The International Monetary Fund (IMF) on Wednesday said Nigeria was slowly exiting recession but remains vulnerable because its growth is tied to oil prices with improved revenues restricted to the energy and agriculture sectors.
The assessment, published in a report on Wednesday, came in its Article IV consultation, an annual appraisal of a country’s economy. Reuters reported on the lender’s findings last week after seeing a copy of the document, which states that the fund expects Nigeria’s government to “muddle through” in the medium term.
Nigeria emerged from its first recession in 25 years, largely caused by low oil prices and militant attacks on energy facilities, in the second quarter of 2017. The recovery has largely been due to higher crude prices and improved production after attacks ceased. Crude oil sales make up around two-thirds of government revenue and the majority of foreign exchange.
“The Nigerian economy is slowly exiting recession but remains vulnerable,” said the lender in its report. It said the economy had been helped by higher oil prices, improved access to foreign exchange and foreign reserves rising to four-year high but said improvements had not yet boosted non-oil, non-agricultural activity.
“Lower oil prices, tighter external market conditions, heightened security issues, and delayed policy responses are the main downside risks,” it said. The Fund also repeated its calls for Nigeria to lift its remaining foreign exchange restrictions and scrap its system of multiple exchange rates.
The IMF has for more than a year called for Nigeria to simplify its complex foreign exchange system, used to reduce the impact of dollar shortages, which has left large gaps between official rates and various windows that certain groups can use to access other rates. The report said the Fund recommends “removing multiple currency practices and unifying the exchange rate as quickly as possible”. It said the move would increase confidence, remove market distortions, and increase transparency. The OPEC member’s gross domestic product (GDP) grew by 0.83 percent in 2017 after shrinking by 1.58 percent in 2016, which was its first annual contraction in 25 years.
“Under the baseline scenario, growth would pick up to 2.1 percent in 2018, from 0.8 percent in 2017, helped by the full year impact of greater FX availability and recovering oil production,” the Fund said in the report. The Fund’s 2018 growth projection is unchanged from an estimate announced by the lender in December.
