The InternationaL Monetary Fund (IMF) has made forecasts that Nigeria will start to emerge from recession this year. However, the body is also quick to caution that threats still remain to the ecomony which is not currently expected to grow at a quick enough rate to reduce unemployment and poverty.
Persistent low crude prices and oil production caused Nigeria to slip into recession last year, thus slashing government revenues, causing dollar shortages and a crippling effect on the nation’s economy.
According to the IMF, low growth and exposure to the oil sector increased non-performing loans at banks to 15 percent in March from 6 percent in 2015. They rose 8 percent excluding four under-capitalised banks.
However, the IMF is projecting that Nigeria’s economy will grow 0.8 percent this year with multiple indicators suggesting a pick up in economic activities in the second quarter.
The IMF however cautions that “Concerns about delays in policy implementation, a reversal of favorable external market conditions, possible shortfalls in agricultural and oil production, additional fiscal pressures, continued market segmentation in a foreign exchange market that remains dependent on central bank interventions, and banking system fragilities represent the main risks to the outlook”
The Fund said Nigeria’s new window for investors to trade the currency, the naira, at market rates has allowed portfolio inflows and helped boost foreign reserves, which has contributed to reducing the premium on the black market rate.
The fund advised that “In the near term, a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues would be needed to create space for infrastructure spending, social protection, and private sector credit”
“This should be simultaneously accompanied by a monetary policy that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural reforms.”
According the IMF, implementing these policies would reduce vulnerabilities and create an environment for an economy led by the private sector.