IMF okays Nigeria’s recovery pill

  • As World Bank Grants $150m To Mining Sector
  •  Says Nigeria’s revenue can’t sustain interest payment on debt

The International Monetary Fund (IMF) yesterday backed the Economic Recovery and Growth Plan (ERGP) released last month by the President Muhammadu Buhari’s administration.

The ERGP is a blueprint for Nigeria’s economic recovery, growth and sustainable development.

Speaking at the ongoing IMF/World Bank Spring Meetings in Washington, the Assistant Director and Head of Fiscal Policy and Surveillance Division of the IMF, Catherine Pattillo, said the plan would tackle diversification and some of the deep-seated problems related to strengthening structures and building revenues, particularly oil revenue.

“So, we very much welcome the ERGP. As you are aware, Nigeria went into recession last year; there has been forecast recovery, but the need to address the fiscal situation is urgent. Our recommendation is for the continued fiscal consolidation. One striking statistics I think is the fact that over the past years, the ratio of interest payment to tax revenue has doubled to 66 per cent in Nigeria,” she said.

According to Pattillo, two-thirds of all tax revenue is going into interest payment, illustrating the need to raise tax revenue to allow the government implement the social and growth-friendly policies that are part of the objectives of the ERGP.

Meanwhile, the World Bank has approved $150 million credit to the nation’s mining sector, in a bid to strengthen it and enable it contribute meaningfully, to the Nigerian economy.

The bank’s Senior Communication Officer, Ms Olufunke Olufon indicated this on Wednesday, in a statement in Abuja, stressing that the approval would guarantee the financial muscles to establish a strong foundation for mining sector development in the country.

Olufon who noted that the credit facility would equally enhance the sector’s competitiveness, information infrastructure and technical knowhow, equally posited that it would assist in strengthening key government institutions and foster domestic investments in the sector.

“The project will help develop measures for formalising; regulating and inventorying artisan and small-scale mining; facilitate the flow of mineral transactions and facilitate access to finance.

“It will facilitate access to technology and equipment; increase knowledge and support the mining and processing of the minerals in accordance with best practices,’’ Olufon said, adding that it was expected that environmental and social protection would also be positively impacted, by the credit line, and quoted the World Bank Country Director, Rachid Benmessaoudm as saying that “Nigeria has a favourable geological potential.’’

“The potential is such that if adequately assessed, well exploited and managed in a sustainable manner, can support broader economic growth through mineral sector.’’

Benmessaoudm said that one of the key objectives of the project was to support Nigerian government’s priority to diversify the economy to a broader range of non-oil productive sectors.

“The support will include the realisation of the full mineral endowment for sector policy, promotion, conducive business environment and integrated long-range resources and investment planning.’’

He said that the Nigeria had been unable to attract significant investment in exploration and mining into the sector.

The global financial giant said that the current productivity from the Nigerian mining sector was still insufficient to meet local demands particularly for industrial minerals.

The bank listed the critical binding constraints of the sectors development to include insufficient geo-data and geological knowledge, weak implementation and enforcement of the mining law and regulations.

Benmessaoudm said that a large poorly regulated and informal artisanal and small-scale mining sub-sector was also one of the critical constraints of the sector.

In addition, although Nigeria’s total current debt is relatively low compared to the Gross Domestic Product, the interest rate payment is not sustainable by current revenues, the World Bank has said.

Senior Economist at World Bank office in Nigeria, Yue Man Lee, said this in Abuja on Wednesday on the sideline of the release of the 15th edition of Africa’s Pulse, an analysis of issues shaping the continent’s economic future.

For the interest payment to be sustainable, according to Lee, the country either has to increase its revenues or work towards balancing the debt profile to make way for more foreign debt rather than allow the continued dominance of local debt with high interest rates.

She said, “Nigeria’s debt to GDP ratio is relatively low. What is of concern is the ratio of interest payment to revenue. That is what is concerning. This reflects the fact that there has been a massive drop in revenues because of the drop in oil revenues.

“There are two main strategies to reduce this debt burden. One is to increase the revenues. Here, in order not to be vulnerable to the volatility of the oil sector, the critical thing is to increase the non-oil revenues like the VAT, the income taxes and the excises outside of oil. This is something we have been discussing with the government about.”

Lee added, “The other area in terms of interest payment is to look at the debt profile. Right now, most of the debt is domestic debt – short term domestic debt – and so, the government has already expressed the strategy to move towards external longer-term debt. You have seen them issuing Eurobonds successfully as part of that strategy.

“The key thing for us in terms of sustainability of the debt profile is raising revenues. That is just the key thing.”

Lee also spoke on the nation’s continuing foreign exchange crisis, saying that further liberalisation could lead to depreciation of the naira, but predicted recovery after a short while.

Additional report from Nation and Punch