With Nigeria’s economy contracting to its lowest level of 1.8 percent since 1983 and over 131 million Nigerians falling into poverty as a result of the outbreak of the COVID-19 pandemic and low oil prices, the International Monetary Fund (IMF) announced policy options that can help reduce inflation and protect the livelihood of poor households.
Increased transparency and predictability of exchange rate management policies to reduce distortions in allocations to private and public sector stakeholders, according to the Fund; ensuring that agents can access foreign exchange in a timely and orderly manner at an agreed rate; and ensuring that agents can access foreign exchange at a reasonable rate.
In addition, Nigeria should clearly define its monetary-policy priorities and objectives, with the primary goal of maintaining price stability as the primary objective. Open-market operations (OMOs) in naira are to be resumed based on a transparent issuance schedule, as well as a signal to the markets that OMOs will use short-maturity securities to achieve price stability. The complete and effective reopening of land borders for trade, as well as the strengthening of regional cooperation in the fight against smuggling.
“Removal of staple foods and medicines from the list of foreign exchange (FX) restrictions, as well as the replacement of import bans and tariffs with tariffs that are aligned with the ECOWAS Common External Tariff.”
“Setting up mechanisms to monitor and report the Federal Government’s stock of Central Bank overdrafts in order to keep the money supply from growing.”
There should be “complete elimination of the gasoline subsidy; and the design of sequenced reforms to mobilize domestic nonoil revenue in a way that does not adversely affect the economic recovery, including increasing excise taxes on harmful consumption goods, rationalizing tax expenditures, closing loopholes in tax laws, and improving tax compliance by strengthening revenue administration,” the report stated.
Furthermore, the International Monetary Fund (IMF) urged Nigeria to use the National Social Safety Nets Program (NASSP) to provide transfers to additional households while also temporarily increasing transfers to current beneficiaries, according to the IMF.
It also recommended that the government supplement the NASSP with the National Home-Grown School Feeding Programme (NHGSFP) in order to improve the food security of vulnerable households in 26 states and that the government expedites the implementation of the World Bank-supported CARES project in order to assist households, farmers, and businesses. The Fund also stated that if oil exports increase, the economy is expected to grow by 1.8 percent in 2021, according to its projections.
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“Despite the high degree of uncertainty surrounding the outlook, the recovery would be driven by an increase in oil exports as well as an increase in domestic demand.” Nigeria’s recovery, on the other hand, is expected to be less robust than that of other oil producers, and an unexpected spike in oil prices could jeopardize the modest growth forecast for the country.