Market News

by Aderonke Oni

The International Monetary Fund (IMF) says Nigeria must scale up its cash transfer system to cushion the effects of economic shocks and tackle high poverty levels.

The recommendation was contained in an article published on Monday, written by Axel Schimmelpfennig, the IMF’s mission chief to Nigeria, and Christian Ebeke, the fund’s resident representative in Nigeria.

The IMF noted that while the federal government’s economic reforms are beginning to show results, poverty, food insecurity remain high, and global uncertainties present additional challenges.

“Upon taking office in 2023, the new government faced low growth and rising poverty. Between 2014 and 2023, real per capita GDP declined on average by 0.7 percent annually. In 2023, the poverty rate stood at 42 percent,” the fund said.

“This difficult situation was compounded by limited access to dollars, which meant that people had to turn to the parallel currency market and thereby pay a much higher price than the official rate.

“In the meantime, public finances were strained by an opaque fuel subsidy system, which also caused recurrent petrol scarcity. And central bank financing of the fiscal deficit pushed up inflation.

“In response to these challenges, Nigerian policymakers have embarked on a series of bold reforms over the last two years. In 2023, the new government and the Central Bank of Nigeria liberalized the foreign exchange market, stopped central bank financing of the fiscal deficit, and reformed fuel subsidies.

“Since these reforms were implemented, international reserves have increased, and anyone can now access foreign exchange in the official market.

“Nigeria successfully returned to international capital markets last December and was recently upgraded by rating agencies.”

‘ECONOMIC REFORMS YIELDING RESULTS BUT MAJOR CHALLENGES PERSIST’

The IMF acknowledged that although recent progress is encouraging, major challenges persist with inflation still above 20 percent, while weak infrastructure — particularly unreliable electricity — continues to hinder economic activity.

IMF added that Nigeria remains exposed to global headwinds, including volatile oil prices, elevated borrowing costs, and economic uncertainty, with crude oil still accounting for 30 percent of government revenue.

To strengthen the economy and reduce poverty, the IMF called for stronger and sustained growth to lift millions out of poverty and food insecurity.

The fund said scaling up the existing cash transfer system is essential to ensure inclusive growth in the immediate term, although the IMF said it will take time.

“First, the country needs stronger and more sustained growth to lift millions of people out of poverty and food insecurity, which is what the authorities are focusing on. This does not happen overnight. In the meantime, making growth more inclusive also requires scaling up the existing cash transfer system,” the report said.

“Second, as an essential ingredient for economic development, Nigeria needs an effective budget framework. Delivering effective investments in people and infrastructure requires realistic budget assumptions, strong expenditure management, and transparent implementation and reporting—which, in turn, can strengthen accountability.

“For its part, monetary policy should continue to decisively tackle inflation and reduce economic uncertainty.”

Over time, the IMF added, Nigeria could align its tax rates with neighbouring countries once the cost-of-living crisis subsides and the cash transfer system is fully operational.

“For now, the share of revenue that goes to interest spending leaves too little for investment in people and infrastructure,” the IMF said.

“It is therefore critical that the substantial financial savings from the removal of fuel subsidies flow to the government to fund priority spending.”

The fund added that Nigeria’s potential remains strong, but achieving it will require continued economic reforms and an effective social safety net to ensure the most vulnerable citizens are not left behind.