Recession: IMF Points Way Out For Nigeria | Independent Newspapers Limited
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Recession: IMF Points Way Out For Nigeria

Posted: Sep 15, 2016 at 4:32 am   /   by   /   comments (0)


Bamidele Ogunwusi



Lagos – As Nigeria grapples with how to get out of its worst economic recession in 29 years, the International Monetary Fund (IMF) on Wednesday stated that the country needs a potpourri of steps by employing an integrated package in this regard.

In a report by CNBC Africa monitored on Wednesday in Lagos, Gene Leon, IMF Senior Resident Representative and Mission Chief for Nigeria, said the country needs an integrated package which comprises a monetary component, a fiscal component, foreign exchange component and structured reform component.

“You need to acknowledge that in macro-economic space, what really counts is arithmetic. Arithmetic in the sense that things had to add up, adding up means interactions of monetary, fiscal and external need to be seen.

“What Nigeria needs is an integrated package and that integrated package has to have a monetary component, a fiscal component, FX component and structured reform component and it is the combination of these components that will pull the ship of the state in a fairly smooth way out of the recession”, Leon said.

While stressing that the condition the country finds itself cannot be overturned overnight, Leon said all hands must be on deck to ensure collective approach without leaving anything undone.

“People automatically believe that there is a turnkey operation out there and when you turn it on, then the economy will stop sliding and the country will move back to boom overnight. I think that is a bit optimistic.

“I think we need to acknowledge that as it is difficult to guide the ship in the middle of the ocean, so it is to turn the economy back to normal. We need time to guide it. Turnaround is not going to be sharp. Provided you manage the turnaround in a persistent way, it has to be seen as something you have to manage”, the IMF chief noted.

He added that the country needs to fix its vulnerabilities if it intends to achieve a turnaround. These immediate vulnerabilities are the country’s financing plans.

“You need to first fix your short term vulnerabilities. You have to fix that first and in fixing that you need have system that still allows you have a medium term solid growth foundations at the same time. You cannot think of jumping to growth without doing that”, Leon reckoned.

He also added that Nigeria needs capital inflows and that “the exchange rate is tied to what the country earns. What you have as savings overseas are the external reserves. To be able to defend the fixed exchange rate, there will be a shortfall in the reserves

“To have growth, you need investment. To have investment, you need financing for that investment. It either be domestic, external or have your savings. The savings of the country are its reserves but in the case of Nigeria, the reserves are low”.

He added that Nigeria will have to turn to industries other than oil to help pull itself out of recession, as the latest sobering government figures reveal that the economy fell by just over 2 percent in the second quarter.

The overall decline of Nigeria’s economy is – gross domestic product (GDP) fell 2.06 percent in the second quarter – largely attributed to the global drop in the price of oil, which saw growth of -17.48 percent in real terms in the same period.

IMF data projects a -1.8 percent change in real GDP for 2016. This would be the first annual decline in over twenty years, and the worst annual recession to have hit the country since 1987, when GDP growth dropped to -10.8 percent.

After the bad economic news was delivered, Finance Minister Kemi Adeosun announced that the government had approved a three-year plan to borrow more from abroad, Reuters reported.

She also said that Nigeria had to tackle structural problems that had stoked inflation and that interest rate hikes were not the answer.

The government has so far spent more than N400 billion in capital expenditures this year, part of a record N6.06 trillion budget for 2016, Adeosun said last week – as reported by Reuters.

The Federal Government plans to borrow as much as $10 billion from debt markets, with about half of that coming from foreign sources. Funds from this Eurobond would be spent on power transmission projects, solid mineral development and agriculture.

The medium-term borrowing plan, which covers 2016-2019, will now be sent to the National Assembly for approval, Reuters reported.

The finance minister stressed the importance of diversifying the economy. “We have to grow our non-oil economy,” she said.

According to a note by Renaissance Capital, agriculture and telecoms are two of the bigger economic sectors which saw growth in the second quarter of this year, though this was slower than previously.

Agriculture, which accounts for one fifth of Nigeria’s GDP, saw growth of 2.5 percent in the second quarter of this year, said Renaissance Capital’s note.

But, while this was down 0.7 percent year on year, Yvonne Mhango, a sub-Saharan Africa economist behind Renaissance Capital’s note, told CNBC via telephone that the organisation was “not expecting negative territory for crop production.”

As for the promise of telecoms, Mhango explained that the sector was “still growing.”

Nigeria’s services sector, which is worth 50 percent of GDP, shrank by 1.3 percent year on year in the second quarter of 2016, according to Renaissance Capital’s note.

The sector’s decline can partly be attributed to zero percent year-on-year growth of its largest subsector, wholesale and retail trade, explained the note. But, Mhango was positive, and said that the second quarter “was the first time services saw a contraction,” and because “its decline is not as deep [as elsewhere] – it has the best prospect of recovering.”

With regards to Facebook chief executive, Mark Zuckerberg’s visit to Nigerian tech start-ups last week, Mhango was also upbeat, and explained that in Nigeria’s current climate of a squeezed job market and high unemployment, tech “allows for entrepreneurs to exist,” which is “great in terms of [allowing them to] generate more income for themselves.”