The International Monetary Fund’s (IMF) 2016 economic outlook for Nigeria spells doom for the nation’s growth prospects, with the projection that gross domestic product (GDP) would be far worse than it recorded in 2015.
The expectation of the improved GDP this year is projected to plunge further to 2.3per cent as against 2.7per cent in 2015, with non-oil sector growth projected to slow from 3.6 percent in 2015 to 3.1 percent in 2016 before recovering to 3.5 percent in 2017
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 the GDP growth- lowest since democracy returned in 1999. IMF admitted that though the non-oil sector accounts for 90 per cent 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 per cent of GDP and resulting in the doubling of the general government deficit to about 3.7 per cent of GDP in 2015. Nigeria’s exports dropped about 40 per cent in 2015, pushing the current account from a surplus of 0.2 per cent of GDP to a deficit projected at 2.4 per cent 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. “Foreign portfolio inflows slowing significantly, reserves fell to $28.3 billion at end-2015. Exchange restrictions introduced by the Central Bank of Nigeria (CBN) 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 percent in 2014 to an estimated 2.7 percent 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 favourable, 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.
Meanwhile, the IMF has applauded Nigeria’s current policy agenda, which seeks to enhance transparency, strengthening governance, improving security and creating jobs, adding that despite low projections for non-oil sector in the year, government must sustain efforts to raise non-oil revenues to ensure fiscal sustainability, as well as maintaining infrastructure and social spending.
It, therefore, sought the gradual increase in the Value Added Tax (VAT) rate, improvements in revenue administration, and a broadening of the tax base.
“There should be an orderly adjustment of budgets at the sub national level through reform in budget preparation and execution, strengthened public financial management and service delivery, the implementation of an independent price setting mechanism to address petroleum subsidies, while strengthening the social safety net.”