The International Monetary Fund’s 2016 economic outlook for Nigeria spells doom for the nation’s growth prospects, with the projection that gross domestic product would be far worse than it recorded in 2015.
The expectation of the improved GDP this year is projected to plunge further to 2.3% as against 2.7% in 2015, with non-oil sector growth projected to slow from 3.6% in 2015 to 3.1% in 2016 before recovering to 3.5% in 2017, Yahoo reported.
The fund under its 2016 Article IV Consultation bilateral discussion with Nigeria, by its executive board, which was posted on the multilateral agency’s website last Friday, projected GDP growth lowest since democracy returned in 1999.
IMF admitted that though the non-oil sector accounts for 90% of the nation’s GDP, the oil sector, amid the global price volatility, would still play a central role in the economy. The fund noted that lower oil prices have significantly affected Nigeria’s fiscal and external accounts, decimating government revenues to just 7.8% of GDP and resulting in the doubling of the general government deficit to about 3.7% of GDP in 2015.
Nigeria’s exports dropped about 40% in 2015, pushing the current account from a surplus of 0.2% of GDP to a deficit projected at 2.4% of GDP.
With foreign portfolio inflows slowing significantly, reserves fell to $28.3 billion at end-2015. Nigeria’s foreign exchange reserve is currently fluctuating at an 11-year-low, but the IMF posited that it would fall further to new lows at about $21.5 billion before the end of the 2016 fiscal year.
Impact on Private Sector
Foreign portfolio inflows slowing significantly, reserves fell to $28.3 billion at end-2015. Exchange restrictions introduced by the Central Bank of Nigeria to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies.
“Coupled with fuel shortages in the first half of the year and lower investor confidence, growth slowed sharply from 6.3% in 2014 to an estimated 2.7% in 2015.” The effect of all these was seen in the “weakening corporate balance sheets, lowering the resilience of the banking system, and likely reversing progress in reducing unemployment and poverty.”
While observing that Nigeria’s financial sector soundness indicators have remained favorable, IMF said that further strengthening of the regulatory and supervisory frameworks would help improve resilience now that operating costs and low earnings’ stream are dominating results.
“With declining asset quality, a concern as growth slows, intensified monitoring of banks and enhanced contingency planning and resolution frameworks would be important. Lowering interest rate spreads and increasing efficiency could enhance credit growth, especially for small and medium enterprises,” it noted.
