The International Monetary Fund (IMF) has said Nigeria’s economic outlook is facing a major challenge from various fiscal factors including continuous implementation of petrol and electricity subsidies.
It said with the emergence of fuel subsidies and slow progress on revenue mobilization, the fiscal outlook faces significant risks. IMF said continued reliance on administrative measures to address persistent foreign exchange shortages is negatively impacting confidence. Without urgent fiscal and exchange rate reforms, the medium-term outlook faces sub-par growth.
The IMF said the federal government should remove the subsidies and provide social welfare measures to cushion effects of the proposed removal of subsidy on power and petrol.
“There are significant downside risks to the near-term outlook arising from the uncertain course of the pandemic and the domestic security situation,” IMF said after concluding a recent official visit to Nigeria.
In the medium term, the report said there are upside risks from faster-than-expected reaching of the Dangote refinery’s production capacity along with effective implementation of the 2021 Petroleum Industry Act in terms of higher manufacturing production and investment in the oil sector.
“Major reforms in fiscal, exchange rate, trade and governance are needed to alter the long-running lackluster growth part,” the fund stated.
On the immediate front, IMF said fiscal and external imbalances require removal of regressive fuel and electricity subsidies, tax administration reforms and installing a fully unified market-clearing exchange rate.
Over the medium term, moving away from inward-looking policies through trade, monetary and foreign exchange reforms, enhancing public trust through governance and fiscal transparency reforms, and improving welfare through job creation and agricultural reforms are priorities, it stated.