IMF: Outlook for Nigeria challenging under current policies

The International Monetary Fund (IMF) has raised concerns about the challenging outlook for Nigeria under current policies. Following the completion of the IMF's 2020 Article IV mission to Nigeria, the organization has emphasized the need for exchange rate and monetary policy reforms, increased revenue mobilization, and structural changes to unlock the country's growth potential. In a recent interview with CNBC Africa, Tilewa Adebajo, CEO of CFG Advisory, discussed the IMF's assessment of Nigeria's economy. Adebajo acknowledged the positive developments in the financial sector and applauded the removal of subsidies in the fuel and power sectors, which has aided economic growth. Additionally, he highlighted progress in enhancing financial inclusion in the country. However, Adebajo echoed the IMF's concerns about structural bottlenecks hampering Nigeria's economic progress. One of the key issues identified is the persistent deficit financing that has hindered growth, leading to a loss of $210 billion in GDP over the past five years. This significant decline in GDP has resulted in a rise in poverty levels, with an estimated 100 million Nigerians falling below the poverty line. The IMF has called for urgent reforms to address these challenges and restore Nigeria's growth trajectory. One of the key recommendations is the unification of exchange rates to promote transparency and economic stability. By implementing structural reforms and prioritizing revenue mobilization, Nigeria can overcome its current economic crisis. Adebajo pointed out that Nigeria has experienced a drastic devaluation of its currency, with over 100% depreciation in foreign exchange rates over the last five years. He attributed this decline to confidence issues in the international financial markets, exacerbated by high-interest rates aimed at attracting investments. The disruption of diaspora funding inflows further complicated the foreign exchange situation, leading to instability in the currency market. To address these challenges, Adebajo advocated for a transparent and unified exchange rate system, eliminating multiple windows and promoting market-driven mechanisms. By establishing a single transparent window for foreign exchange transactions and leveraging futures markets to curb speculation, Nigeria can achieve greater stability and avoid prolonged devaluations. The IMF's projections suggest a challenging road ahead for Nigeria, with a projected growth rate of around -4% this year. It is anticipated to take at least two years for the country to return to pre-pandemic growth levels, further underscoring the urgency of implementing reforms and unlocking Nigeria's economic potential. As Nigeria grapples with the economic fallout from the pandemic and structural deficiencies, the IMF's recommendations serve as a roadmap for policymakers to navigate the complexities of the current financial landscape. By addressing key issues such as exchange rate unification, revenue mobilization, and structural reforms, Nigeria can chart a course towards sustainable growth and prosperity.