International Monetary Fund (IMF) refers to an international organization of countries with its headquarters in Washington, D.C. Its objectives are the promotion of financial stability global monetary cooperation, growth in employment international trade, economic growth as well as to reduce the poverty level around the globe.
‘The International Monetary Fund carries out consultation for its member countries which are normally required by International Monetary Fund Article IV of the agreement.’ These consultations are known as Article IV consultations.
Article IV consultations are usually meant to assess a country’s financial and economic developments as well as to evaluate its fiscal and economic policies. For instance, Nigeria’s 2018 article IV consultations show the economic prospects of the Nigerian Republic.
Economic prospects of Nigeria.
The Nigeria economy is slowly picking up after the recession, but it remains weak. Following the recession, the economic growth increased by only 0.8 and 1.4% in the second and third quarters of 2017 respectively (IMF, 2018). The recovering oil and agriculture sectors mainly drove the expansion in the economic activities. The other areas of the economy reduced by an average of 1% in 2017.
The high rate of inflation. ‘The Inflation rate stood at 15.4% as at December 2017’. The higher inflation resulted from higher prices brought by higher production costs as well as insecurity in the northern parts of Nigeria.
Surplus trade balance. The compression of imports and boosting of exports, as well as recovering oil prices and production in 2017, led to a positive trade balance (IMF, 2018).Moreover, a substantial relief in the foreign exchange market exists. However, it is still well segmented. ‘High foreign exchange inflows, as well as CBN purchases, have helped to stabilize foreign exchange rates.’
Improvement in Nigeria’s financial markets. Nigeria’s stock exchange market is benefiting from increased foreign investment in equities as well as government securities.
Tight monetary policy. The money market rates are reportedly very high in the Republic of Nigeria. The money market rates are as a result of operations that have drained liquidity (IMF, 2018).The overall banking system is exposed. The whole Nigeria’s banking system is vulnerable to becoming insolvent due to increment in nonperforming loans.
High fiscal deficits. The greater financial requirement, as well as increased risk aversion by banks, has slowed the economy leading to declined revenues. Declined government revenues summed up with increased expenditure and investments have caused a higher fiscal deficit.
Both the state and local government balance sheet are weak. Reduced revenue and increased public expenditure have led to fragile balance sheets at both the state and the local government level.
The pressures on the external and fiscal accounts are expected to reduce due to improvement in oil prices. The economic growth rate will gradually continue to improve as a result of enhanced foreign exchanges as well as recovering oil prices.
Adjustments through the implementation of comprehensive policy packages will boost economic growth rate and reduce vulnerability.
Balanced economic risks. Both the external threats and the domestic risks in the economy are stable.
Nigeria economic developments have significant effects on its neighboring countries. Weaker Nigerian currency can affect its trading partners negatively.
Moreover, the economy is predicted to grow by 3.5 percent in 2018, and the inflation is projected to decrease (IMF, 2018). Boosting private sector and oil production will enhance the economic growth of Nigeria.
Reference
IMF. (2018). Nigeria: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nigeria. Washington: IMF.
