Nigeria: The new administration took over an economic environment characterized by slow growth, limited tax collection, rising inflation, and long-term external imbalances. After visiting Lagos and Abuja, a team from the International Monetary Fund, led by Axel Schimmelpfennig, the head of the IMF mission in Nigeria, stated.
The delegation met with senior government and central bank officials, the Ministry of Agriculture, the Ministry of the Environment, representatives from sub-nationals, the private sector, and civil society, as well as Minister of Finance Edun and Governor Cardoso of the Central Bank of Nigeria. Mr. Axel Schimmelpfennig released the following statement following the visit:
“Nigeria’s economic outlook is challenging. Economic growth strengthened in the fourth quarter, with GDP growth reaching 2.8 percent in 2023. This falls slightly short of population growth dynamics.
“Improved oil production and an expected better harvest in the second half of the year are positive for 2024 GDP growth, which is projected to reach 3.2 percent, although high inflation, naira weakness, and policy tightening will provide headwinds.
“With about 8 percent of Nigerians deemed food insecure, addressing rising food insecurity is the immediate policy priority. In this regard, staff welcomed the authorities’ approval of an effective and well-targeted social protection system. The team also welcomed the government’s release of grains, seeds, and fertilizers, as well as Nigeria’s introduction of dry-season farming.
“Recent improvements in revenue collection and oil production are encouraging. Nigeria’s low revenue mobilization constrains the government’s ability to respond to shocks and to promote long-term development. Non-oil revenue collection improved by 0.8 percent of GDP in 2023, helped by naira depreciation.
“Oil production reached 1.65 million barrels per day in January as the result of enhanced security. The capping of fuel pump prices and electricity tariffs below cost recovery could have a fiscal cost of up to 3 percent of GDP in 2024.
“The recently approved targeted social safety net program that will provide cash transfers to vulnerable households needs to be fully implemented before the government can address costly, implicit fuel and electricity subsidies in a manner that will ensure low-income households are protected.
“The team welcomed the Monetary Policy Committee (MPC)’s decision to further tighten monetary policy. The MPC increased the policy rate by 400 basis points to 22.75 percent for a total tightening of 1,025 basis points since May 2022. This decision should help contain inflation, which reached 29.9 percent year-on-year in January 2024, and pressures on the naira.”
IMF said addressing food insecurity is the immediate priority. The recent approval of a well-targeted and effective social protection system is an important step toward addressing this and implementation will be crucial. It also noted that the decision by the Monetary Policy Committee to further tighten monetary policy will help contain inflation and pressures on the naira.
