Weak institutional capacity may retard growth prospects in Nigeria—IMF

The International Monetary Fund IMF has said that despite recent strong non-oil growth in Nigeria, poverty and income inequality has remained high and social and governance indicators are below averages.

It also said that Structural reforms under the Transformation Agenda are ongoing, but that significant infrastructure gaps and weak institutional capacity still retard growth prospects. IMF Director in charge of Nigeria in a statement said “At the same time, vulnerabilities are rising in the buildup to general elections in 2015 and fiscal buffers have been reduced. Meanwhile, GDP is being rebased and structural shifts may suggest a refocus in some policy areas.

According to the IMF; “Growth is expected to remain strong driven by agriculture, trade, and services. Inflation should continue to decline, in line with a tight monetary policy, and a lowering trend in food prices from higher rice and wheat production. Key downside risks are persistently lower oil revenue from changing global dynamics and lower domestic production; less prudent fiscal policy through the ongoing political cycle; ongoing security problems in the North; uncertainty about the pace of global recovery; and capital flow reversals from the expected unwinding of unconventional monetary policy in the advanced economies or increased domestic political risk”.

The statement said “Transparency and governance in the oil sector should be enhanced, including by strengthening the regulatory framework through the passage of a sound Petroleum Industry Bill (PIB) featuring stringent enforcement clauses.

It said that a multi-country partner strategy could also improve oil sector oversight. The fiscal framework should continue to be improved, with an appropriately conservative 2014 budget. Monetary policy should remain supportively tight, given the potential for capital flow reversals and fiscal slippages.

It counseled that in the event of persistent pressures, the naira should be allowed to adjust and reserve adequacy maintained. Improving competitiveness and productivity to generate inclusive growth will require wide-ranging structural reforms. It said that three key areas could help promote inclusive growth—increasing the delivery of power, broadening the agricultural production base, and increasing access to finance for SMEs. Support for sectoral growth should be underpinned by improvements in competitiveness rather than by protectionist measures.