Nigeria Faces Political, Economic Risks

The International Monetary Fund has predicted that Nigeria will face political and economic risks if the security problems in the northern part of the country are not urgently controlled by the Federal Government and security agencies. The IMF made the prediction in its latest Staff Report that was presented in Washington DC, United States on Wednesday, adding that insecurity was a threat to the country’s anticipated strong growth to be driven by agriculture, trade and services. Killings by Boko Haram insurgents in the northeast as well as attacks on communities by Fulani herdsmen and unknown gunmen in other parts of the North have increased lately, even as fears are mounting over possible violence in the run up to the 2015 general elections. The IMF report stated, “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; and uncertainty about the pace of global recovery.” In the summary of the report, which was posted on its website, the IMF stated, “Despite recent strong non-oil growth, poverty and income inequality remain high and social and governance indicators are below averages for sub-Saharan Africa. Structural reforms under the Transformation Agenda are ongoing, but significant infrastructure gaps and weak institutional capacity still retard growth prospects. “At the same time, vulnerabilities are rising in the build-up to general elections in 2015 and fiscal buffers have been reduced. Meanwhile, the GDP is being rebased and structural shifts may suggest a refocus in some policy areas.” On the outlook for the Nigerian economy, it said growth was expected to remain strong, driven by agriculture, trade, and services, while 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, according to the institution, include persistently lower oil revenue from changing global dynamics and lower domestic production; less prudent fiscal policy through the ongoing political cycle; and ongoing security problems in the North. Others are 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. To improve the country’s revenue profile, the report stated that transparency and governance in the oil sector must be enhanced through the strengthening of the regulatory framework and the passage of a sound Petroleum Industry Bill, with stringent enforcement clauses. On rebuilding fiscal buffers by insulating macro-financial stability from the political cycle, the report stated that the fiscal framework should continue to be improved, with an appropriately conservative 2014 budget. It further said that the monetary policy should remain supportively tight, given the potential for capital flow reversals and fiscal slippages. “In the event of persistent pressures, the naira should be allowed to adjust and reserve adequacy maintained,” it noted. The report stated, “Improving competitiveness and productivity to generate inclusive growth will require wide-ranging structural reforms .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. “Real GDP grew by 6.8 per cent in Q3 2013 mainly owing to a continuing strong performance (7.9 per cent year-on-year growth) in the non-oil sector (primarily agriculture, services, and trade in which Nigeria over performs its peers.) Oil production improved slightly in Q3, but remains below capacity owing to continued oil theft/production losses. ″