March 9, 2018/FBNQuest Research
The IMF’s executive board has concluded its 2018 Article IV Consultation with Nigeria, so we offer our initial comments. As is appropriate with a multilateral agency, the Fund treads carefully around the issue of exchange-rate policy. It notes the improved fx availability and the increase in official reserves, and detects a commitment from the authorities to unify rates. The Fund urges the removal of the multiple exchange-rate practices. We are not convinced that these changes are coming anytime soon.
While commending the steps made within the FGN’s Economic Recovery and Growth Plan, notably improvements in tax administration and the business environment, the Fund sees growth flattish, per head incomes falling in real terms and unemployment rising.
It distinguishes between agricultural and non-agricultural non-oil GDP, which we take to mean that it sees prospects rather better for the former.
The game-changer to its way of thinking would be substantial infrastructure spending, and structural and fiscal reform. Such spending is very much part of the FGN’s fiscal agenda and a core element, it appears, of the re-election strategy. The broader reforms may well be pushed back to next year: this includes the suggested automatic fuel price-setting mechanism, as practiced in Kenya and South Africa.
Turning to the table of selected indicators, the Fund has growth forecasts of 2.1% and 1.9% for this year and next, unchanged from the update to its World Economic Outlook in January.
We are unclear as to what extent the projections for FGN interest payments as a proportion of FGN revenue allow for the reduction in borrowing costs over the past six months. The Fund has the ratio worsening from 59.7% this year to 68.0% in 2019.
It has public gross debt at 22.3% of GDP at end-2017, including 18.4% for the FGN. The balance of 3.9% of GDP is lower than we had expected, given that it covers overdrafts from the CBN and the debts of public enterprises.
The Fund estimates external debt including the obligations of the private sector at US$56.5bn at end-2017. The Debt Management Office has a figure of US$15.4bn for the debt of the FGN and the state governments (necessarily guaranteed by the FGN) at end-September, since which time there have been the two sovereign Eurobond issues. We know the size of Nigerian banks’ USD-denominated bond issues, and see that bank credit lines and other external borrowings therefore add about US$30bn to the total.