By Kamal Tayo Oropo (Washington DC)
Even as the Nigerian economy is projected to decline from all time high of six percent to about four percent, the International Monetary Fund (IMF) has urged for very strong reforms to steady the economy, saying that four to five percent growth would still represent a solid economic outcome in the face of a very large external shock. Though, it would be below the average growth of 6.5 percent for the last decade.
Speaking yesterday to The Guardian, Senior Resident Representative/Mission Chief for Nigeria, African Department of the IMF, Gene Leon, noted that while recent growth has not been inclusive, the focus now needs to be on enhancing the quality and sustainability of growth through addressing structural imbalances that have slowed the diversification of the economy and the impeded the emergence of a private-sector oriented, investment-driven, efficient and export-competitive economy.
“This will require clear strategic vision and a sustained effort to develop core infrastructure and human capital, implement key structural reforms to reduce costs of doing business and implement productivity-enhancing reforms, strengthen accountability and transparency, and improve efficiency in the use of available resources. Further, encouraging high value-chain sectors, improving access to finance, and promoting employment of youth and female populations, are all key steps for not only raising growth, but also making it more inclusive,” he said.
As part of the activities leading to the IMF 2015 Spring meetings, between April 17 and 19, the World Economic Outlook (2015) was presented to the media yesterday at the Fund Headquarters in Washington DC. Global growth prospects, according to the survey, are uneven across major economies. In advanced economies, growth is projected to strengthen in 2015 relative to 2014, but in emerging market and developing economies, such as Nigeria, it is expected to be weaker.
Overall, global growth is forecast at 3.5 percent in 2015 and 3.8 percent in 2016, broadly the same as last year. But this aggregate number masks the diverse developments.
“A number of complex forces are shaping the prospects around the world,” says IMF Economic Counselor and Director of Research, Mr. Olivier Blanchard. “Legacies of both the financial and the euro area crises — weak banks and high levels of public, corporate, and household debt— are still weighing on spending and growth in some countries. Low growth in turn makes deleveraging a slow process.”
Blanchard also notes that the combination of population aging, lower investment, and sluggish advances in productivity will lead to significantly lower potential growth both in advanced and emerging market economies. “More subdued growth prospects lead, in turn, to lower spending and lower growth today,” he said.
However, in his conversation with The Guardian, Mr. Leon said that, on the part of Nigeria, decisive actions are needed to reduce vulnerabilities.
According to him, “The lower level of oil prices implies significantly lower fiscal revenues, constraining policy space and, as a result, growth is expected to slow to 4 3/4 percent in 2015 (down from 6.3 percent in 2014). It is therefore important that the authorities mobilise non-oil tax revenue to creating more space for developmental expenditure (and reduce the exposure to volatility in oil receipts), prioritise expenditure in the near-term (optimizing outcomes given fiscal constraints), allow the exchange rate to adjust (helping to manage the external shock), and closely monitor banks’ exposure to the oil and gas sector (minimising systemic financial sector risk).”
“In the medium- to long-term, Nigeria needs to address its development challenges—inadequate infrastructure, high rates of poverty, and income inequality. Nigeria has achieved several years of strong growth from an expanding non-oil sector, but still lags peers in critical infrastructure, poor social indicators (up to half of the population in the north east lives in poverty), and less-than-competitive in quality of export competitiveness. It is vital that Nigeria continues with structural reform agenda to achieve these competitiveness gains that will be key to achieving sustainable growth and creating job opportunities. Mobilising additional non-oil revenue, increasing skills base, promoting non-oil export diversification, and fostering efficient and high-productivity entrepreneurship can help position the economy to achieving its potential.”
Also, and bearing in mind that the most important binding constraint to raising productive capacity in Nigeria is poor infrastructure, unreliable power supply, poor roads, red tape and so on, the IMF chief stressed that there is no overnight solution to relieving these constraints. Nigeria, according to Mr. Leon, needs a strong track record of policy implementation. For a start, in the words of Leon, “Nigeria can continue addressing current constraints to growth – for example, accelerating the power and oil and gas sector reforms, including the passage of a Petroleum Industry Bill, to promote the development of a sustainable, efficient, and environmentally-friendly oil and gas sector; building institutions to sustain change and position the country for the next leap in development; and enhancing governance (broadly interpreted as processes through which decisions are taken and implemented efficiently) to promote integrity, foster behavioral incentives, and reduce policy uncertainty that could together help spur a private sector-led economy.”
The Fund had come under weaves of criticisms over its recent calls, as contained in its Article IV Consultation-Staff Report (2014), that
the government should slow down on its infrastructural projects, in the face of pressing economic challenges.
But addressing development challenges, as represented by inadequate infrastructure, high rates of poverty, and income inequality, according to Leon, is critical to realising sustainable inclusive growth and achieving Nigeria’s medium to long-term potential. The
Staff Report highlights the low level of infrastructure and other social indicators in Nigeria, relative to peers and other more developed countries, and emphasizes the importance for Nigeria to address these challenges.
“In any economy, irrespective of the abundance of resources, one has to prioritise spending, improve efficiency to get more value for
money, and ensure decisions take into account the long-term benefits and costs of these investments. This is even more essential when resources are constrained, or when obtaining resources could result in a high burden in the future,” he said.
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