As Nigeria and other oil producing countries continue to enjoy relative stability in their economies occasioned by the rise in the price of crude oil, the International Monetary Fund (IMF) has warned that countries that refuse to diversify their economies will not be lucky if crude oil prices drop again. It also warned on rising bad assets in the banking industry, that needed to be checked due to the risks they pose to the country’s financial system.
IMF’s Economic Counsellor and Director of the Research Department, Mr. Maurice Obstfeld, disclosed this yesterday at a media briefing on the World Economic Outlook (WEO), at the on-going IMF/World Bank Spring meetings in Washington DC.
“Many commodity exporters will not be so lucky, however, despite some improvement in the outlook for commodity prices. Those countries will need to diversify their economies to boost future growth and resilience,” Obstfeld said.
The price of crude oil at the international market yesterday was around $68 per barrel compared with two year ago when the price of the commodity fell to less than $30 a barrel, compelling Nigeria and other countries that depend heavily on proceeds from oil to embark on some drastic economic policies such as re-adjusting their budgets and devaluing their currencies, amongst others.
Besides, the IMF in its Word WEO, said inflation in sub-Saharan Africa is projected to moderate slightly in 2018 and 2019, but is expected to remain in double digits in key large economies, reflecting the pass-through effects of currency depreciation and their impact on inflation expectations (Angola), supply factors, and assumed monetary policy accommodation to support fiscal policy (Nigeria).
The IMF advised oil-dependent economies, including Nigeria, to intensify economic diversification as the global body foresees the crash of crude oil prices in the near future.
“Some low-income countries like Mozambique and Nigeria have experienced financial stress or deteriorating loan quality in recent years as growth has moderated and corporate balance sheets have weakened.
“Further deterioration in loan quality would impair credit intermediation and ability of the banking sector to support growth, which would raise the risk of cost recapitalisation and severely burden the already strained public finances,’’ the IMF said.
IMF’s Economic Counsellor and Director of the Research, however, said: “There is room to strengthen the current system rather than risk bilateral fragmentation of international trade. Plurilateral arrangements, if consistent with multilateral rules, can also provide a useful springboard to more open trade.
“Each nation can do much more on its own to promote stronger, more resilient and more inclusive growth. Multilateral cooperation remains essential, however, to address a range of challenges in addition to the governance of world trade.
“Economic diversification away from excessive dependence on commodities, or on a few sectors such as agriculture or tourism, is an overarching imperative for commodity exporters and those countries that are particularly exposed to natural disasters.
“While there is no unique template for all circumstances, general policy attributes that facilitate diversification or help countries cope with climate shocks include sound macro-management and judicious use of policy buffers to smooth fluctuations, investment in education and training to improve workforce skills, increased access to credit and a reduction in infrastructure gaps.”
IMF’s Deputy Division Chief of the World Economic Studies Division, Research Department, Mr. Malhar Nabar, also said a lot of economies in Africa were benefiting from the improvement in commodity prices.
According to him, this had also led to improvement in financial conditions in a number of countries in the region, with some of them accessing the Eurobond market.
He said that the recent escalating tension over trade (United States vs China) presented a growing risk for global financial stability.
The Fund noted that some low-income countries, including Mozambique and Nigeria have experienced financial stress or deteriorating loan quality in recent years as growth has moderated and corporate balance sheets have weakened.
“Further deterioration in loan quality would impair credit intermediation and the ability of the banking sector to support growth in these countries and would raise the risk of costly recapitalization, which would severely burden already-strained public finances,” the IMF said in the report.