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  • Power sector reform to boost Nigeria’s growth, says IMF

    Power sector reform to boost Nigeria’s growth, says IMF

    Implementation of the power sector reform and rebound from floods would boost Nigeria’s growth this year, the International Monetary Fund (IMF) has said.

    The Fund, which said this in the latest edition of its World Economic Outlook (WEO), also projected a Gross Domestic Product (GDP) growth of 6.7 per cent and 6.9 per cent for the country in 2013 and 2014.

    Nigeria’s GDP is projected to be seven per cent this year. The country had recorded a GDP growth of 10.3 per cent, 10.6 per cent, 5.4 per cent, 6.2 per cent, 7 per cent, six per cent, 7 per cent, 7.4 per cent, 7.4 per cent and 6.5 per cent in 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011 and 2012.

    Historically, from 2005 until 2012, Nigeria’s GDP growth rate averaged 6.8 per cent reaching an all-time high of 8.6 per cent in December of 2010 and a record low of 4.5 per cent in March of 2009. The GDP growth rate provides an aggregated measure of changes in value of the goods and services produced by an economy.

    About $2.23 billion revenue is expected by the Federal Government from the sale of the 15 Power Holding Company of Nigeria (PHCN) assets. The funds are expected to be pumped into major infrastructure in the country, including the power sector. Once the power issue is resolved, more economic activities will spring up and this will translate to an increase in the county’s GDP.

    Meanwhile, the Fund also forecast a GDP growth of 5.5 per cent and six per cent for sub-Saharan Africa (SSA) in 2013 and 2014. Specifically, it expects SSA to continue growing at a strong pace during 2013–14, with both resource-rich and lower-income economies benefiting from robust domestic demand.

    The IMF, however, noted: “The external environment is the main source of risks to growth, particularly for middle income and mineral-exporting economies. Given the still-uncertain global environment, countries whose policy buffers are thin and where growth is strong should seek to rebuild fiscal positions without undermining productive investment.

    “Driven largely by domestic momentum in private consumption and investment, as well as exports, sub-

    Saharan Africa experienced robust growth in 2012, continuing a long trend of expansion only briefly interrupted in 2009. At 4¾ per cent, regional GDP growth was slightly lower than forecast in the

    “October 2012 WEO, reflecting mainly the impact of floods on oil and non-oil output in Nigeria and labour stoppages in South Africa.”

    Besides, it observed that headline growth in SSA in 2012 was visibly affected by the interruption of oil exports from South Sudan. The Fund added: “Activity in Mali and Guinea-Bissau was adversely affected by civil conflict; in Mali, 400,000 people have been displaced, half of whom fled to neighbouring countries. On the positive side, Angolanoil production strengthened, and Côte d’Ivoire experienced a sharp rebound in economic activity after the election-related disruptions of 2011.

    “Growth is projected to reach 5½ per cent in 2013, only marginally lower than forecast in the October2012 WEO. The generally strong performance is based on a significant extent on ongoing investment in infrastructure and productive capacity, continuing robust consumption, and the activation of new capacity in extractive sectors.

    The IMF noted that inflation in the region moderated from 10 per cent at the end of 2011 to less than eight per cent at the end of 2012, a trend expected to continue, absent new fuel and food price shocks. It said: ”The improvement in 2012 was particularly marked in eastern Africa, owing to monetary policy tightening and lower food prices associated with a recovery in local food production.

     

    “Some temporary headwinds to these trends have been observed in countries reforming energy subsidies, where the price level has shown one-time increases (Nigeria), and in Malawi, which has experienced some pass-through from depreciation. In sub-Saharan Africa as a whole, inflation is projected to fall further to 7 percent in 2013.”

    Noting that global economic prospects have improved again but the road to recovery in the

    advanced economies will remain bumpy, the IMF said world output growth is forecast to reach

    3¼ per cent in 2013 and 4 per cent in 2014. “In advanced economies, activity is expected to gradually

    accelerate, starting in the second half of 2013. Private demand appears increasingly robust in the United

    States but still very sluggish in the euro area. In emerging market and developing economies, activity has already picked up steam,” it added.

     

  • IMF praises CBN on banking reform

    The International Monetary Fund (IMF) has commended the Central Bank of Nigeria (CBN) for restoring financial stability after the 2009 banking crisis.

    The Fund, which gave this commendation in its concluding statement of the 2012 Articles 1V Consultative Discussion on Nigeria, also lauded the apex bank for its revamp of the regulatory and supervision framework.

    Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually yearly. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.

    On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarises the views of Executive Directors, and this summary is transmitted to the country’s authorities.

    Available data, according to the IMF, suggest that the CBN has achieved considerable success in its reform agenda, and that these reforms serve as a model for both developed and developing countries.

    A recent Financial System Assessment Programme (FSAP) by the IMF in 2012, concluded that “the Nigerian commercial banking system as a whole, can absorb most credit and market risk shocks, withstand liquidity pressures, and absorb moderate potential losses”. This, according to the Fund, is a welcoming affirmation of a banking sector that was considered to be in a dire condition as a result of the financial crisis only four years ago. “Good financial soundness indicators point to continued improvements in the health of the banking system,” it added.

    When the CBN Governor, Mallam Sanusi Lamido Sanusi, embarked on the banking reform, some stakeholders had raised questions about the genuine and intuitive intentions of the reform agenda.

    This group of stakeholders had no fundamental understanding of the breadth and depth of the rot within the banking system as revealed by the special audit of the banks. If the rot had been left unattended, it would have had far reaching implications for the Nigerian economy.

    The stakeholders with good grasp of the issues applauded the reform agenda, while the doubting Thomases accused the CBN and its governor of witch-hunting perceived enemies. Even, the legislature accused the apex Bank of over-stepping its mandate and acting unilaterally.

    Undoubtedly, these opposing stakeholders failed to pay attention to the fact that regulators in the financial sector usually require swift actions to avoid possible and unprecedented systemic effects that could arise from such actions.

     

  • IMF hinges low inflation on Central Banks’ autonomy

    IMF hinges low inflation on Central Banks’ autonomy

    As the dust raised over the autonomy of the Central Bank of Nigeria (CBN) settles, the International Monetary Fund (IMF) has said preserving central banks’ independence is key to anchoring inflation.

    The Fund, which made this known in its April, this year’s World Economic Outlook released yesterday, noted that the growth performance of Low-income countries (LICs) has improved markedly in the past two decades, with a rising share of strong growth takeoffs.

    The National Assembly had attempted to remove the autonomy of the CBN by either compelling it to submit its budget to the National Assembly for scrutiny and approval to whittle down its power.

    But experts, including the Managing Director, Financial Derivatives Company Limited, Bismark Rewane; the Director- General of the West African Monetary Institute (WAMI), Dr. Joseph Nnanna; a Senior Advocate of Nigeria, Koyinsola Ajayi, and the Vice President of the Nigeria Labour Congress (NLC), Comrade Isa Aremu, have urged legislators not use the controversy surrounding the N5,000 banknote to cut the powers of the CBN. They warned that the economy would be suffer if the legislators succeed.

    Rewane, who noted that there is empirical evidence globally that the economy suffers when the autonomy of the CBN is removed, said once the lawmakers have powers to approve the budget of the CBN, it means that they have finally succeeded in taking away its autonomy.

    “There is empirical evidence that the more independent the Central Bank is, the better the economy of the country performs. Take a look at countries, such as Switzerland and Canada, which are some of the countries where the Central Banks are completely independent. The economies of these countries are very strong and that is why they are not affected by the Eurozone crises.

    “I want to assure you that once the autonomy is infringed on, the economy will suffer. What the legislators are trying to do will be judged by history,” Rewane said.

    Dr Nnanna also said once the autonomy of the CBN is compromised, it would not be able to respond effectively and promptly to macro-economic and monetary policies.

    He said once this happens, the mandate of the CBN, which is to grow the economy and maintain price stability, will also be compromised.

    The World Bank had also warned against tampering with the apex bank’s autonomy, saying it had dare consequences for the economy.

    The autonomy of the apex bank has helped in reducing inflation, which rose slightly to 9.5 per cent in February, from nine per cent in January, although still within the CBN’s single digit target.

    Historically, from 2006 until this year, Nigeria’s Inflation rate averaged 10.65 per cent reaching an all-time high of 15.60 per cent in February of 2010 and a record low of three percent in July of 2006.

    Meanwhile, the IMF has expressed concern over the sustainability of the growth performance of LICs.

    The Fund, however, said: “There is concern about reversals. Although dynamic LICs in both generations tended to see their income per capita rise by 50 to 60 per cent in the 10 years following takeoff, some dynamic LICs in the previous generation slowed sharply over time and even experienced reversals in income gains. Thus, a key question for today is whether recent takeoffs are less vulnerable than those in the past.

    “Take-offs highlight the key roles of capital accumulation and trade integration in development:  take-offs in both generations were accompanied by higher investment and saving rates and larger export  growth compared with LICs that did not take off.

    “However, dynamic LICs in the second wave will benefit from a stronger economic footing compared with those in the previous generation. These LICs experienced declines in inflation and debt after take-off, and their real exchange rates were more competitive, whereas the previous generation experienced widening imbalances after take-off.”

  • IMF team arrive in Cairo for talks on $4.8 bln loan

    IMF team arrive in Cairo for talks on $4.8 bln loan

    A delegation from the International Monetary Fund (IMF) has arrived in Egypt for talks on a 4.8 billion dollars loan.

    The loan is to ease an economic crisis in the most populous Arab country, state news agency MENA said on Wednesday.

    After two years of political upheaval, foreign currency reserves have fallen to critically low levels, threatening Egypt’s ability to buy wheat, of which it is the world’s biggest importer, and fuel.

    President Mohamed Morsi’s government signed a deal with the IMF last November but postponed ratification in December in the face of unrest triggered by a political row over the extent of his powers.

    The IMF delegation arrived on Tuesday for a visit lasting several days, MENA said.

    In the talks, Cairo must convince the IMF that it is serious about reforms aimed at boosting growth and curbing an unaffordable budget deficit.

    That implies tax hikes and politically risky cuts in the generous system of state subsidies for fuel and bread.

    An IMF deal has eluded Egypt for years, in spite of on-off talks by first the army-led government and now Morsi’s.

    Economists say the IMF appears to question whether Egypt has the capacity to enact reforms, and doubts that the country’s political turmoil has done nothing to ease.

    Just before the visit, the government announced an increase in the price of subsidised cooking gas.

    it, however, postponed plans to ration subsidised fuel using smart cards until July 1 and some reports say that date may be pushed back.

    The Egyptian pound has lost nine per cent against the dollar this year and is trading even lower on the black market, driving up inflation.

    Shortages meanwhile threaten to exacerbate tension in the street, where Morsi’s opponents have been airing political grievances in protests that frequently turn violent.

    The government hopes to have a loan agreement finalised by the IMF’s spring meetings, holding from April 16 to 21,

    Finance Minister Al-Mursi Al-Sayed Hegazy said. IMF officials have not given a timeline.

    Seeking to protect the Egyptian pound, the central bank has lifted interest rates, increasing the cost of borrowing  needed to finance a state deficit that will hit 12.3 per cent of GDP without reforms.

    A medium-term economic plan submitted to the IMF envisages cutting the deficit to 9.5 per cent in the 2013 to 2014 fiscal years beginning in July.

    The financial crunch has forced the government to cut back on fuel imports, leading to shortages that have caused transport disruptions and power cuts.

    To ease shortages, Cairo has said it aims to import oil from Iraq and neighbouring Libya while paying off some of the money it owes to foreign energy firms.

    Egypt has also cut back on wheat imports, running down grain reserves in the hope that a bumper harvest will be enough to feed its 84 million populations.

    Without a deal, Cairo could still limp along for several more months, but it would not be comfortable.

  • AMCON has stopped buying bad loans – Chike-Obi

    AMCON has stopped buying bad loans – Chike-Obi

     

    The Asset Management Company of Nigeria has stopped buying bad loans from the banking sector, its chief executive said on Tuesday, a move aimed at discouraging excessive risk-taking in Africa’s second biggest economy after a 2009 financial crisis.

    AMCON was set up in 2010 to clean up the banking system following a $4 billion rescue of nine lenders that came close to collapse, but AMCON Chief Executive Officer, Mustapha Chike-Obi told Reuters it would no longer serve as a lifeline to banks with bad loans.

    Before AMCON took on Nigeria’s bad loans, they made up about half of all loans, the central bank says, but have since fallen to within its target of five percent.

    The International Monetary Fund (IMF) in its latest report commended Nigeria’s success in stabilising its banking sector but recommended AMCON wind down its operations to curb “moral hazard”, whereby a party is more willing to take a risk, knowing that the potential costs of taking such a risk will be borne by others.

    Chike-Obi declined to comment on IMF’s recommendation, but he said banks now bear the full risk of loans that turn bad. They must make full provision on their balance sheets or sell bad loans to a third party, he said

     

     

     

     

  • IMF sees Nigeria’s economy picking up

    Economic growth in Nigeria is likely to rise above seven per cent in the year with inflation slowing below double digits, the International Monetary Fund (IMF) has said.

    In its 2012 review of Africa’s second largest economy, the IMF projected that the pace of growth would pick up to 7.2 per cent this year from 6.3 per cent in 2012.

    It said Nigeria’s tightening of monetary policy was in line with the authorities’ efforts to contain inflation below 10 per cent. The IMF also estimated that Nigeria’s currency, the naira, was “broadly in line with fundamentals”.

    Nigeria’s central bank held rates at 12 per cent last week for the ninth consecutive time, citing concerns about ongoing external price pressures. Nigerian consumer inflation rose to 9.5 per cent in February from 9 percent in January, staying within the central bank’s single digit target. Food prices rose to 11 per cent.

     

  • Oil benchmark: IMF tasks Nigeria on spending

    Oil benchmark: IMF tasks Nigeria on spending

    The International Monetary Fund said the Federal Government needs to curtail spending to avoid putting pressure on the crude oil benchmark.

    IMF’s Senior Resident Representative in Nigeria, Mr. Scott Rogers, gave the advice while briefing journalists on the Regional Economic outlook in Abuja on Thursday.

    “Higher benchmark price most often determines how much of the oil revenue gets distributed; if oil revenue gets distributed, it doesn’t mean you have to spend it.

    “So, generally raising the budget reference price means more money gets distributed to the different tiers of government, and what it then means is these governments can spend the money.

    “And if you spend the money, then again you have the adverses on the economy because you have government paying salaries, buying vehicles, gas and all these put pressure on price rates.”

    According to him, if the prices go up, the only way the Central Bank of Nigeria can reduce it will be by strengthening the monetary policy.

    He said the only way to do that would be to reduce government spending, adding that the best mechanism to curtail spending was through the budget reference price of oil.

    “The lower the budget reference price of oil, the lower government spending; assuming that you actually save the difference; which means, you don’t put it in the Excess Crude Account and take it back out again; you put it the Excess Crude Account and you leave it there.

    “And that’s the way it was designed and that is the only way it really has an impact,’’ Mr. Rogers told journalists.

    The News Agency of Nigeria reports that the 2013 budget has an oil benchmark of 75 dollars per barrel, but the House of Representatives wants it pegged at 80 dollar per barrel.

    On the regional outlook, he said the region still retained robust growth outlook, but noted that there was the need to monitor the uncertain disposition of the global economy.

    He said that Nigeria still had fair positive economic outlook, adding that in summary, the forecast for 2012 to 2013 showed strong but declining Gross Domestic Product.

    Rogers identified lower oil prices due to weak global economy as one of the three major risks to positive outlook.

     

     

  • IMF eases restrictions on Zimbabwe

    IMF eases restrictions on Zimbabwe

    The International Monetary Fund on Tuesday relaxed restrictions on technical assistance to Zimbabwe, opening the way for an IMF staff-monitored economic program.

    The move marks a major step toward normalizing relations with the southern African country.

    “The executive board has decided to resume IMF technical assistance in certain new areas to support Zimbabwe’s formulation and implementation of a comprehensive adjustment and structural reform program that can be monitored by the staff,” the IMF said in a statement.

    While Zimbabwe is still not able to tap IMF funding, easing the restrictions moves it in that direction. The IMF would want to see a track record of sound policies by the unity government of President Robert Mugabe and Prime Minister Morgan Tsvangirai before it agrees to a lending program.

    Reuters says the IMF suspended Zimbabwe’s voting rights in 2003 over policy differences with the Mugabe government and payment arrears to the global lender.

    The voting rights were restored in 2010, allowing Zimbabwe to again participate in IMF decision-making.

    In its statement, the IMF said its board of member countries agreed there had been “significant improvement in Zimbabwe’s cooperation on economic policies and renewed commitment to address its arrears problems.”

    IMF technical advice to Zimbabwe will now be extended to cover tax policy and administration, public financial management and expenditure policy, financial sector and central bank reform measures, monetary and exchange policies, and economic statistics.

    The country faces a huge debt burden. Its total external debt is estimated at $10.7 billion, or 113.5 percent of Gross Domestic Product, at the end of 2011. More than half of it is in arrears.

     

  • White elephant projects

    White elephant projects

    We cannot progress if projects are abandoned for either criminal neglect or politics

    The International Monetary Fund’s (IMF) admonition to Nigeria to put a stop to execution of grandiose projects is well-noted. Such projects have led the country nowhere. The global financial institution, through Ms. Antoinette Sayeh, its director for Africa, urged Nigeria and other African oil and gas producing nations to direct their huge revenue from oil exports to beneficial infrastructure and provision of quality education that would serve the larger interest of their peoples.

    Ms. Sayeh was apt in her observation that the oil and gas sector creates little jobs compared with other sectors of the economy. For this reason, she wants governments to deploy revenues derivable from oil in the direction of, most especially, education and transport links that are conventionally job-creating sectors. She bemoaned a situation where governments maximise revenues from oil and gas but later expend them on what she calls ‘white elephant’ projects.

    Her observation captures the right situation of the mismanagement of oil and gas revenues on white elephant projects in the country. The IMF chief quite expressed the frustration of many Nigerians regarding the menace of not only white elephant projects but also abandoned projects that spread across the country.

    The Presidential Projects Assessment Committee (PPAC) set up by President Goodluck Jonathan in March, 2011 to look into cases of abandoned Federal Government projects at the submission of its findings stated in its report that 11,886 abandoned projects that will cost the nation an estimated N7.78 trillion to complete litter several parts of the country.

    These scary figures ought to have compelled the government to hasten completion of all ongoing projects, and to place special focus on high priority ones. Incredibly, the reverse has been the case, with the Federal Government awarding new or re-awarding old contracts at higher costs during its weekly Federal Executive Council (FEC) meetings. Most of the new or even re-awarded contracts do not have anything to do with contemporary national vision and policy.

    We consider as baffling, for instance, that the President Jonathan administration has not commissioned any major road project since it came to power some years ago. This is despite the fact that his administration is a continuation of the late President Umaru Yar’Adua’s. The current president was Yar’Adua’s deputy. Apparently, there is no continuity in governance.

    It is bad that major highways in the country are in very decrepit state. Indeed, we can count a number of these roads, including the Lagos/Ibadan Expressway, Port Harcourt/Enugu Express Road, Ota/Abeokuta Express Road and also Oshodi/Apapa Express Road as some of the major highways that are begging for attention. These are all federal roads. Yet, no effective response has come the way of the roads despite the fact that they have become death traps for motorists plying them. The Federal Road Maintenance Agency (FERMA) seems not to be doing enough in maintaining or even reconstructing these roads where necessary.

    The debilitating infrastructural situation does not apply to the Federal Government alone, as many state governments also avoidably jettison their predecessors’ projects once they get to power. The era of Development Plan spanning some years has gone because each administration now comes up with its own action plan that is drastically different from that of its predecessor. It is sad that successive administrations show no understanding for how much was spent on such projects that are met on ground or more significantly, the importance of such to the wellbeing of the people as a whole.

    In the face of all these shortcomings in infrastructural provision in the country, it would not be out of place to predict that other foreign institutions, sooner than later, might shamefully follow the IMF in showing us the right path to toe. If things were to be working normally, the nation does not need the IMF to remind her of the futility of embarking on white elephant projects or even tacitly encouraging abandonment of projects in any part of her territory.

    The sincerity of the IMF regarding the advice being given to developing countries is suspect, but when appropriate authorities in those countries refuse to perform their statutory duties effectively, their laxity turns institutions like IMF into erroneously perceived superstar by the public, seen more to have the interest of their countries at heart. This is the country’s current predicament.