half that of peer emerging markets.
