Nigeria’s fragile economic growth which is expected to stay subdued- at least in the medium term – is fueled by insufficient policy adjustment, a large infrastructure gap, low private investment, as well as banking sector vulnerabilities, the International Monetary Fund warmed at the weekend.
The IMF says Nigeria’s growth in 2019 will come in at 2.3 percent, but could advance to 2.5 percent in 2020 as both oil and non-oil sectors ramp up.
Medium-term growth is projected at slightly higher than 2.5 percent, implying no progress in per capita growth.
Economic activity in the region’s three largest economies, Nigeria – an oil exporter; South Africa – a non-oil, resource-intensive country, and Ethiopia, a non-resource-intensive country, illustrates the bifurcated growth paths in the region, the fund notes.
“Sluggish growth in Nigeria and South Africa – which is projected to remain subdued, increasing only mildly from 0.7 percent in 2019 to 1.1 percent in 2020- is likely to limit positive spillovers to their trading partners, especially remittances, financial sector activity, and import demand” the fund stated in its Regional Economic Outlook report launched at the ongoing Annual meetings which it is hosting with the World Bank.
Growth in sub-Saharan Africa is projected to remain at 3.2 percent in 2019 and rise to 3.6 percent in 2020. The expected recovery, however, is at a slower pace than previously envisaged for about two-thirds of the countries in the region, partly due to a challenging external environment.
Growth in the region has been revised down, partly due to a challenging global environment.
According to the Fund, “Rising trade and geopolitical tensions have increased uncertainty, resulting in weak global economic activity and a significant decline in trade volumes.
“The slowdown of key trading partners is also impacting sub-Saharan Africa, with growth revised down for about two-thirds of countries in the region.”
Growth is projected to remain strong in non-resource-intensive countries, averaging about 6 percent. As a result, 24 countries, home to about 500 million people, will see their per capita income rise faster than the rest of the world.
In contrast, growth in resource-intensive countries, including Nigeria is expected to move in slow gear of about 2½ percent. Hence, 21 countries are projected to have per capita growth lower than the world average.
While growth in countries like Ghana, Kenya, and Rwanda will remain strong, weak performance in some of the largest economies, including Angola, Nigeria and South Africa will continue to weigh on growth outlook for the region.
“Reducing risks and promoting sustained and inclusive growth across all countries in the region requires carefully calibrating the near-term policy mix, building resilience, and raising medium-term growth,” the IMF notes.
Inflation is expected to ease going forward. While the average sub-Saharan African-wide debt burden is stabilizing, elevated public debt vulnerabilities and low external buffers will continue to limit policy space in several countries.
The Fund is further concerned that elevated balance sheet vulnerabilities in many countries limit the room for macroeconomic policies to address downside risks to growth.
Several countries have weaknesses in public balance sheets, with high debt ratios and limited repayment capacity, low levels of foreign exchange reserves, and weaknesses in financial and nonfinancial corporate balance sheets.
Also, Public Debt Vulnerabilities remain elevated. The region’s public debt as a ratio to GDP has stabilized at about 55 percent on average across countries.
Oil exporters’ debt ratios have fallen by about 10 percentage points of GDP since 2016.
External Buffers also Remain Low and for the region, the average current account deficit is expected to widen from 6.2 percent of GDP in 2018 to about 7.2 percent of GDP in 2019, reflecting larger deficits in oil exporters- due to lower projected oil prices – and in countries suffering from weather-related shocks.
At the end of 2019, foreign exchange reserves are expected to remain between 3 and 4 months of imports, with wide differences across countries.
Banks’ Balance Sheets Remain Weak and has seen NPL ratios remain elevated in the region, averaging 11 percent.
“This reflects, in some cases, deficiencies in risk management practices, the legacy of the commodity price shock, and weaknesses in public balance sheets, which have weighed on suppliers’ finances, including through domestic arrears.
The accumulation of arrears, in turn, has hampered suppliers’ ability to service their liabilities to banks.”
High NPLs, public borrowing, and regulatory changes have contributed to slowing private sector credit growth, hampering economic activity.
The IMF now recommends what it calls a three-pronged strategy that reduces risks and promotes sustained growth across all countries in the region
These include; Carefully calibrating the near-term policy mix meaning fiscal and monetary policy could be carefully recalibrated to support growth, in a manner consistent with debt sustainability and available financing, and as part of a credible medium-term adjustment plan.
The strategy would also require building resilience which would help the region sustain longer episodes of strong growth, as well as raising per capita growth rates, especially for resource-intensive countries, which is essential to sustain improved social outcomes and create jobs for the 20 million (net) new entrants poised to join labor markets every year.
“Comprehensively tackling tariff and nontariff barriers in the context of the AfCFTA, developing regional value chains, and implementing reforms to boost investment and competitiveness could lift the region’s medium-term growth,” the fund further notes.
