The Executive Board of the International Monetary Fund says Nigeria needs to make urgent policy adjustments, more fundamental reforms to ensure stability, growth, and employment.

This was stated on Monday in a statement after the conclusion the Article IV consultation with Nigeria.

Nigeria’s economy has been hit hard by the COVID-19 pandemic.

Following a sharp drop in oil prices and capital outflows, real gross domestic product is estimated to have contracted by 3.2 per cent in 2020 amidst the pandemic-related lockdown. 

Headline inflation rose to 14.9 per cent in November 2020, a 33-month high, reflecting core and food inflation increases emanating from supply shortages due to the lockdown effected to curb infections alongside, the land-border closure and continued import restrictions. 

The unemployment rate reached 27 per cent in the second quarter of 2020, with youth unemployment at 41 per cent. 

“Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for the measures taken to address the health and economic impacts of the COVID19 pandemic which have exacerbated pre-existing weaknesses. Looking ahead, Directors emphasised the need for urgent policy adjustment and more fundamental reforms to sustain macroeconomic stability and lift growth and employment,” the IMF board stated.

It welcomed the country’s notable reforms undertaken in the fiscal sector, including removing the fuel subsidy and steps to implement cost-reflective tariff increases in the power sector. 

However, it stressed the need for significant revenue mobilisation to reduce fiscal sustainability risks, relying initially on progressive and efficiency-enhancing measures with higher tax rates awaiting a more sustained economic recovery. 

It also highlighted the need for improved social safety nets to cushion potential negative impacts on the poor, noting that multiple rates, limited flexibility, and foreign exchange shortages pose challenges. 

The IMF board recommended a gradual and multi-step approach to establishing a unified and clear exchange rate regime with the near-term focus on allowing greater flexibility and removing the payments backlog. 

The statement added, “The directors observed that the accommodative monetary stance remains appropriate in the near term, although tightening may be warranted if balance of payments or inflationary pressures were to increase.” 

The monetary policy operational framework should be reformed in the medium term, and the central bank financing of budget deficit phased out to reduce inflation, it advised. 

While welcoming the banking sector’s resilience, the IMF board called for continued vigilance to contain financial stability risks, pointing out that COVID-19 debt relief measures for bank clients should remain time-bound and limited to those with good pre-crisis fundamentals.