Key Policy Issues For FG As IMF/World Bank Spring Meetings Begin In Washington DC
As the Spring meetings of the World Bank and the International Monetary Fund (IMF) begin on Monday amid weak global economic growth, stakeholders have highlighted key policy issues that decision-makers in Nigeria and other countries need to focus on to tackle their economic challenges.
The meeting which opens in Washington DC, United States would be attended by a federal government delegation led by the Minister of Finance, Budget and National Planning, Zainab Ahmed.
Also attending the meeting are the Central Bank of Nigeria Governor, Godwin Emefiele, and other top officials of government as well as private sector players.
The Spring Meetings of the Boards of Governors of the World Bank Group and the IMF will bring together central bankers, ministers of finance and development, parliamentarians, private sector executives, representatives from civil society organizations and academics to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness.
Also featured are seminars, regional briefings, press conferences, and many other events focused on the global economy, international development, and the world’s financial system. This year’s meeting offers a platform for policy makers in the financial sector to brainstorm on key issues that affect macroeconomic stability, unemployment, poverty reduction, wealth creation and economic growth.
Discussions would also centre around building resilience and reshaping development; overcoming debt, generating growth; governing effectively during challenging times; accelerating development in an age of global crisis; empowering women as entrepreneurs and leaders; the power of private capital in sustainable development; incentivizing inclusive and sustainable supply chains and investing in human capital to accelerate the green transition.
Coming barely a month when Nigeria will be transiting into a new administration, experts have said that the meeting is expected to provide an opportunity for the federal government to fashion out strategies to reposition the economy on the path of greater economic growth.
The Managing Director of the IMF,
Kristalina Georgieva, had set the tone for the meeting when she said that global growth has been projected to remain weak by historical comparison in the near and medium-term.
According to her, despite the surprising resilience of the labor markets and strong consumer demand, the IMF is expecting the world economy to grow by less than three per cent this year.
To brighten growth prospects, Georgieva highlighted three key issues that must be addressed. The issues include fighting inflation and safeguarding financial stability; improving medium-term prospects for growth; and fostering solidarity to reduce global disparities.
On inflation, she said even as central banks have lifted interest rates at the fastest and most synchronized pace in decades, core inflation has remained stubbornly high partly because of tight labor markets in many countries.
Nigeria’s inflation rose in January and February from 21.82 per cent to 21.91 despite the hike in the Central Bank’s Monetary Policy Rate from 16.5 per cent to 17.5 per cent in January 2023.
This made the CBM to effect a second increase in the MPR to 18 per cent in the month of March this year.
The CBN Governor had, during the last Monetary Policy Committee meeting held in March expressed optimism that the inflation rate will start to reduce in the coming months.
Emefiele had said, “What one would expect is because we are tightening, inflation should immediately begin to drop. It doesn’t happen that way. What you will find particularly in our environment is that as you are tightening, what you want to do is to first of all stem that rate of increase before you begin to see a reduction.
“Once you achieve a kind of moderation in the rate of increase in inflation, the next thing you will beginning to see is that it will start coming down as you begin your tightening policy.
“We believe that as we continue this process, that inflation will begin to trend downwards. Are we optimistic that may inflation will start to trend down? We are not that optimistic for a range of factors. Whether we like it or not, between now and may or the end of the administration, we expect that subsidy will disappear. Subsidy removal has its own implication on prices which is inflation.”
He said the bank will continue to increase its MPR cautiously to avoid a negative impact on banking system stability.
The inflation targeting objective of the CBN is in line with the recommendation of the IMF Boss who said that central banks should continue to use interest rates to fight inflation while using financial policies to ensure financial stability.
This, Georgieva said should be the right course of action, so long as financial pressures remain limited.
She said, “If that (interest rate hike)were to change, in other words, if financial pressures were to become more prominent, policymakers would face an even more complicated task with difficult trade-offs between their inflation and financial stability objectives and more difficult balancing act of the use of their respectful tools.
“And this is why our message, and it would come loud and clear during the Spring Meetings is going to be; be vigilant and be more agile than ever.”
On improving growth over the medium-term, the IMF projects global growth to remain around three percent over the next five years.
This is the IMF’s lowest medium-term growth forecast since 1990, and well below the average of 3.8 percent from the past two decades.
However, Georgieva urged policy and decision makers to focus on three matters to tackle this issue. The three major issues, according to her include boosting productivity and growth potential through structural reforms and by accelerating the digital revolution, improving the business environment, and boosting human capital and inclusion; stepping up green change to protect the planet and create new economic opportunities; and stepping up international cooperation to reduce the impact of economic fragmentation and geopolitical tension, especially over Russia’s invasion of Ukraine.
“We have done extensive research on the costs of fragmentation, and it is a very, very scary picture. Long term costs of trade fragmentation could be as high as seven per cent of global GDP, roughly the equivalent of the combined output of Germany and Japan.
“If we add technological decoupling, then some countries would face losses up to 12 per cent of GDP. And we just published a paper on fragmentation of capital flows, including Foreign Direct Investments, they would be adding another hit on global growth.
“It’s hard to put in one place the combined impact of all losses but one thing we know for sure, they head in the wrong direction,” Georgieva added.
But Nigeria’s Finance Minister believes the country would withstand the shocks despite the challenging economic environment.
She said, “It is true we had higher reserves during the first global recession, our reserves are now down but still at a healthy level. We will be able to meet at least six months of imports on another expense into the country. It means we can withstand another global shock if we are going to carry a coordinated response between the monetary, fiscal as well as trade authorities.
“We have learned a lot from the experience that we went through during Covid-19 and it showed that when we plan as one, we can actually withstand the shock.
“When Nigerian economy did go into recession during the COVID-19 but it was a short-lived one because of that coordinated response which had not just government, but also the private sector contributing to the effort. So, with the right policies, we can whether another global recession.”
On fostering solidarity to reduce global disparities, Georgieva said that the IMF has provided nearly $300bn in new financing for 96 countries since the start of the Covid pandemic and made a plea on behalf of low-income countries to help them handle the burden of debt distress.
“Let me start with debt. About 15 per cent of low-income countries are in debt distress. An additional 45 per cent are near it. About a quarter of emerging market economies are at high risk facing default like borrowing costs. And this has raised the legitimate concern about the potential wave of debt restructuring cases and how to help handle them at a time when current restructuring has proven to be difficult with costly delays,” Georgieva said.
The federal government spent 41 per cent of the revenue generated in 2022 to service its over N46trn debt.
Recently, Moody’s Investors, a US-based credit rating agency downgraded Nigeria’s sovereign debt from B3 to Caa1 over weak oil revenues.
Nigeria’s total public debt as at December 31, 2022, consisting of the domestic and external debt stocks of the Federal Government and the 36 State Governments and the Federal Capital Territory rose to N46.25trn or $103.11bn.
The total public debt to Gross Domestic Product ratio for December 31, 2022, was 23.20 per cent and indicates a slight increase from the figure for December 31, 2022, at 22.47 per cent
The ratio of 23.20 per cent is still within the 40 per cent limit self-imposed by Nigeria, the 55 per cent limit recommended by the World Bank/international Monetary Fund, and, the 70 per cent limit recommended by the Economic Community of West African States.