By Modupe Gbadeyanka
The International Monetary Fund (IMF) has advised the Nigerian government to quickly come up with stronger macroeconomic policy to revamp the economy and restore confidence of investors in the country.
This suggested was made by the IMF Executive Board, which concluded the Article IV consultation with Nigeria on Wednesday, March 29, 2017.
The board recognized that the Nigerian economy had been negatively impacted by low oil prices and production, which forced it into a recession in 2016, with growth contracting by 1.5 percent.
It commended the efforts already made by the authorities to reduce vulnerabilities and enhance resilience, including by increasing fuel prices, raising the monetary policy rate, and allowing the exchange rate to depreciate.
However, in light of the persisting internal and external challenges, the IMF emphasized that stronger macroeconomic policies were urgently needed to rebuild confidence and foster an economic recovery.
The IMF further said under unchanged policies, the outlook remains challenging. Growth would pick up only slightly to 0.8 percent in 2017, mostly reflecting some recovery in oil production and a continuing strong performance in agriculture.
Policy uncertainty, crowding out, and FX market distortions would be expected to drag activity. Accommodative monetary policy would keep inflation in double digits. Financing constraints and banks’ risk aversion would crowd out private sector credit and increase the Federal Government’s already high debt service burden, it warned.
It said a continued policy of prioritizing exchange rate stability would lead to an increasingly overvalued exchange rate, leading to a deterioration in the non-oil trade balance and gross reserves below adequate levels.
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