Reviewing IMF’s article IV consultation on Nigeria

Chief Economist, Pwc Nigeria, Andrew Nevin

In the International Monetary Fund’s Article IV consultation, the fund noted that Nigeria’s economy is yet to receive a boost from policy implementations that could make it withstand the shocks that pushed it into a recession. The fund also predicted a 2.1 per cent economic growth in 2018. Andrew Nevin, Chief Economist, PWC Nigeria joined CNBC Africa’s Onyi Sunday to review the IMF’s findings and projections.

2.1% is what everyone thinks we’re going to grow this year, coming out of a recession. We know because we’ve talked about it before and it is not good enough because our population is growing at almost 3%.

But I think what the IMF report highlights is that the really hard work of getting the economy growing is not simple. Structural reforms take a lot of time to implement.

The efforts on increasing taxes- there isn’t a lot of effort, but it hasn’t yet turned up in the numbers and that’s what they’re highlighting for us.

What do we need to do to accelerate the numbers?
What is happening in the country is that there are places where some people are really focused on getting the right things done.For example Lagos state has really moved ahead on a lot of critical reforms. Some governors are doing that as well.

In the Federal Government there are some pockets, the PEBEC group for example, the Minister of Trade Industry and Investment Okechukwu Enelamah is focused however we don’t have everyone quite on side to realise how critical this is.

If we’re not growing at 6-7% we’re going to have massive problems. According to the IMF we’re only going to grow at 1.9% in 2019. That will be another year below population growth. That means that we will have gone five years with declining income per capita and that is not sustainable so we need everyone in the country and every governor pulling in the same direction to make Nigeria a place where we have inclusive economic growth.

Talking about inclusive economic growth, so far the MPC is yet to sit this year. One of the recommendations of the IMF is that the CBN should continue it’s tightening stance from last year into this year until inflation reaches single digit numbers but then we’re talking about kickstrarting the economy and ensuring that small businesses thrive. How do we balance this?

We’ve said before from the PWC standpoint that the problem is really one of tax collection the reason that we have this issue is that we’re going to have a deficit of N3 trillion and it isn’t that we spend so much, it’s that we don’t collect enough taxes.

That has got to be accelerated and that will also bring down the interest rate because what’s crowding out private investment is the fact that the Federal Government needs N3 trillion out of the system. Again it comes down to tax collection it’s sort of like the litmus test.

But on the MPC I think it’s worth noting that it shows that maybe we don’t have the sense of urgency in the country because we are holding up these appointments because of a dispute between the Federal Government and the Senate over the Acting Head of the Economic and Financial Crimes Commission.

That’s a critical issue but you’re now holding up entire economic policies because of that. Is that in the best interests of the country? I think people should ask themselves that.

Do you think people realise how important it is that the MPC meets? How significant is it to have that quorum formed like yesterday?

We can’t move the interest rate without a quorum. SO it effectively means that we can’t implement monetary policy if they want to tighten or loosen.

Some people say 145 should be coming down to 12% but actually there’s no legal basis to do that because we don’t have an MPC quorum. But in addition and I’m sure there are other places in the government with this issue but at the CBN we have the Deputy Governor, Aisha Ahmed who is replacing Dr. Sarah Alade who is still in limbo so that’s the policy unit of the CBN not producing what it needs to. So this refusal to confirm appointments of the presidency is really causing trouble.

Let’s move on to developments in the foreign exchange space. What would you make of what’s playing out at the moment.The CBN is showing that it can sustain dollar inflows into the forex market, tat hike in oil prices as well… It looks like things are getting better, but are we ontrack or do you think it’s about time that we just let the true value come through?

We’ve made a lot of progress in having a more flexible exchange rate over the last year. The Economic Growth and Recovery Plan says we want to move a market based exchange rate but we see this going a little bit slowly.

The CBN still has multiple rates. There are 3-5 official rates, then you have the I & E window which is around N360 to the dollar.

Obviously the CBN is controlling the currency at N360. Our view has always been that we’d like to see a market based exchange rate. It is confusing to outside investors to have this multiple rate situation.

I think we’d get there but we seem to be going very slowly. At the end of the day we’re only going to be a strong economy if people want naira and people are only going to want naira if they can go in and out of the naira. I hope we get there but it seems to be going very slowly.

In this article:

No Comments yet