… but recommends strong fiscal consolidation
International Monetary Fund (IMF), on Wednesday, endorsed Nigeria’s Economic Recovery and Growth Plan (ERGP) as capable of pulling the troubled economy out of its woes.
The endorsement comes barely two weeks after the Fund told authorities that the plan alone was just not enough to drag Nigeria out of recession, saying more needed to be done for the economy to recover.
The IMF had said Nigeria’s economy, rather needed urgent economic reform, and also urged the country to reform its volatile foreign exchange market as well as resolve the multiple exchange rates and an artificially high naira valuation – or risk “a disorderly exchange rate depreciation.”
But addressing a press briefing on the Fiscal Monitor, one of IMF flagship reports at the ongoing IMF/World Bank meeting, Catherine Pattillo, a senior economist in the IMF African Department and a specialist on low-income economies, said the document was capable of delivering growth, although their recommendation need continued fiscal consolidation.
Pattillo said, “The ERGP is very welcomed. It focuses on diversification and in addressing some of the deep-seethed problems related to strengthening structures, which is necessary for diversification and in building revenues, particularly oil revenue. So, we very much welcome the ERGP. As you are aware, Nigeria went into recession last year, there have been forecasted recovery, but still very fragile this year and the need to address the fiscal situation is urgent.”
Launched by President Buhari earlier in the month, the ERGP has an ambitious target of the growth plan, which targets to restore the economy through sustained growth between 2017 to 2020, seeks to grossly reduce inflation rate from an all-time high of 19 percent to a single digit. It also targets to restore growth by ensuring the Gross Domestic Product (GDP) improves significantly to 2.19 percent in 2017, and 7 percent at the end of 2020, especially through agriculture.
The new plan also aims to boost the power situation in Nigeria with 10GW of operational capacity by 2020, and as well improve the energy mix, including through greater use of renewable energy. It also projects that the country will become a net exporter of refined petroleum products by 2020, among other things.
Speaking further on the Fund’s views on the recovery plan, Pattillo noted, “our recommendation is for the continued fiscal consolidation. One striking statistics I think is the fact that over the past years, the ratio of interest payment to tax revenue has doubled to 66 per cent in Nigeria. So, two-thirds of all tax revenue is going into interest payment, illustrating the need to raise tax revenue. That would allow the government to implement the social and growth-friendly policies that are part of the objectives of the ERGP.”
On his part, Vitor Gaspar, IMF fiscal affairs director, told the news conference that he had “the privilege of visiting Nigeria some months ago and I was very happy to understand that for the authorities in Nigeria, fiscal policies in general and tax policy in particular are part of the strategy for development. That is precisely how I believe fiscal policy should be thought in developing countries as part of their development strategy.”
Meanwhile, the IMF Fiscal Monitor report is asking fiscal policies to do much more to facilitate change, foster growth and protect people.
The report for instance shows how a neutral tax system, coupled with effective and even-handed revenue administration can contribute to significant increases in productivity.
“Our specific advice includes prudent fiscal policy with fiscal resources moving on-budget… and I will conclude by repeating the main message if the Financial Monitor which–this time–comes in the form of five guiding principles.
“Fiscal policy should be counter-cyclical; growth friendly; inclusive; grounded in tax capacity, and, last but not least, conducted with prudence,” Gaspar said.