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IMF: why we downgraded Nigeria’s economic outlook

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IMF downgrades Nigeria economic outlook

The International Monetary Fund, IMF, has stated that forecast for Nigeria has been revised down for both years, especially this year.

“There are multiple reasons”, the IMF stated.

“One key reason was the supply disruptions in the oil sector due to activity in the Delta Region, for sure. There were energy power outages. The delayed budget didn’t help, and more generally, effects shortages which is, to some extent, being alleviated now, didn’t help with the purchases of intermediary goods investment.”

In Press Conference on the Release of the July 2016 World Economic Outlook Update, the world body stated “All of these factors combined to pull down the forecast for this year. Some of these will ease going forward, hence, the downward division for next year was less and we expect some rebound in growth next year.”

The IMF yesterday predicted that Ngeria’s economy, the biggest in Africa, is likely to contract by 1.8 percent this year, as the country grapples with the impact of low oil prices.

The sharp fall in global prices since 2014 has led to a prolonged economic crisis since the crude sales make up around 70 percent of government revenue.

The IMF’s projection for this year, contained in its World Economic Outlook update, is down from the 2.3 percent growth it foresaw in its April forecast. It now forecasts 1.1 percent growth for 2017, down from 3.5 percent in the April forecast.

Gross domestic product contracted by 0.36 percent in the first quarter of the year and the central bank’s governor has said a recession appears to be imminent.

“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 said.

Central bank currency restrictions imposed last year in an attempt to protect dwindling foreign reserves prompted investors to flee and led to dollar shortages, pushing down the naira currency’s value on the country’s burgeoning black market.

The peg on the value of the naira, which had been in place for 16 months, was removed in June but liquidity remains thin.

 

Militant attacks on oil and gas facilities in the southern Niger Delta energy hub have cut oil production, pushing what was Africa’s largest oil producer behind Angola and threatening the country’s main revenue source.

Asked what President Muhammadu Buhari and his economic Managers could to to save the Nigerian economy at the time when the local currency cap has been removed, IMF emphasized a need for a coherent, comprehensive package.

“One aspect of that is to restore fiscal sustainability, so there’s some work to be done on the fiscal side. Restore external imbalances to greater flexibility on the exchange definitely goes in the right direction there. But there seems to be more to be done”, IMF said yesterday.

More generally, there’s also a need to deal with structural reforms, ensuring inclusive growth, better business climate, greater certainty for businesses going forward.

Excerpts from Transcript of the IMF Press Conference on the Release of the July 2016 World Economic Outlook Update

Washington D.C.

July 19, 2016

The growth reduction in Sub-Saharan, which is largely driven by two of the largest countries, Nigeria and South Africa, has a dramatic implication.

In 2016, regional output growth per capita will actually be negative. In other words, output growth will fall short of population growth.

Our revisions incorporate projected negative effects of Brexit, but also other developments since April that led us to adjust the outlook.

Naturally, the direct effects of Brexit are greatest in the United Kingdom. They also affect Europe to a significant degree. But our projections for other areas are little affected by Brexit in the baseline scenario.

Despite an uneven distribution across regions of the world, our overall growth downgrade for the baseline global projection is moderate. And it reflects, among other things, a relatively benign assessment of Brexit’s negative impact.

QUESTIONER: I wanted to ask you, refocus on Sub-Saharan Africa for a moment. The overall number is fairly low, it’s been downgraded, which is I guess a concern given that Sub-Saharan Africa needs to have fairly strong growth in order to support sit own population growth and development. Secondly, on Nigeria, that number is pretty starkly downgraded in this outlook. Can you tell me what the major reasons are, that you think that Nigeria’s numbers have come down so much in the last few months since April. Thank you.

MR. OBSTFELD: Well, it’s important to emphasize that Sub-Saharan Africa is fairly diverse in how different economies are doing. And as you say, Nigeria is in particularly difficult situation. I’m going to let my colleague Oya, respond on the details of that.

MS. CELASUN: That’s right. The forecast for Nigeria has been revised down for both years, especially this year. There are multiple reasons; one key reason was the supply disruptions in the oil sector due to activity in the Delta Region, for sure. There were energy power outages. The delayed budget didn’t help, and more generally, effects shortages which is, to some extent, being alleviated now, didn’t help with the purchases of intermediary goods investment.

All of these factors combined to pull down the forecast for this year. Some of these will ease going forward, hence, the downward division for next year was less and we expect some rebound in growth next year.

MS. STANKOVA: I will take a follow up question from online on Nigeria. If you could say a few words to be add what can be done to save the Nigerian economy at the time when the local currency back has been removed.

MR. CELASUN: I think what our team has been emphasizing is a need for a coherent, comprehensive package. One aspect of that is to restore fiscal sustainability, so there’s some work to be done on the fiscal side. Restore external imbalances to greater flexibility on the exchange definitely goes in the right direction there. But there seems to be more to be done.

More generally, there’s also a need to deal with structural reforms, ensuring inclusive growth, better business climate, greater certainty for businesses going forward.

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