The cut in growth forecasts for Nigeria by the International Monetary Fund (IMF) is a signal for policy makers to urgently intensify moves to boost growth and job creation, business sources tell BusinessDay.
In its annual review of Nigeria’s economic situation, the IMF said that gross domestic product growth would slow to 2.3 percent in 2016 from an estimated 2.7 percent in 2015. In February, after IMF officials visited the country, the Fund had forecast 3.2 percent growth for Nigeria in 2016.
“Key risks to the outlook include lower oil prices, shortfalls in non-oil revenues, a further deterioration in finances of state and local governments, deepening disruptions in private sector activity due to constraints on access to foreign exchange, and resurgence in security concerns,” the IMF said in a statement.
Nigeria’s misery index jumped to 21.8 percent, as inflation and unemployment entered the double digits level of 11.4 and 10.4 percent respectively.
Economic growth in 2015 of 2.8 percent was the lowest since at least 1999 as capital controls and the hard dollar peg imposed by President Muhammadu Buhari deterred foreign investors and led to job losses in the manufacturing and services sectors of the economy.
One investment banking source tells BusinessDay that the IMF deliberately uses language that is vague and open to dual interpretation and unless one is fluent in their dialect, it can be deciphered as what the reader wants to hear.
“The bottom line is that they are pessimistic about 2016 and 2017. The growth rate projection (3.5%) in their view is improbable. “Significant downsides” in IMF vernacular is the equivalent of “highly improbable”. Also note that the positive comments are not for actions, but for the “agenda” and “commitment to future actions,” the banking source added.
The Nigerian Governments plan to boost growth entails a spending stimulus for the economy targeted at power and transportation infrastructure.
However analysts say the country’s current FX policy is a significant bottleneck that has to be addressed to boost growth and attract investments into the country.
“EM currencies that sold off last year, have recouped their losses and appreciated against the USD more recently. This includes the South African rand, the Brazilian real and Turkish lira. If this positive momentum is sustained, we may see international investors add to carry trade positions in high-yield emerging markets,” Samir Gadio Head of Africa Strategy and FICC Research at Standard Chartered Bank, said.
“Thus the risk is that Nigeria may not benefit from this favourable shift in risk sentiment as the NGN is still perceived as an expensive currency, relative to peers, including other oil producers.”
More importantly, sources point out that Nigeria is learning the wrong lessons from the slump in oil prices and embracing discredited policy choices which have led to rising inflation, lower per capita income, and shortages of essential commodities like petrol.
“With the continuing challenge in fuel supply, power, forex procurement and insurrections (Boko,) and low grade but economically significant regional agitation (IPOB, and ND), 2016 and 2017, are likely to be even worse than projected. The government needs to swiftly implement comprehensive and coherent fiscal and monetary interventions while crafting a new strategy for dealing with the security challenges,” a second source added.
PATRICK ATUANYA
