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.