The International Monetary Fund has said that the current 0.8 per cent growth in the Nigerian economy in the first half of 2017 was still not sufficient to reduce unemployment and end poverty in the country.
In a statement at the end of its Staff visit to Nigeria, the IMF said Nigeria's economic challenges persist in spite of federal government's implementation of a number of important measures, including Economic Recovery and Growth Plan, ERGP.
The federal government had launched the ERGP to drive it economy diversification strategy and pull the economy out of recession.
The IMF visiting team led by the Senior Resident Representative and Mission Chief for Nigeria, Amine Mati, was in Nigeria between July 20 and 31 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.
"The economic backdrop remains challenging, despite some signs of relief in the first half of 2017.
Economic activity contracted in the first quarter of the year by 0.6 percent, mainly as maintenance stoppages reduced oil production," the IMF said in its latest report released on Wednesday.
It said following four quarters of negative growth, the non-oil economy grew by 0.6 per cent between last year and this year, amid a rebound in manufacturing and continued strong performance in agriculture.
Although various indicators suggest an uptick in activity in the second quarter of the year, helped by favourable base effects, it said headline inflation, which decreased to 16.1 percent in June 2017, from 17.28 per cent in April, remained high despite tight liquidity conditions.
The IMF noted significant revenue shortfalls in the first half of the year, with a high interest-payments to revenue ratio of 40 per cent at end of June, and projected to increase further under current government policies.
High domestic bond yields and tight liquidity policies by government and the Central Bank of Nigeria, CBN, it stated, continue to crowd out private sector credit.
Other challenges identified include Nigeria's low growth environment and the banking system's exposure to the oil and gas sector and non-performing loans, NPLs, which grew from six percent in 2015 to 15 percent in March 2017.
On the ERGP initiated to drive the diversification strategy, the IMF noted the improved security in the Niger Delta through strengthened engagement by the federal government.
It commended the monetary policy intervention by the Central Bank of Nigeria (CBN) through its new investor and exporter FOREX window, saying it not only provided impetus to portfolio inflows, but also helped increase the country's foreign reserves above $30 billion, as well as reduce parallel market premium.
It noted steps taken in implementing the power sector recovery plan, introducing a voluntary income and asset declaration programme and moving forward the 60-day national action plan to improve the business environment.
Besides, it said, progress was also ongoing within the oil and energy sector through implementation of a new funding mechanism for cash calls.
International Monetary Fund (IMF)
"However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated. At 0.8 percent, growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty," it stated.
It also expressed concerns about delays in policy implementation in the budget, which led to a reversal of favourable external market conditions, possible shortfalls in agricultural and oil production.
Such delays, it said also brought additional fiscal pressures, continued market segmentation in a foreign exchange market that has continued to depend on CBN interventions, with banking system fragility representing the main risks to the outlook.
To bring about urgent economic recovery, the IMF proposed adoption of coherent policies, particularly immediate implementation of specific priorities to help realize the ERGP goals.
In the short term, the IMF called for a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues to create space for infrastructure spending, social protection, and private sector credit.
Other recommendations included a tight monetary policy that avoids direct financing of the government, promotion of a unified and market-based exchange rate, and rapid implementation of structural reforms.
"Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy," it said.
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