The International Monetary Fund (IMF) said on Tuesday that Nigeria’s economy would contract in 2016, “lower than earlier growth projections as the country battles through foreign currency shortages as a result of lower oil receipts, low power generation, and weak investor confidence.”
This is contained in the IMF flagship World Economic Report (WEO) in which it likewise revised its earlier 2016/2017 global growth forecast 0.1 percentage points due to the impact of the June 23 referendum, which favoured Britain’s exit from the European Union.
“Taking into account the better-than-expected economic activity so far in 2016 and the likely impact of Brexit under the assumptions just described, the global growth forecasts for 2016 and 2017 were both marked down by 0.1 percentage points relative to the April 2016 WEO, to 3.1 percent and 3.4 percent, respectively,” the IMF said in the WEO released on Tuesday.
Africa’s largest economy is headed for a recession, after GDP growth rate contracted by 0.36 percent in the first three months of 2016 and “it appears impracticable that the second quarter would not follow suite since factors that led to the contraction in Q1, intensified in Q2,” analysts said on Monday.
The country’s economic problems were kicked up by capital controls imposed by regulators and a lack of policy direction by the new government, which inhibited the flow of foreign investment.
Combined with soaring inflation, which beat analysts’ forecasts, climbing to an 11-year high of 16.5 percent (year-on-year) in the month of June from 15.6 in May, and the precarious state of banks which has subdued credit extension.
“Many commodity exporters still confront the need for sizable fiscal adjustments, and emerging market economies more broadly need to be alert to financial stability risks.
“In Nigeria, economic activity is now projected to contract in 2016, as the economy adjusts to foreign currency shortages as a result of lower oil receipts, low power generation, and weak investor confidence,” the IMF noted.
And according to the Bretton Woods Institution, “the revisions for the largest low-income country are the main reason for the downgrade in growth prospects for the low-income developing countries group.”
Even ahead of the release of this latest report, Gene Leon, IMF Senior Resident Representative for Nigeria had earlier this month projected that the country’s economy could contract for the first time in more than two decades this year as a fall in oil revenue and electricity shortages weigh on output.
The latest report worsens for advanced economies (down by 0.1 percentage points in 2016 and 0.2 percentage points in 2017) while it remains broadly unchanged for emerging market and developing economies.
Some analysts say the country may still have a chance to escape the annual recession forecast by the IMF, if the government ramps up spending in the next six months.
“We do not expect the Monetary Policy Committee of the CBN to tighten rates when it meets next week ,in response to the latest CPI data. Having left rates unchanged in her last policy meeting in May and following up with the introduction of a flexible exchange rate regime on June 23rd, we think the Committee will likely see through short term inflationary pressures and focus more on growth,” analysts at Time Economics, a consulting firm said in a July 18 note to investors.
“There’s nothing goverment can do now to forestall an economic recession this year. Asides the forex liberalisation policy which is still undermined from the supply side, government did nothing to induce the much needed economic growth. MPC members will need to focus on inducing growth next week. Chasing inflation will be like chasing shadows”, said an analyst from an investment firm who chose to remain ananymous.
Bismark Rewane” there must be a recovery plan and it is the responsibility of the fiscal authorities.
They must put together a stimulus package. The economy will contract this year, but our forecast hints at at a recovery in Q1 2017”.
Patrick Atuanya & Onyinye Nwachukwu
