• Friday, March 29, 2024
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IMF projects 2.5% growth for Nigeria on vaccine rollout

Nigeria’s economy

After an estimated contraction of 1.8 percent in 2020, the International Monetary Fund (IMF) sees Nigeria’s economy growing strongly at a projected rate of 2.5 percent in 2021, moderating to 2.3 percent in 2022, driven by vaccine rollout.

The Washington-based fund made the projection in its World Economic Outlook (WEO) report titled, ‘Managing Divergent Recoveries,’ released on Tuesday.

Nigeria’s economy grew 0.1 percent year-on-year (y/y) in the fourth quarter of 2020, representing the first positive quarterly y/y growth since Q1-2020, an indication that the economy exited the COVID-19 induced recession.

Reacting to the Nigeria’s growth projection by the IMF, Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said, “The reason for the upgrade in the forecast is as a result of the vaccine rollout, the reduction in the rate of infection and also because economic activities are beginning to pick up.

“If in the course of the year we see more deliberate effort to support the real sector, then it is not impossible.”

The IMF also projects Nigeria’s inflation to moderate to 14.5 percent in 2021 from its 15.8 percent estimate in 2020.

Godwin Emefiele, governor, Central Bank of Nigeria (CBN), after announcing a hold on its benchmark interest rate at 11.5 percent and other policy parameters after the last Monetary Policy Committee (MPC), said inflation would moderate in May 2021.

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 percent in 2020, amid the pandemic-related lockdown, the IMF said in February.

Global growth is projected at 6 percent in 2021, moderating to 4.4 percent in 2022. The projections for 2021 and 2022 are stronger than in the October 2020 World Economic Outlook.

The upward revision reflects additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility. High uncertainty surrounds this outlook, related to the path of the pandemic, the effectiveness of policy support to provide a bridge to vaccine-powered normalisation, and the evolution of financial conditions.

On sub-Saharan African region, the pandemic continues to exact a large toll on sub-Saharan Africa (especially, for example, Ghana, Kenya, Nigeria, South Africa), the Fund noted. Following the largest contraction ever for the region (–1.9% in 2020), growth is expected to rebound to 3.4 percent in 2021, significantly lower than the trend anticipated before the pandemic. Tourism-reliant economies will likely be the most affected.

“The significant upgrade in the forecast is reflective of expectations of improvement in domestic production as OPEC+ begins to wind down the production cut implemented in the previous year,” Gbolahan Ologunro, an economist at Lagos-based Cordros, said on Tuesday.

According to the WEO report, global prospects remain highly uncertain one year into the pandemic. New virus mutations and the accumulating human toll raise concerns, even as growing vaccine coverage lifts sentiment. Economic recoveries are diverging across countries and sectors, reflecting variation in pandemic-induced disruptions and the extent of policy support.

The outlook depends not just on the outcome of the battle between the virus and vaccines – it also hinges on how effectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis.

In emerging market and developing economies, the IMF vaccine procurement data suggest that effective protection will remain unavailable for most of the population in 2021. Lockdowns and containment measures may be needed more frequently in 2021 and 2022 in SSA than in advanced economies, increasing the likelihood of medium-term scarring effects on the potential output of these countries.

Considering the large uncertainty surrounding the outlook, the Fund said policymakers should prioritise policies that would be prudent, regardless of the state of the world that prevails – for instance, strengthening social protection with wider eligibility for unemployment insurance to cover the self-employed and informally employed; ensuring adequate resources for health care, early childhood development programmes, education, and vocational training; and investing in green infrastructure to hasten the transition to lower carbon dependence.