The International Monetary Fund (IMF) has outlined three major reform areas needed to boost growth rates in Africa’s largest economy.
In an exclusive interview with BusinessDay yesterday, May 30, Abebe Aemro Selassie, Director, Africa Department of the Fund said he still expects that the country’s economic growth will hit the 2.0 percent mark this year.
Without fundamental reforms, the IMF has forecasted that the country’s real GDP per capita, which is already declining, will continue to decline over the next few years, plunging more people into the poverty trap.
Selassie listed some of the deliberate policy actions he believes can help sustain economic growth. However, he admitted most of them are already well laid out in the Economic Growth and Recovery Plan (EGRP) prepared by the federal government.
“All the measures needed are already captured in the ERGP. What is needed really is to implement them to the fullest degree,” Selassie said.
He listed three reforms that he believes will help facilitate growth.
“The first is paying attention to and addressing the big resource needs that the government has. The total revenue envelop for the government is about six percent of GDP. That is too, too low. That needs to go closer to 15 percent of GDP or even higher. Finding revenue handles to increase that so that the government can invest in the necessary infrastructure, in schools, in health is the first important requirement. Second, will be dealing with the energy sector. The provision of electricity, I cannot state enough how important that is both for economic diversification and to facilitate higher productivity. So addressing, in a very lasting way, energy sector problems in Nigeria is fundamental. Third, there remains a need to continue to carry out a lot of structural reforms that facilitate economic diversification and address governance and corruption issues. Good progress has been made on this front under this administration but I think there is still more to be done.”
Selassie said that though growth in the first quarter was below the fund’s expectations, they do not plan to review their growth projections downwards.
“We still expect growth to accelerate to 2.0 percent. So we are holding our forecast,” Selassie said.
Explaining the rational for optimism, he cited strong recovery in global economic growth and improved domestic conditions.
“Several factors go into this. First the external environment has been improving. We have seen growth globally doing better than a year or two ago. Alongside this come certain factors, which are peculiar to Nigeria. First commodity prices have gone up quite a bit, relative to last couple of years. That should help the revenue side and the export side and that will filter to the rest of the economy. Also capital flows have picked up. So this external environment is helpful. Also domestically, we are seeing both the oil and non-oil sector beginning to recover from the 2015 and 2016 levels. So provided this continues, we see growth hitting the 2.0 percent mark,” Selassie explained.
Nigeria emerged from its first recession in two decades in 2017 but the growth has largely been described as fragile.
The economy expanded by a mere 0.83 percent in 2017, though higher than -1.58 percent recorded in 2016.
In its regional economic report published in April, the IMF has forecasted that the country’s growth numbers would further expand to 2.1 percent in 2018, helped by improvements in oil production and prices, as well as full year impact of greater foreign exchange availability.
Nigeria will underperform average growth in the Sub-Sahara African region, which is projected to rise from 2.8 percent in 2017 to 3.4 percent in 2018, with growth accelerating in about two-thirds of the countries in the region aided by stronger global growth, higher commodity prices, and improved capital market access.
“The two largest economies in the region, Nigeria and South Africa, remain below trend growth, weighing heavily on prospects for the region,” the IMF stated in the report.
Even though the IMF said that external imbalances have narrowed in many sub-Saharan African countries, but that progress with fiscal consolidation has been mixed, with vulnerabilities rising. About 40 percent of low income countries in the region are now in debt distress or assessed as being at high risk of debt distress.
Not all countries in the region are faced with slow growth as Côte d’Ivoire, Ethiopia, Ghana, Senegal are expected to maintain robust growth at about six percent or faster. At the other end of the spectrum, many countries that saw per capita incomes fall in 2017 like Nigeria could witness a further decline this year, the IMF noted.
The Fund warned of rising macroeconomic vulnerabilities in many countries as the required fiscal adjustment keeps getting delayed. The fund noted that 15 of the region’s 35 low-income countries are now rated to be in debt distress or at high risk of debt distress. In some countries, higher debt levels have translated into a sharp increase in debt service, diverting resources from much needed spending in areas such as health, education, and infrastructure.
The fund advised that “prudent fiscal policy, especially domestic revenue mobilization, is critical to make room for key infrastructure and social spending. On average, there is scope to raise tax revenues by 3-5 percentage points of GDP over the next few years. Reforms to nurture a dynamic private sector are needed to provide the foundations to raise the low level of private investment, for example by boosting intra-Africa trade and deepening access to credit.
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