The latest International Monetary Fund (IMF) Regional Economic Outlook emphasises the urgent need to address the structural weaknesses of Nigeria’s economy. The government has initiated such efforts and is pursuing them vigorously. However, there is an immediate need to curb food insecurity, which remains a critical concern.

For decades, many Nigerians have viewed the International Monetary Fund (IMF) with skepticism, blaming the country’s economic challenges on policies allegedly imposed by the institution. Nonetheless, the IMF’s acknowledgment of the economic hardships faced by Sub-Saharan African countries, including Nigeria, provides an opportunity to reassess these prejudices, focus inward, and recalibrate the nation’s economic fundamentals.

That notwithstanding, what should be uppermost in the scheme of things at the moment should be the readjustment of the identified structural weaknesses of the economy which the government has started, and is pursuing vigorously. The glaring food insecurity as rightly observed by the IMF poses a serious concern, which must be urgently addressed by the policy makers.

The presentation of the IMF Regional Economic Outlook for sub-Saharan Africa Fall 2024 Issue entitled, “Reforms Amid Great Expectations, ” last week Thursday, offered an opportunity for Ms. Catherine Pattillo, Africa Deputy Director IMF, to warn that poorly implemented policies can increase the likelihood of social backlash.

The report says by 2030, half of the world’s new workers will be from Sub-Saharan Africa, requiring the creation of millions of jobs.

“Looking ahead, the region will continue to grapple with a very difficult environment marked by still elevated inflation, high origin costs, ongoing exchange rate pressures and persistent fragility in some countries,” Ms Pattillo alerted.

To realise the shared prosperity everyone has yearned for, requires rethinking reform strategies, building and maintaining pro-growth coalitions among constituent leaders and the general public. This will require greater attention to communication and engagement strategies, reform design, compensatory measures, and rebuilding trust in public institutions.

As the IMF noted, it is pertinent to scrutinise the Structural Weaknesses of the economy and embark on necessary reforms to address the underlying causes. It pointed out that Weak governance, systemic corruption, and an unfavourable business climate take a toll on productivity and output, and the effects are most striking when commodity prices fall. Such weaknesses affect both the resource sector itself and prospects for the economy diversifying into other sectors. “For instance, the potential for theft of oil production undermines productive efficiency and diverts precious resources from more productive uses. Or weak governance can be a central impediment for private sector investment more broadly. Fuel exporters outside the region, with generally stronger governance, have weathered the commodity price slump far better.

IMF staff analysis confirms that terms-of-trade shocks have a stronger and longer-lasting impact on growth in countries with weak governance. It estimated that for every one-percent worsening in a country’s terms of trade, medium-term growth is around ¼ percentage point higher in countries with smaller governance challenges.

In addition, poor resource management reinforced the original shock through a pro-cyclical fiscal bias. Fiscal policy in resource-intensive countries (RICs), including in sub-Saharan Africa, is generally far more correlated with economic shocks, intensifying their effects, compared to other countries. “For instance, when commodity prices are high, many RICs, particularly fuel exporters, have embarked on costly capital projects that are often poorly planned and implemented, with corresponding sharp reductions in capital spending when commodity prices fall. In addition, many fuel exporters also provide sizable fuel subsidies, the cost of which increases as oil prices rise, limiting their ability to save during booms, while crowding out growth-friendly development spending. The average oil-exporting country in sub-Saharan Africa has since 2011 consistently spent all its oil revenues in the year when they accrued,” the IMF explained.

Pointing the way forward, the IMF said reversing this growth divergence is a regional priority, as RICs make up about two-thirds of sub-Saharan Africa’s GDP and population. “It is also a humanitarian priority. Poor growth performance has translated into poor development outcomes —progress in tackling poverty in RICs effectively halted in 2014. Compared to children in other parts of the region, a child born in a RIC today is expected to live 4 years less on average, and is 25 percent more likely to live in poverty”.

Accordingly, it added “reigniting durable growth will require a stable macroeconomic environment. More prudent and consistently implemented fiscal frameworks can help address poor resource management challenges – and also help ensure growth is more resilient going forward. Further, broad-based reforms to address structural weaknesses – strengthening governance, enhancing the business environment, accumulating human capital, and addressing infrastructure bottlenecks – can help countries diversify and grow. And for fuel exporters, facing the global green-energy transition, the need to diversify is ever more urgent”.

Stagnating incomes in sub-Saharan Africa’s – Nigeria inclusive -resource-intensive economies necessitate more effective fiscal management and broad-based structural reforms

Sub-Saharan Africa is reported to be home to nine of the world’s top 20 fastest-growing economies this year. Such startling statistics, however, rarely feature in discussions of the region’s outlook. Instead, headline figures typically emphasize the relatively modest average economic performance. This disconnect reflects a two-track growth pattern, where a significant part of the region underperforms.

The analytical note for the latest Regional Economic Outlook for sub-Saharan Africa takes a closer look at this issue. It stated that over the past 10 years, growth in sub-Saharan Africa’s resource-intensive countries (RICs) – and especially in fuel-exporting economies such as Angola, Chad, and Nigeria – has slowed down sharply, falling far below growth in non-RICs (such as Ethiopia, Rwanda, and Senegal). “Indeed, incomes in RICs have essentially stagnated. This marks a sharp contrast with the decade leading up to 2014, when RICs experienced rapid growth, in line with the region’s strong overall performance”.

The Fund said the post–2014 divergence between RICs and non-RICs has been driven largely by the combination of two factors. First, RICs and especially fuel exporters experienced a dramatic decline in their commodity export prices around 2014–15, as the commodity “super-cycle”—a period of sharply rising commodity prices—came to an end. Since then, the terms-of-trade decline has only been partially reversed.

Second, and critically, the impact of the terms-of-trade shock on RICs was exacerbated by pre-existing structural vulnerabilities, including a poor business environment, limited human capital, weak governance and poor management of resource revenues.

The IMF’s analysis provides insights into the current economic landscape in the region, particularly Nigeria, addressing challenges and uncovering opportunities for sustainable growth and development. Such knowledge aligns seamlessly with the government’s goal to contribute in driving economic progress in Nigeria and better the lots of the people.

The Fund said, “Policymakers must address deep vulnerabilities and assure debt sustainability, but at the same time, they face elevated development needs and spending pressures through critical public services. There is political resistance to tax increases and social frustration over the use of public resources. Any strategy will need to first prioritize key spending to foster more inclusive growth and boost credibility and transparency to help address adjustment fatigue and build public support in this very difficult context.

“The region has recently witnessed several episodes of Political fragility and social unrest. Recent examples include Ethiopia, Kenya, here in Nigeria and Uganda and Sub-Saharan Africa remain disproportionately affected by particularly virulent forms of political instability, such as conflicts and COVID. “These have primarily affected the region, as well as the very severe human toll. Social unrest can have large, persistent macroeconomic effects, especially in countries with limited political space, policy space and weak institutions“.

The IMF’s Regional Economic Outlook provides a roadmap for addressing Nigeria’s economic challenges. By implementing well-designed structural reforms, prioritising inclusivity, and fostering trust in public institutions, the government can lay the foundation for sustainable growth. Policymakers must act decisively to ensure that economic progress translates into tangible improvements in the lives of ordinary Nigerians. The road ahead may be fraught with trade-offs, but thoughtful planning and inclusive governance can chart a path toward shared prosperity.

Copyright © 2022 Nigerian Tribune Provided by SyndiGate Media Inc. (Syndigate.info).