Nigeria Must Reduce Thirst for Oil Revenues, Says IMF

Mobilizing more non-oil revenue is critical to Nigeria’s future growth, the International Monetary Fund concluded in a report this week on Nigeria’s economic and monetary policies.

Although oil represented only 13% of gross domestic product in 2013 — services accounted for more than 50% — oil remains critical to Nigeria as a revenue and foreign-exchange source.

But in order to ensure future economic stability, the country must reduce its dependence on oil revenues and strengthen the private sector’s participation in the economy, the IMF said.

The recent collapse in oil prices may force Nigerian authorities’ hand: According to the IMF report, the value of oil exports this year is expected to be lower than 2014’s by a factor of 6% of GDP. Nigeria’s oil revenue will be down 2% this year.

Along with a sharp contraction of public investment and domestic demand, the board projects Nigeria’s 2015 economic growth at 4.75%-4.8%, down markedly from last year’s 6.3% expansion.

Inflation is seen rising to 11.5% by the end of 2015 from 8% at the end of 2014.

For the past decade, Nigeria’s growth has averaged 6.8%, accounting now for 35% of sub-Saharan Africa’s gross domestic product, and it has kept its general government fiscal deficit and public debt low. But the country lags peers in critical infrastructure, and has high rates of poverty and income inequality, the IMF said.

The multilateral did commend Nigeria’s authorities for making progress in promoting economic diversification, and for their macroeconomic response to collapsing export prices.

The IMF also praised Nigeria’s plans to strengthen tax administration, and encouraged the country to rein in exemptions, maintain tax rates under review and continue with subsidy reform and improving management of oil revenues.