It, however, commended the Federal Government for acting swiftly to adopt a pandemic-related support package equivalent to 0.3 per cent of GDP in the 2020 revised federal budget in spite of limited fiscal space.
It said that following a sharp drop in oil prices and capital outflows, real Gross Domestic Product (GDP) was estimated to have contracted by 3.2 per cent in 2020 amidst the pandemic-related lockdown.
It also said that headline inflation rose to 14.9 per cent in November 2020, a 33-month high, reflecting core and food inflation increases emanating from supply shortages due to the lockdown effected to curb infections.
It added that the land-border closure and continued import restrictions also contributed to the contraction, while unemployment rate reached 27 per cent in the second quarter of 2020, with youth unemployment at 41 per cent.
According to it, capital outflow risks arise from the record-low domestic interest rates and large foreign holdings of domestic securities.
On the upside, recovering oil prices and completion of the Dangote oil refinery could catalyse more domestic crude oil production and boost growth, it said.
“External vulnerabilities due to lower oil prices and weak global demand have increased, with the current account remaining in deficit in the first half of 2021.
“In April 2020, Nigeria received IMF emergency financial assistance of 3.5 billion dollars under the Rapid Financing Instrument to help cushion the impact of the pandemic.”
Going forward, the fund emphasised the need for urgent policy adjustment and more fundamental reforms to sustain macroeconomic stability and lift growth and employment.
“Directors welcomed notable reforms undertaken in the fiscal sector, including removal of the fuel subsidy and steps to implement cost-reflective tariff increases in the power sector.
“However, they stressed the need for significant revenue mobilisation to reduce fiscal sustainability risks, relying initially on progressive and efficiency-enhancing measures with higher tax rates awaiting a more sustained economic recovery.
“They highlighted the need for improved social safety nets to cushion potential negative impacts on the poor.”
In the statement, the IMF’s board observed that multiple rates, limited flexibility and foreign exchange shortages were posing challenges.
It therefore recommended a gradual and multi-step approach to establishing a unified and clear exchange rate regime with the near-term focus on allowing for greater flexibility and removing the payments backlog.
“Directors observed that the accommodative monetary stance remains appropriate in the near term, although tightening may be warranted if balance of payments or inflationary pressures were to increase.
“In the medium term, the monetary policy operational framework should be reformed and Central Bank financing of budget deficit phased out in order to reduce inflation.”
While welcoming the resilience of the banking sector, the board called for continued vigilance to contain financial stability risks.
According to it, COVID-19 debt relief measures for bank clients should remain time-bound and limited to those with good pre-crisis fundamentals.
It welcomed recent progress in structural reforms and called for continued reforms aimed at promoting economic diversification and reducing the dependence on oil and increasing employment.
It also encouraged strengthening governance and anti-corruption frameworks, including compliance with Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) measures.
The Bretton Woods institution hailed the ratification of the African Continental Free Trade Area (AfCFTA) and underscored that implementing trade-enabling reforms remained critical to rejuvenate growth.
