IMF’s Forward Guidance for Nigeria

The International Monetary Fund has been quite vocal about the fiscal direction of the Nigerian Economy. At the World Bank/IMF meetings in DC early on in October it cautioned Nigeria to be quite careful with its debt levels, as it would be good to focus on capital projects that are self sustainable and can generate revenues for the government to pay back than recurrent expenditure and baseless spending. At a meeting last weekend, the Senior Resident Representative & Mission Chief, African Department, Mr. Amine Mati speaking at the annual investiture of the Chartered institute of Bankers’ of Nigeria advised the Central Bank of Nigeria to recapitalize the Deposit Money Banks to avoid a systemic risk to the banking float, considering that:

  • The deposit to loan ratio of Banks has skewed the gearing ratio since it was last recapitalized at 25bn naira
  • The capital adequacy ratio of banks is made only a handful of them tier 1 status and is placing deposits of customers at a systemic risk when the non performing loan books of banks are factored it, owing to the external pressures that businesses who borrow from banks face in such an economic environment
  • To balance up the fudiciary practices of Banks and reduce the bank balance sheet as it concerns the practice of using capital to buy up treasury bills and engage in increased money market activities that does nothing to grow the economy.

Paul Wallace, the IMF Chief for Africa has increased its calls to the Nigerian Government to stop giving tax holidays to big companies as a means to raise up more revenues that will effectively reduce the pressure to issue debt instruments. The IMF believes that tax collection is too low and the Country is overly dependent on Oil receipts and debts as a source for budget funding. What remains to be seen is how the Government will respond to these valid and timely recommendations from the IMF that seem critical policy adjustments for rebalancing the economy, ramping up growth, diversifying incoming streams and building sustainable channels for the future.

Kelvin Emmanuel

About Kelvin Emmanuel

The Oil producing Angola in the Southern part of Africa faces what Nigeria faced 12months ago; a distortion in its exchange rate with a difference between the official markets and the parallel black markets. One dollar through the official window buys you 166 kwanza, while one dollar through the black market buys you 400 kwanza. Nigeria faced the same challenge 12months ago, when the distortion between the official and black markets was as much as the official markets trading at 306 with the parallel market ranging from 450 through to 510. The Central Bank Governor of Angola, Jose de Massano Junior announced in Luanda “We will stop having a fixed foreign exchange, we will adopt a floating regime of foreign exchange”. Angola faces exactly the same challenges and has been applying the exact same responses to an exchange rate crisis like using its foreign reserves that was sitting at $26bn to defend the currency kwanza, with no success so far, even though the external reserves has dropped to $14bn. Angola relies on Oil receipts for 80% of its government revenue, 90% of its inflow and 50% of its GDP. Angola is a $194bn economy that has been growing at an average of 10% on the back of rising oil prices since 2002 when its 27 year old civil war that started in 1975 ended. The state national oil company Sonangol reports that it produces up to 1.8m barrels of crude oil daily, however the government that until now has being led by the family dynasty Jose Eduardo dos Santos until recently when succession saw power transferred to Joao Lourenco, reports that the oil price rout in 2015/2016 that saw prices drop to as low as $28 per barrel caused ripples across the economic structures of the government, upsetting government revenues, its ability to fund its budget, capital project funding, foreign direct investments into the economy as a result of a currency crisis that was driven by the widening of gap between the official and street window of the kwanza, that until now has been pegged in a fixed exchange rate regime to the US Dollar.