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Tag: IMF

  • Corruption: IMF approves $18m to Malawi

    Corruption: IMF approves $18m to Malawi

    The International Monetary Fund (IMF) says it will provide $18.1 million to Malawi after its government promised to tackle corruption.

    IMF said on Tuesday that the approval was due to the suspension of aid by donors to the country following large-scale graft involving public funds.

    Donors led by former colonial ruler Britain have withheld direct aid to the southern African nation for more than a year over a corruption scandal.

    Top government officials and ministers were alleged to have siphoned millions of dollars from the public purse.

    “Malawi’s macroeconomic outlook and performance under the IMF-supported programme was significantly damaged by a large-scale theft of public funds and by policy lapses in the run-up to elections,” the IMF said in a statement.

    “The breach of governance resulted in the suspension of budget support from donors, which has led to increased recourse to central bank financing, accumulation of domestic arrears, exchange rate depreciation, and high inflation.”

    The country’s Finance Minister, Goodall Gondwe, said he hoped the IMF move would unlock more aid.

    “This will sure give confidence to our traditional donors to come in because (lack of aid) is crippling our economy,” Gondwe told Reuters.

    Foreign aid has traditionally accounted for about 40 per cent of Malawi’s national budget.

  • Advanced economies’ outlook improving, says IMF chief

    Advanced economies’ outlook improving, says IMF chief

    International Monetary Fund (IMF) Managing Director Christine Lagarde said the economic outlook for advanced economies has improved marginally, while emerging-market economies face more modest, if not slower, growth.

    “For once, in a long time, there are clearly some relatively better news on the horizon of the advanced economies. This has not happened in a while,” said Ms. Lagarde at a joint news conference with German Chancellor Angela Merkel and other heads of the world’s leading economic organisations.

    The U.S. economy is rebounding and there is good growth showing in the U.K., she said.

    “The euro area is also now turning the corner,” she said. “The European growth is probably going to turn better than expected.”

    But, China is growing slower and Russia’s economy will shrink by at least three per cent this year, Ms. Lagarde said.

    She also warned that there are risks stemming from geopolitical situations as well as monetary policies, given the accommodative central bank policies in the eurozone and Japan, while the Federal Reserve is set to lift U.S. interest rates to return to a more traditional monetary policy.

    “This will clearly involve more volatility and it will also have currency impact,” Ms. Lagarde said.

    In a joint declaration issued Wednesday, the leaders of Germany, the IMF, the Organisation for Economic Cooperation and Development, World Bank, World Trade Organisation and the International Labour Organisation called on governments to undertake efforts to boost their economies and strengthen employment.

    “Geopolitical risks have increased in various regions of the world; they constitute a significant burden for global economic development,” the declaration said. “At a time of moderate and uncertain growth prospects, governments have to strengthen reforms and pro-active measures in order to support recovery and ensure growth. Ambitious reforms can help to create more productive, more dynamic and more inclusive economies and societies.”

    The declaration said strengthening growth prospects remains as a key priority. “It is important to boost investment and revert the recent trend especially of decreasing foreign direct investment flows,” it said.

  • IMF seeks review of Nigeria’s revenue formula

    IMF seeks review of Nigeria’s revenue formula

    The Executive Board of the International Monetary Fund (IMF), yesterday concluded the Article IV consultation with Nigeria where it advised the country to review its revenue sharing formula. The Article IV is a review of a country’s economy over a period of time.

    The Fund directors said there is a need to review the current revenue sharing arrangements in the country so as to help address regional disparities over the longer term and ensure that social and development needs are evenly addressed across the regions.

    This, the IMF reasons, is important considering that Nigeria still lags behind its peers in critical infrastructure development, coupled with her high rate of poverty and income inequality. It noted that in spite of the country’s diverse economy, largely dominated by the service sector whch accounts for over 50 per cent of Gross Domestic Product in 2013, and oil sector accounting for only 13 per cent, latter still remains a critical source for revenue and foreign exchange.

    However, the IMF regrets that with limited fiscal and external buffers ($2 billion in the excess crude account and $34.25 billion in gross international reserves, respectively at the end of 2014), the sharp decline of oil prices in the second half of 2014 now underscores the challenging but compelling need to address remaining development challenges.

    This situation made the IMF to submit that mobilising additional non oil revenues is critical to open up fiscal space and improve public service delivery over the medium term.

    The IMF Board also welcomed ongoing initiatives to strengthen tax administration, and encouraged the authorities to also rein in exemptions, keep tax rates under review, persevere with subsidy reform, and improve the management of oil revenue.

    The Executive Directors commended the authorities for the progress recorded in promoting Nigeria’s economic diversification and for the macroeconomic response to collapsing export prices. They noted, however, that vulnerabilities remain high in view of the uncertainties about oil price, security, and the political situation, and concurred that additional policy adjustments and broader structural reforms will be necessary in the period ahead to reconstitute buffers, mitigate risks, and meet pressing development needs.

    The IMF directors agreed that tightening fiscal policy and allowing the exchange rate to depreciate while using some of the reserve buffer were appropriate responses to the recent fall in oil prices.

    “Nonetheless, directors stressed that achieving the authorities’ fiscal targets will require a careful prioritisation of public spending and a cautious implementation of capital projects. Also highlighted was the importance of improved budgeting at the state and local governments levels to help better manage their fiscal adjustment,” the report said.

    The IMF directors welcomed the recent unification of the foreign exchange rates, noting that greater exchange rate flexibility could help cushion external shocks. As the largest single supplier of foreign exchange, the fund said it will be important for the central bank to intermediate this supply in a transparent, efficient, and fair manner.

    On the banking sector, IMF directors noted that financial soundness indicators remain above prudential norms, but the concentration of credit risks and foreign currency exposures call for continued close oversight. They welcomed progress in strengthening supervision and regulation, including cross border activities, and encouraged additional initiatives to foster financial market development, including hedging instruments, and improve financial inclusion.

    The directors emphasised that Nigeria’s longer term prospects rest on lowering oil dependency and strengthening private sector’s participation in economic activity. Lasting and more inclusive growth, it added, calls for improving the business environment, promoting youth and female employment, and advancing human capital development.

    Directors noted that Nigeria’s economic data are broadly adequate for surveillance. Nonetheless, they encouraged the authorities to further improve statistics, in particular as regards the balance of payments.

  • IMF praises Ecobank’s capital position

    IMF praises Ecobank’s capital position

    The International Monetary Fund (IMF) has said it is aware of steps taken by Ecobank to enhance its stability including equity capital the lender raised for the group.

    A statement signed by Andrew Kanyegirire, said: “IMF staff is aware that Ecobank has taken a number of important and appropriate steps to address these concerns to avoid risks to financial stability.

    “The recent news that Ecobank has raised equity capital for the group and announced an equity capital increase to meet regulatory capital requirements in Nigeria, are further welcome steps in the right direction.”

    The Ecobank Group also in a statement signed by Group Head, Corporate Communications, Richard Uku, reaffirmed its financial strength and strong governance as a systemically important banking group in Africa. Ecobank has total assets of over $23 billion. As the IMF statement alluded, in the last six months, Ecobank has raised approximately $1 billion in combined equity and debt capital for its parent company and its business in Nigeria, the largest of the group’s affiliates.

    He maintained that Ecobank is compliant with regulatory requirements, including those for liquidity and capital across its network, adding that it continues to be supportive of regulatory reforms that make the African banking system safer, more transparent and more accountable.

  • Madagascar’s economy recovering, needs reforms – IMF

    Madagascar’s economy recovering, needs reforms – IMF

    Madagascar’s economy showed early signs of recovery in 2014 with growth estimated at three percent, which could rise to five percent in 2015, but political instability, weak institutions and weak governance are hurting prospects, the International Monetary Fund said.

    The Indian Ocean Island’s economy was battered after a 2009 coup that drove away donors and investors. A peaceful 2013 election has brought back some aid, but the nation is still struggling to impose stable government and economic reforms.

    The cabinet resigned last week and a new prime minister, Jean Ravelonarivo, an air force commander and businessman, was sworn in on Saturday.

    But his appointment faces a legal challenge, which could prolong efforts to pick new ministers, Reuters says.

    “In a fragile environment, the uncertainty linked to political instability, weak institutions, and weak governance has been eroding the foundation for solid economic growth,” the IMF said in a report on its website.

    “There are early signs of an economic recovery in 2014, with growth estimated at three percent and December inflation under seven percent,” it said, projecting growth of five percent in 2015.

    But the IMF said weak tax revenue meant spending on vital areas such as health and education was constrained, adding that funding fuel subsidies and the under-funded civil service pension fund were also imposing budgetary pressures.

  • IMF urged to cancel debts of Ebola-hit countries

    The International Monetary Fund (IMF) is under mounting pressure to cancel the debts of the three poor West African countries hit hardest by Ebola, as their economies stall under the fallout from the disease.

    The calls for a debt alleviation for Guinea, Liberia and Sierra Leone are coming not only from anti-poverty organisations. In mid-December, a UN commission also urged serious consideration for eliminating at least some of the debts of the three countries. And the United States, the IMF’s largest shareholder, has taken a stand on the issue as well, exhorting the crisis lender to wipe out around a fifth of the $480-million in debt owed it by the trio.

    Such a move would free resources to restart economic activities in the countries where the disease has taken more than 7 800 lives, US Treasury Secretary Jacob Lew said. Meeting in Australia in mid-November, the Heads of the G20 group of leading economies stepped up the pressure when they said that the IMF’s promise of $300-million to help fight the epidemic should include debt alleviation.

    The calls for the IMF, which lends money to economies most in need, but usually with attached requirements for reforms and financial discipline, have spurred the institution into intense reflection, and it could come up with an initiative this month. “Staff are looking at further options to provide support to the Ebola-hit countries, through reform of an existing facility,” a Fund spokesperson told AFP.

    Traditionally bound to a narrow, orthodox mission of financial support and loans to governments that it expects to be repaid, the IMF in reality needs to expand its tools for aiding troubled economies. After the earthquake disaster in Haiti of 2010, the Fund did create a mechanism for dealing with natural catastrophes that hit its borrowers.

    That made way for the IMF to eliminate $268-million that the Haitian government owed to the fund. But the mechanism is too restrictive to be applied to the Ebola epidemic: it is limited to “devastating” natural disasters. According to advocates of the move, even if the loans come with zero interest rates, they constitute a constant burden that can financially strangle the governments of Ebola-hit countries.

    “A broad criticism of using loans to help very poor countries is that, formally, no matter how bad their situation gets, they must repay every penny,” said David Roodman, an independent expert on economic development.

    Sierra Leone and Guinea both have had to make loan repayments this year to the IMF despite the Ebola crisis, according to Fund data. The World Bank has understood the problem. It has mobilised $500-million for the three countries in the form of grants “which never need to be repaid,” according to Bank spokesman Phil Hay. Doing the same is proving more difficult for the IMF. “It’s like asking a banker to embrace not getting repaid – it goes against their nature,” said Roodman.

  • IMF pushes FG to hike fuel pump price in 2015

    IMF pushes FG to hike fuel pump price in 2015

    THE International Monetary Fund (IMF) has asked the federal government to consider increase in the pump price in compliance with the Fund’s updated subsidy removal strategy, The Nation can authoritatively report.

    Should the federal government accede to this request, it means Nigerians are expected to pay more for petroleum products in 2015.

    The Nation however learnt that the federal government is not keened on making any policy statements regarding the proposed new pump price yet as it reckons this may affect the political fortunes of the ruling Peoples’ Democratic Party (PDP) ahead of the 2015 election.

    Investigation by The Nation further revealed that the federal government planned IMF inspired 2015 post-election PMS prices increase will be backed by political and legislative force.

    The IMF African Department paper 13/02: Energy Subsidy Reform in Sub-Saharan Africa: Experiences and Lessons by Trevor Alleyne et al, April 18, 2013, a document obtained exclusively by The Nation revealed that the federal government had been nursing the idea of raising the current petroleum products prices after the 2015 election in accordance to an updated IMF subsidy removal strategy for some time.

    In a study titled: ‘Energy Subsidy Reform: Lessons and Implications” a IMF paper prepared by a staff team led by Benedict Clements, January 2013, the IMF study blamed the lack of information and credibility for the partial success of the 2012 subsidy removal in Nigeria. It emphasised key elements needed for a successful energy removal programme.

    These included “(i) a comprehensive energy sector reform plan entailing clear long-term objectives, analysis of the impact of reforms, and consultation with stakeholders; (ii) an extensive communications strategy, supported by improvements in transparency,..(iii) appropriately phased price increases, …(iv) improving the efficiency of state owned enterprises to reduce producer subsidies; (v) targeted measures to protect the poor; and (vi) institutional reforms that depoliticise energy pricing.”

    A similar study in April 2013, by another IMF team studying energy subsidy removal in sub-Saharan Africa reached similar conclusions.

    The study tagged: ‘Energy Subsidy Reform in Sub-Saharan Africa: Experiences and Lessons’ an IMF African Department paper 13/02 by a staff team led by Trevor Alleyne, April 18, 2013, concluded that “in oil exporting countries, the task of removing subsidies has proven even more challenging because it is difficult to convey to the public the rationale for products to be sold at their opportunity cost and not their cost of production.”

    The Nation learnt that Indonesia successfully implemented the updated IMF strategy and raised PMS prices by 30 per cent in November 2014 after its national election and Nigeria is also expected to comply.

    Every year, an IMF team visits Nigeria, collects relevant data/information and holds numerous meetings with Nigeria’s financial and economic officials.

    The team returns to the IMF headquarters and prepares a report for the IMF Board. The IMF Board holds a meeting and sends a summary of the views of IMF directors to the federal government. More meetings are held. The federal government responds and implements its economic/financial programs within the broad guidelines of the IMF. This is one of the institutional mechanisms that the IMF uses to control the Nigerian economy.

    The first part of the federal government plan, The Nation gathered, was to re-organise the leading role of the Federal Ministry of Finance, the Federal Ministry of Petroleum Resources and the CBN in the subsidy removal propaganda campaign. The second part was to mobilise other stakeholders such as the National Assembly, the judiciary, the state governors and political class, the media and trade/student union leaders using SURE-P.

    Besides, the final part was the 2015 post-election introduction of fuel price hike and the neutralisation of the ensuing public opposition.

    The ensuring investigation by the House of Representative Ad Hoc Committee on Fuel Subsidy headed by Farouk Lawan had set the three institutions at odds with each other.

    In response to the unfavorable exposure, the FMF encouraged the Presidency to inaugurate a Presidential Committee on Verification and Reconciliation on Fuel Subsidy payments (the Aig-Imokhuede committee). The FMF ensured that the Aig-Imokhuede committee focused only on local subsidy payments and not on the New York JP Morgan Chase account. This did not satisfy the CBN.

    Speaking to newsmen in May 2014, the IMF Senior Resident Representative/Mission Chief in Nigeria, Mr. Williams Rogers, supported the federal government efforts on subsidy removal, adding that subsidy removal is necessary for planned savings in recurrent spending and public sector reforms (reduced government wage bill by workers layoff and fixed wages).

    The state governments still refused to cooperate with the federal government. On December 8, 2014 the Supreme Court began hearing on the case of the state governors against the federal government method of deducting “fuel subsidy” funds from oil proceeds before payment into the Federation Account. The state governors want the Supreme Court to declare the NNPC practice of deducting “fuel subsidy” funds from oil proceeds before payment into the Federation Account unconstitutional. They also want an account of all “fuel subsidy” deduction made from the Federation Account from 2007 to 2014.

    Speaking exclusively with The Nation at the weekend, Prof. Izielen Agbon, a renowned oil and gas expert based in Dallas, Texas, USA, said: “The federal government promotes the continuous underdevelopment of Nigeria by imposing European energy prices on Nigeria’s developing industrial and agrarian structures. The PMS production cost of a litre of petrol in Nigeria is N40/litre and any price above that is a reflection of the power relationship between the Nigerian masses on one hand and the IMF/FGN/Cabal on the other. The IMF knows this and therefore conducted numerous reviews of its subsidy removal strategy in 2012-13.”

  • Infrastructure investments, others to boost Nigeria, others’ growth, says IMF

    Infrastructure investments, others to boost Nigeria, others’ growth, says IMF

    Nigerian and other sub-Saharan Africa countries are expected to record relatively strong economic growth all through to 2015, although the downside risks and wealth inequality remain quite substantial.

    The International Monetary Fund (IMF), in its World Economic and Financial Survey, Regional Economic Outlook for Sub-Saharan Africa published on Monday, reported that average growth in the Sub-Saharan Africa (SSA) countries could range between about five per cent and 5.75 per cent.

    According to the report, the growth momentum in SSA countries would remain high in most of the SSA countries, driven largely by sustained infrastructure investment, buoyant services sectors, and strong agricultural production.

    The report noted that continued infrastructure development would be critical to raising potential growth, accelerate economic diversification, and foster structural transformation.

    IMF indicated that all infrastructure investments would continue to be under the three broad modalities of public investment, public-private partnerships, and purely private investment.

    It however highlighted the need for SSA countries to balance the appetite for infrastructure financing with control over macroeconomic risks.

    “Going forward, the policy challenge is to take advantage of the growing menu of financing modalities while controlling fiscal risks and maintaining debt sustainability. All three broad modalities for infrastructure financing—public investment, public-private partnerships, and purely private investment—come with advantages and pitfalls,” IMF stated.

    According to the report, as policymakers complement public investment efforts financed by taxation and debt instruments with support for more private participation in infrastructure, the potential resource envelope increases, but so does the institutional capacity requirement to mitigate potential fiscal risks. Overall, countries should seek to upgrade their investment planning and execution capacity, and overhaul regulatory agencies and policies.

    The report noted that the favourable outlook for the SSA was also supported by recent revisions in national accounts, which showed underlying growth strength.

    It pointed out that the services sector, whose growth had been substantially underestimated in the past in Ghana and Nigeria, now accounts for a much larger share, and these economies are far more diversified than previously though.

    According to the report, among oil producers, Nigeria’s activity is expected to accelerate from 5.4 per cent to between 7.0 and 7.25 per cent between 2014 and 2015, on the back of buoyant non-oil sectors and recovering oil production, as issues surrounding oil theft and pipeline shutdowns are gradually addressed.

    The report however noted that unreliable electricity supply, in particular, is hampering the transition to higher productivity activities. While many countries have managed to sustain infrastructure investment levels, financed by a mix of domestic resources and external financing, outcomes have not always improved accordingly, suggesting limited investment efficiency. Regulatory and capacity constraints in project development and implementation are also important obstacles to boosting the quality of infrastructure investment and outcomes.

    The regional economic outlook also expressed concerns over the dire situation in Guinea, Liberia, and Sierra Leone, where the Ebola outbreak is exacting a heavy human and economic toll as well as in a few countries where activity is facing headwinds from domestic policies, including in South Africa, where growth is held back by electricity bottlenecks, difficult labor relations, and low business confidence; and in Ghana and, until recently, Zambia, where large macroeconomic imbalances have led to pressures on the exchange rate and inflation.

    The Ebola outbreak, the report noted, could have much larger regional spillovers, especially if it is more protracted or spreads to other countries-with trade, tourism, and investment confidence severely affected. Also, the security situation continues to be difficult in Central African Republic and South Sudan, and remains precarious in Northern Mali, Northern Nigeria, and the coast of Kenya.

    “Homegrown fiscal vulnerabilities in a few countries.  Fiscal policy remains on an expansionary footing. In many countries, this reflects a time-bound increase to finance infrastructure and other development spending, at appropriately concessional terms. But in a few cases, particularly some frontier economies, wide fiscal deficits have been driven by rising recurrent expenditures. The risk is that the fiscal vulnerabilities that have emerged will eventually push these countries into a sharp and disorderly adjustment,” the report stated.

    According to the report, a marked slowdown in emerging markets would weaken demand for commodity exports from the region, with immediate negative effects on external and fiscal positions. The ensuing decline in activity prospects may lead to reduced appetite for investment, with more long-term implications on the growth momentum.

    However, a faster-than-expected tightening of global financial conditions could trigger a new bout of volatility. Risk aversion from foreign investors may lead to a reversal of sentiment toward the region and capital outflows, putting pressure on countries with large external financing needs, and forcing abrupt macroeconomic adjustments.

    “Against this backdrop, the overriding policy objective remains sustaining high growth, but fiscal imbalances also need to be addressed in a few countries. As policymakers pursue development objectives to facilitate employment creation and inclusive growth, it will be important to pay heed to macroeconomic constraints. Increasingly, this will require striking the right balance between scaling up public investment in human capital and physical infrastructure and maintaining debt sustainability,” the report pointed out.

    IMF advised that monetary policies should continue to focus on consolidating the reduction in inflation achieved in recent years, including by tightening in countries where there is rapid growth and persistent high inflation. In the few countries with acute macroeconomic imbalances, fiscal consolidation is necessary, but should avoid overly adverse consequences on the poor and vulnerable groups.

  • ‘Make contingency plans against low oil revenue’

    ‘Make contingency plans against low oil revenue’

    Okonjo-Iweala rules out borrowing to fund shortfall

    The World Bank Group and the International Monetary Fund (IMF), have urged Nigeria to take proactive steps in readiness to match the expected drop in revenue, arising from the continuous drop in the prices of crude oil.

    The Minister of Finance and the Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, who made this known on Sunday in Washington DC, said the drop in oil prices is of great interest to Nigeria, since the economy is largely driven by revenue from oil.

    Mrs Okonjo-Iweala, who addressed the Nigerian press at the World Bank Group headquarters, said the development will naturally arouse interest and lead to questions being asked as to how Nigeria would manage if oil prices continue to decline.

    She said as a consequence of these developments, the IMF and the World Bank Group are asking that countries, especially like Nigeria, the emerging markets and lower income countries, should be ready with contingency plans to be able to continue to manage their economies, “should the mediocre growth continue and oil prices continue on the decline trajectory.

    She said the World Bank Group President, Dr.Jim Yong Kin and his IMF counterpart, Christine Largard, have urged that “we should have the right mix of policies, including building up our buffers to be able to sustain the economy.”

    She said the Nigerian team to the conference, including the Central Bank Governor, Godwin Emefiele, Director of Budget, Dr. Bright Okogu, the Central Bank Deputy Governor, Economic Policy, Dr.Sarah Alade, and others have been strategising and articulating the options open to Nigeria, in conjunction with the global financial institutions so as to be able to come up with strategies on how to manage the economy.

    “ They said we should be ready with contingency plans and that we need to continue with our structural reforms, as well as build up buffers and be ready with a contingency plan,” Mrs Okonjo-Iweala, stated.

    But the Minister ruled out any recourse to borrowing from the Brettenwood institutions to manage any fiscal shocks and vulnerabilities arising from  the declining crude oil price at the international market.

  • $2tr for world economy – G-20, Central bank governors

    $2tr for world economy – G-20, Central bank governors

    The G-20 countries Finance Ministers and Central Bank Governors have agreed on strategies to push global economic growth over the next five years by about 1.8 per cent.

    Over $2 trillion would be injected in the world economy and millions of jobs will be created in the process according to the agreement during the at the Annual Meeting of the World Bank -IMF in Washington DC.

    The ministers and the central banks chiefs, said they would push the agreed policies non-stop, until the objectives are realised.

    “We will not stop there, we will continue to work hard to achieve the two per goal that was set in Sydney,” they said, adding, “but our economic growth commitments will be meaningless if we do not translate them into outcome. We will hold each other to account by monitoring our implementation and carry out peer reviews.”

    They said realising the set goals, would require the IMF, and the Organisation for Economic Cooporation and Development (OECD) and other international organisations providing important input into the process while accountability framework will be central to delivering their growth agenda .

    “ We have agreed to Global infrastructure initiative , comprising a multi-year set of actions to increase the quality and quantity of infrastructure across the G20 and beyond. We made good progress in developing a new Global infrastructure Hub to support that initiative we have resolved to finalise  the  structure by the leaders summit expected to hold next month in Brisbane, Australia.”

    The Group also agreed on measures to stablise the global financial system and ensure integrity in the international tax system.