IMF Article IV report: Expert urges greater policy balance

Nigeria’s positive assessment of her economic reforms by the International Monetary Fund (IMF) as contained in its Article IV Consultation Report, has drawn applause from economic expert and Chief executive Officer, Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf.

He noted that the IMF’s acknowledgement of the progress made in restoring macroeconomic stability is broadly consistent with the position consistently advanced by CPPE and many stakeholders within the Nigerian private sector.

According to him, the reforms have helped to stabilise the foreign exchange market, improve external sector balances, strengthen investor confidence and restore a measure of policy credibility. Besides, Yusuf said the moderation in exchange rate volatility, the improvement in foreign reserves, the recovery in capital inflows and the stronger performance of many quoted companies underscore the positive outcomes of the stabilisation measures undertaken over the past three years.

“These gains are significant. After years of macroeconomic distortions, the economy is gradually moving from a regime of instability to one of greater predictability. This is an important foundation for investment, productivity and sustainable growth,” Dr. Yusuf said.

The CPPE, he said, equally agrees with the IMF’s concern about the persistence of poverty and food insecurity despite the progress made on macroeconomic stabilisation. This is because economic reforms are ultimately judged not only by their impact on macroeconomic indicators but by their ability to improve the welfare of citizens. He argued that while exchange rate stability, reserve accumulation and fiscal consolidation are important, however, he said, the true test of reform is whether they translate into lower food prices, better jobs, improved incomes and enhanced living standards.

He therefore proffered that the next phase of economic management should focus on converting macroeconomic gains into welfare gains, noting that the challenge before policymakers is no longer merely one of economic stabilisation but increasingly one of inclusive prosperity.

Yusuf warned of a situation that may lead to a risk of extreme monetary orthodoxy. According to him, while the IMF’s support for monetary tightening reflects conventional stabilisation thinking, he nonetheless expressed worries about the IMF’s continued emphasis on high interest rates without sufficient consideration of the adverse consequences for investment, enterprise growth, job creation and sovereign debt service pressures.

“The current monetary policy stance has delivered some benefits in terms of inflation moderation and exchange rate stability. However, every policy instrument has a point of diminishing returns. Beyond that point, the costs may begin to outweigh the benefits.

“The cost of credit in Nigeria has reached levels that are becoming increasingly prohibitive for productive investment. Lending rates remain among the highest in the world, making it difficult for businesses to expand, invest or create jobs.

“High yields on government securities have also intensified the crowding-out effect in the financial system. Banks and investors are increasingly channeling resources into treasury bills and government bonds rather than financing productive sectors of the economy. As a consequence, capital is gravitating towards financial assets rather than productive assets.

“An economy cannot achieve sustainable development when financial capital earns higher returns from government financial instruments than from supporting enterprise, innovation and industrialization,” Dr. Yusuf argued.
He also flayed the IMF for not sufficiently appreciating the developmental role of targeted financing interventions in an economy like Nigeria. He explained that development finance is not merely a policy choice, but an economic necessity. He warned that leaving such entirely to market forces, critical sectors such as agriculture, manufacturing, housing and infrastructure would remain chronically underfunded, thereby constraining productivity, job creation, industrialisation and long-term economic growth.

“Nigeria’s economic structure differs fundamentally from those of advanced economies. Strategic sectors such as agriculture, manufacturing, housing and infrastructure require long-term, patient capital which conventional market-based financing channels are often unable or unwilling to provide efficiently.

“In an economy where commercial lending is largely short-term, costly and risk-averse, development finance remains indispensable for unlocking productivity, supporting investment, expanding output and driving inclusive growth. A purely market-driven financing model cannot adequately address Nigeria’s structural financing gaps.

“Agriculture, for instance, cannot sustainably absorb commercial credit priced at prevailing market rates. Infrastructure projects often require financing tenors extending beyond what conventional banking structures can support.

“Development finance, therefore, should not be perceived as a distortion of the financial market; it is often a necessary response to market failure. Economic transformation has historically been supported by development finance institutions across both developed and emerging economies,” Dr. Yusuf warned.