• Cautions on expansionary spending, oil subsidies
FOR the second time in one week, the Federal Government’s economic policies have received the approval of two Breton woods institutions: the World Bank and the International Monetary Fund (IMF).
According to them, the country’s economy is sound with a positive outlook. But they warned that caution must be applied to spending pressure to avoid the risk of a decline in international oil prices in future.
tfrdc
posted on 10 April 2013By Onyema Shedrachcourtesy: World Base communication Technology
Only last Tuesday, the World Bank elevated Nigeria to the elite club of countries with strong and sound economies that can borrow from its International Bank for Reconstruction and Development (IBRD) lending window because of the country’s growth in national income and stability.
And in what may appear as a confirmation of the country’s positive rating by the World Bank, the IMF Thursday equally announced that Nigeria’s economic reform programme was on track and advised the government to remain focused on the plans.
The IMF Senior Resident Representative in Nigeria, Mr. Williams Scott Rogers, relayed the Fund’s position on Nigeria at a press briefing to present the highlights of the Staff Report on the 2012 Article IV Consultation on the country which will soon be published.
Rogers commended the economic reform programme of the Nigerian government, saying they had succeeded to aid growth, particularly in the non-oil sector as well as enthroning a verily sound banking sector and driving down inflation.
He then advised the managers of the economy in the country to remain focused and pursue the programmes to their logical conclusion, while warning against pressure on expansionary spending because the Excess Crude Account Savings could be wiped off in just two months if a serious decline in international oil prices occurred.
Rogers said: “Growth in Nigeria is expected to rebound in 2013 and remain strong, driven by a vibrant non-oil sector. Inflation is expected to ease further in the face of fiscal and monetary tightening. Tighter monetary policy has driven interest rates up, easing inflationary pressure…Generating capital inflows and helping the CBN to rebuild reserves while stabilising the exchange rate.
“Tighter fiscal policy has also helped to rebuild the ECA, but balances are well below earlier levels. Declining world oil prices mean lower oil revenue. Even with expenditure restraint, fiscal deficits are projected to re-emerge. Combination of stagnant oil exports and continued growth in imports means smaller current account surpluses.
“But with capital inflows and outflows broadly in balance, the current account surpluses would permit a rebuilding of international reserves.
Macro-economic performance and policies in 2012 were broadly positive. Fiscal targets for 2013 and medium-term are consistent with macro-economic stability, but additional measures needed.
“Planned savings in recurrent spending will require public sector reforms. Elimination of subsidy would help fiscal adjustment, mobilise non-oil revenues, strengthen oil-price rule and oil savings mechanism and there is need to strengthen the implementation capacity of public investment,” the IMF representative said.
Specifically assessing the Nigerian banking industry, he advised that the Central Bank of Nigeria (CBN) should continue to maintain a tight monetary policy until there were signs of durable reduction of inflationary pressure.
He gave the sector the following assessment and recommendations:
“Health of banking system has improved considerably; credit to the private sector is growing again; banks fully capitalised; more work on consolidated and cross-border supervision; a formal sunset provision for AMCON to minimise fiscal risks and moral hazard.”
On the fiscal side, Scot said there was urgent need for structural reforms to enhance productivity and global competitiveness and also the need for quick conclusion of the electricity sector reform for a quick win for growth and competitiveness.
He gave another prescription: “Quick passage of the Petroleum Industry Bill (PIB) to transform oil and gas sector to increase investment; trade protection for ‘infant-industries’ should be strictly time-bound; focus on measures to improve competitiveness and export diversification is key to long-term growth.”
On the flip side, Scot advocated improved macro-economic statistics, especially in national income accounts, warning that negative oil price shock arising from weaker global recovery, as well as a weaker fiscal stance arising from spending pressure were possible down-risks that the Nigerian government must watch out for.
Also, the issue of deterioration of security of lives and property in Nigeria through the activities of insurgents, according to the IMF representative, was a disincentive to Nigeria’s growth aspiration, just as he identified
insufficient export diversification and weaker portfolio inflows as inflation ebbs and interest rates fall.
According to him, international reserves have been rebuilt and now stand at just over $50 billion, and other fiscal buffers that are being rebuilt are still well below levels at the time of the 2008 crisis.
Accordingly, he said: “Decline in international oil prices to US$97 per barrel (yearly average) would begin to erode ECA balances. A fall to US$80-85 would wipe out ECA balances within a year.”
FOR the second time in one week, the Federal Government’s economic policies have received the approval of two Breton woods institutions: the World Bank and the International Monetary Fund (IMF).
According to them, the country’s economy is sound with a positive outlook. But they warned that caution must be applied to spending pressure to avoid the risk of a decline in international oil prices in future.
tfrdc
posted on 10 April 2013By Onyema Shedrachcourtesy: World Base communication Technology
Only last Tuesday, the World Bank elevated Nigeria to the elite club of countries with strong and sound economies that can borrow from its International Bank for Reconstruction and Development (IBRD) lending window because of the country’s growth in national income and stability.
And in what may appear as a confirmation of the country’s positive rating by the World Bank, the IMF Thursday equally announced that Nigeria’s economic reform programme was on track and advised the government to remain focused on the plans.
The IMF Senior Resident Representative in Nigeria, Mr. Williams Scott Rogers, relayed the Fund’s position on Nigeria at a press briefing to present the highlights of the Staff Report on the 2012 Article IV Consultation on the country which will soon be published.
Rogers commended the economic reform programme of the Nigerian government, saying they had succeeded to aid growth, particularly in the non-oil sector as well as enthroning a verily sound banking sector and driving down inflation.
He then advised the managers of the economy in the country to remain focused and pursue the programmes to their logical conclusion, while warning against pressure on expansionary spending because the Excess Crude Account Savings could be wiped off in just two months if a serious decline in international oil prices occurred.
Rogers said: “Growth in Nigeria is expected to rebound in 2013 and remain strong, driven by a vibrant non-oil sector. Inflation is expected to ease further in the face of fiscal and monetary tightening. Tighter monetary policy has driven interest rates up, easing inflationary pressure…Generating capital inflows and helping the CBN to rebuild reserves while stabilising the exchange rate.
“Tighter fiscal policy has also helped to rebuild the ECA, but balances are well below earlier levels. Declining world oil prices mean lower oil revenue. Even with expenditure restraint, fiscal deficits are projected to re-emerge. Combination of stagnant oil exports and continued growth in imports means smaller current account surpluses.
“But with capital inflows and outflows broadly in balance, the current account surpluses would permit a rebuilding of international reserves.
Macro-economic performance and policies in 2012 were broadly positive. Fiscal targets for 2013 and medium-term are consistent with macro-economic stability, but additional measures needed.
“Planned savings in recurrent spending will require public sector reforms. Elimination of subsidy would help fiscal adjustment, mobilise non-oil revenues, strengthen oil-price rule and oil savings mechanism and there is need to strengthen the implementation capacity of public investment,” the IMF representative said.
Specifically assessing the Nigerian banking industry, he advised that the Central Bank of Nigeria (CBN) should continue to maintain a tight monetary policy until there were signs of durable reduction of inflationary pressure.
He gave the sector the following assessment and recommendations:
“Health of banking system has improved considerably; credit to the private sector is growing again; banks fully capitalised; more work on consolidated and cross-border supervision; a formal sunset provision for AMCON to minimise fiscal risks and moral hazard.”
On the fiscal side, Scot said there was urgent need for structural reforms to enhance productivity and global competitiveness and also the need for quick conclusion of the electricity sector reform for a quick win for growth and competitiveness.
He gave another prescription: “Quick passage of the Petroleum Industry Bill (PIB) to transform oil and gas sector to increase investment; trade protection for ‘infant-industries’ should be strictly time-bound; focus on measures to improve competitiveness and export diversification is key to long-term growth.”
On the flip side, Scot advocated improved macro-economic statistics, especially in national income accounts, warning that negative oil price shock arising from weaker global recovery, as well as a weaker fiscal stance arising from spending pressure were possible down-risks that the Nigerian government must watch out for.
Also, the issue of deterioration of security of lives and property in Nigeria through the activities of insurgents, according to the IMF representative, was a disincentive to Nigeria’s growth aspiration, just as he identified
insufficient export diversification and weaker portfolio inflows as inflation ebbs and interest rates fall.
According to him, international reserves have been rebuilt and now stand at just over $50 billion, and other fiscal buffers that are being rebuilt are still well below levels at the time of the 2008 crisis.
Accordingly, he said: “Decline in international oil prices to US$97 per barrel (yearly average) would begin to erode ECA balances. A fall to US$80-85 would wipe out ECA balances within a year.”
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