The International Monetary Fund (IMF) has advised Nigeria to establish a unified exchange rate regime with a near-term focus on allowing for greater flexibility and removal of payments backlog.
The Fund also called for continued reforms aimed at promoting economic diversification and reducing dependence on oil and increasing employment.
IMF, in a press statement issued yesterday, commended the federal government for measures taken to address the health and economic impacts of the COVID-19 pandemic which have exacerbated pre-existing weaknesses.
It said the government however needs to strengthen governance and anticorruption frameworks, including compliance with AML/CFT measures.
The Fund in a report on appraisal of the Nigerian economy emphasised the need for urgent policy adjustment and more fundamental reforms to sustain macroeconomic stability and lift growth and employment.
It also welcomed the ratification of the African Continental Free Trade Area (ACFTA) and stressed that implementing trade-enabling reforms remains critical to rejuvenate growth.
"IMF directors welcomed notable reforms undertaken in the fiscal sector, including removal of the fuel subsidy and steps to implement cost-reflective tariff increases in the power sector," IMF said.
However, the Washington- based institution emphasised the need for significant revenue mobilisation to reduce fiscal sustainability risks, relying initially on progressive and efficiency-enhancing measures with higher tax rates awaiting a more sustained economic recovery.
They highlighted the need for improved social safety nets to cushion potential negative impacts on the poor.
IMF said the accommodative monetary stance of the Central Bank of Nigeria remains appropriate in the near term, even as it stated that tightening may be warranted if balance of payments or inflationary pressures were to increase.
"In the medium term, the monetary policy operational framework should be reformed and Central Bank financing of budget deficit phased out in order to reduce inflation," it noted.
While welcoming the resilience of the banking sector, IMF directors called for continued vigilance to contain financial stability risks.
They said COVID-19 debt relief measures for bank clients should remain time-bound and limited to those with good pre-crisis fundamentals.
Nigeria's economy has been hit hard by the COVID-19 pandemic.
Following a sharp drop in oil prices and capital outflows, real GDP is estimated to have contracted by 3.2 per cent in 2020 amidst the pandemic-related lockdown.
Headline inflation rose to 14.9 per cent in November 2020, a 33-month high, reflecting core and food inflation increases emanating from supply shortages due to the lockdown imposed to curb infections alongside, the land-border closure and continued import restrictions.
The unemployment rate reached 27 percent in the second quarter of 2020, with youth unemployment at 41 percent.
Our Economy Is Recovering - FG
Meanwhile, minister of finance, budget and national planning, Hajiya Zainab Ahmed has said the reduced contraction of the nation's economy in the third quarter compared to the second quarter of 2020 is an indication that economic activities are recovering in the country.
The minister made the statement in a public consultation for the federal government's Finance Act 2020, yesterday.
Nigeria's Gross Domestic Product (GDP) contracted by 3.62 per cent (year-on-year) in real terms in the third quarter of 2020 down from the -6.10 per cent growth rate recorded in the preceding quarter (Q2 2020).
"Economic activities in the country are recovering gradually, reflected by a reduced contraction of 3.6 per cent in the third quarter of 2020, compared to the 6.1 per cent contraction in the previous quarter," the minister said in her welcome remarks at the virtual stakeholders meeting.
She said the federal government has adopted appropriate counter-cyclical fiscal policies to accelerate economic recovery from the recent recession, as well as to stimulate economic growth in key sectors of the economy in response to ongoing health and economic challenges caused by the COVID-19 pandemic.
Hajiya Ahmed said given the impact of Coronavirus pandemic on the domestic economy, there is a clear need for proactive implementation of macroeconomic strategies that would support domestic revenue mobilization, enhance investment inflow, stimulate job creation and restore the economy on the path of sustainable, diversified and inclusive growth.
She said the public stakeholder consultations of last week and yesterday demonstrated federal government's commitment to continuously consult and engage on the Finance Act that was assented to by president Buhari on 31st December 2020.
The Finance minister stated that the Finance Act, 2020 provides fiscal relief for minimum wage earners who are exempt from Personal Income Tax, as well as commuters and other consumers of road transportation goods and services who will now pay lower levels of duties and levies on imported vehicles.
"The Finance Act, 2020 extends the Corporate Income Tax exemption in the Finance Act, 2019 for micro and small enterprises with an annual turnover of N25 million or less to include exemption from paying Tertiary Education Tax," she restated.
She however said considering government's current challenges with increasing domestic revenue mobilisation in a recovering economy, it was not possible to provide all the tax incentives that various interest groups have been clamoring for.
"Consequently, our fiscal stance in the Finance Act, 2020 is to moderate fiscal incentives, defer tax increases and new taxes till the economy recovers, and to foster greater congruence across the government's fiscal, monetary, trade and investment policies," she stated.
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