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Nigeria’s economy to grow on oil boost but won’t outpace poverty

The International Monetary Fund (IMF) has increased Nigeria’s growth forecast for this year to 2.6 percent from an earlier prediction of 2.5 percent amid the rally in oil prices, but analysts say the improved growth will not bring relief to people in the world’s poverty capital.

The growth revision was made in the IMF’s October 2021 World Economic Outlook Report, which was released Tuesday.

The projection for 2022 was also raised to 2.7 per cent from 2.6 percent.

The improved outlook for the economy is a result of the rally in oil prices which is currently trading at a 7yr high at over $80 per barrel. A barrel of Brent Crude sold for $83 Wednesday, according to Bloomberg data, as oil races towards $90 per barrel on the back of an energy crunch.

Nigeria, Africa’s top exporter of the commodity is expected to reap some benefits from the rally, according to the IMF, even though the benefit is muted as it has only translated to a 0.1 percent points upgrade.

The upgrade however comes at a time when the Washington-based lender has downgraded global growth projections for 2021 due to the adverse impact of supply chain disruptions on advanced economies even as the lack of access to Covid-19 vaccines holds back prospects for the emerging economies.

“Partially offsetting these changes, projections for some commodity exporters have been upgraded on the back of rising commodity prices,” Gita Gopinath, the Economic Counsellor/Director of Research, IMF said.

Read Also: IMF upgrades Nigeria’s GDP growth on oil price rally

“Pandemic-related disruptions to contact-intensive sectors have caused the labour market recovery to significantly lag the output recovery in most countries,” Gopinath added.

The IMF’s growth outlook for Nigeria is more optimistic than the World Bank’s 2.4 percent estimate but lower than the government’s 3 percent target.

Nigerian analysts see the IMF’s projection as achievable considering the gradual economic recovery and the ongoing vaccination exercise in the country but said it would still be unable to reduce poverty in a country that is home to the highest number of poor people globally.

“It is a slight improvement over July 2021 growth forecast but still below the country’s population growth rate and below the growth potential of the country which means it brings no relief for rising poverty levels,” said Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited.

Akinwunmi said it meant more policies were required to unlock the growth potential of the country in order to achieve sustainable growth that is inclusive and able to reduce poverty.

Nigeria’s real GDP Year-on-Year real expanded by 5 percent in the second quarter (Q2) of 2021, the highest since 2014.

But it was due to the base effect following the implementation of lockdown and restrictions in Q2 2020.

“The deeper an economy contracted in 2020Q2, the higher it will grow in 2021Q2,” said Doyin Salami, Chairman, Presidential Advisory Committee on the Economy.

“In the third and fourth quarters of 2021, the base effect is expected to fade out. Hence, growth will be lower,” Salami said.

Ayodeji Ebo, head, retail investment, Chapel Hill Denham also said the IMF’s projection is achievable given the increase in business activities so far this year.

Additionally, he said the impact of COVID has been minimal on the economy and vaccination is progressing albeit at a slow pace.

Elsewhere, the global growth projection for 2021 was downgraded by 0.1 percentage points to 5.9 per cent, while the global growth forecast for 2022 remained unchanged at 4.9 per cent.

The IMF’s Gopinath said “Pandemic outbreaks in critical links of global supply chains have resulted in longer-than-expected supply disruptions, further feeding inflation in many countries. Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” she said.

 

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