An International Monetary Fund (IMF) team led by Jesmin Rahman, the IMF Mission Chief for Nigeria, held meetings with the Nigerian authorities from June 6-10, 2022, to discuss recent economic and financial developments and the outlook for the country.
At the end of the visit, Rahman said, “Economic recovery continues to gain strength on the back of services and agriculture with GDP growth reaching 3.6 percent (y/y) in Q1 2022.”
“The latest data shows economic growth broadening to all sectors except oil, where production remains weak, due to security and technical challenges,” she added.
Inflation
The statement showed that “inflation has reached 17.7 percent (y/y) in May led by a renewed surge in food prices, and heightened by the war in Ukraine.” This raises food security concerns as over 40 percent of 206.1 million Nigerians live below the poverty line.
To contain inflationary pressures, the Central Bank of Nigeria recently hiked its monetary policy rate by 150 basis points, to 13 percent.
Foreign Trade
Regarding Nigeria’s trades with foreign economies, the current account deficit narrowed significantly in 2021 helped by a higher net oil balance and import compression or sharp import reduction to generate a trade surplus to service foreign debt.
However, the improving trade balance, which has continued so far in 2022, is having a limited impact on Foreign Exchange (FX) strains with the exchange rate premiums in the parallel market staying in the 35-40 percent range since October 2021.
Despite supportive oil prices, gross FX reserves fell to $38.6 billion at end-May 2022, having reached $41.5 billion in September 2021, boosted by Special Drawing Rights (SDR) allocation and Eurobond issuance.
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Outlook/Expectations
In the economic outlook, GDP growth is projected at 3.4 percent (y/y) in 2022 while inflation is expected to remain elevated. The fiscal deficit, an outcome of government spending beyond its purse, is expected to remain high at 6.1 percent of GDP due in great measure to costly petrol subsidies and limited tax revenue collections.
Downside risks in the near-term arise from further deterioration of security conditions, elections, low vaccination against Covid-19, and higher global interest rates.
On the upside, steady private sector recovery and further broadening of growth, the start of operations at the Dangote refinery, and decisive steps to mobilize revenues, in line with the Strategic Revenue Growth Initiative (SRGI) could spur inclusive growth and development.
