Series of policy adjustments and reforms, including a mix of fiscal, exchange rate, monetary and financial sector policies, open trade and competition, as well as serious efforts to combat distinct systemic issues such as corruption, money laundering, and terrorism financing, could help jump-start the Nigerian economy, the International Monetary Fund (IMF) said on Monday.
These policy reforms and economic actions are needed to prevent the worsening of the economic crisis caused by COVID 19, the IMF added in its yearly bilateral report about the state of the Nigerian Economy.
Opening statement in the report summarized the negative economic effects. It stated that “Nigeria’s economy has been hit hard by the COVID-19 pandemic…following a sharp drop in oil prices and capital outflows, real GDP is estimated to have contracted by 3.2 percent in 2020 amidst the pandemic related lockdown. Headline inflation arose to 14.9 percent in November 2020, a 33 month high, reflecting core and food inflation increases emanating from supply shortages due to the lockdown effected to curb infections alongside, the land-border closure and continued import restrictions. The unemployment rate reached 27 percent in the second quarter of 2020, with youth unemployment at 41 percent”
The staff report contained a deep review of the facts, figures, and socio economic reasons that lead to the “ Nigerian Economy [being] at a critical juncture”. It noted that Nigeria was “A weak pre-crisis economy grappling with multiple shocks from the COVID_19 pandemic”.
The report detailed the need for a series of “policy adjustments and reforms to navigate [the] crisis” These key policy recommendations included a mix of Fiscal, Exchange Rate, Monetary and Financial Sector policies.
It also proposed a unique stance in structural policy reform that stressed the need to embrace “open trade and competition policies to rejuvenate growth”. It also brought attention to Nigeria’s difficult battle in the labor force as it needs to create 5 million new jobs per year to account for the nearly 2 million jobs that are lost per year in the previous 5 years. Specific sectors that should demand growth in labor include light manufacturing, agro-processing and service sector roles, especially IT and the growing digital economy.
Most notably, the recent ratification of the African Continental Free Trade Agreement (AfCFTA) proposes a huge opportunity for “job rich growth through regional trade and economic integration”. As of January 1st 2021, AfCFTA allows for completely open trade borders amongst African countries, allowing for the flow of goods and services, a positive signal for the business environment of Nigeria. It also necessitates trade enabling reform such as “speeding up customs clearing time, and removing regulatory bottlenecks” which is essential to improving Nigeria’s international competitiveness and job rich growth.
Structural policy adjustments also brought attention to efforts to combat distinct systemic issues such as “corruption, money laundering, and terrorism financing” . Some of the focusing efforts mentioned by the IMF staff to correct the issues include : “Strengthening institutions involved in the combatting of corruption… implementing the risk based approach to anti-money laundering/anticorruption supervision including lawyers as reporting entities and enhancing the compliance of other professions such as; real estate and dealers in precious metals and stones”.
Following the discussion of structural policy reform, the Nigerian authorities agreed with the need for diversification, stressing that weak institutions and a lack of collective know how are key obstacles to a more diversified economy in Nigeria. They also stated the importance of “strengthening domestic industries, before moving to a more open and export-oriented economy”.
In Acknowledgement of the revelations of the structural policy reform discussion, Nigerian authorities stated that “ There is no global standard for development strategies…Nigeria is unique in various ways”.