THE International Monetary Fund (IMF) has projected that the Nigerian economy will most likely contract by 1.8 percent this year. If that forecast comes to pass, it will be the first time in about 26 years that the nation’s economy will record such a low level of growth. Consequently, the global financial lender has cut its 2016 growth forecast for Nigeria from the 2.3 percent projected in April. The projection for next year has been reduced to 1.1 percent from 3.5 percent. The IMF’s latest forecast is contained in its World Economic Outlook update released last Tuesday.
In the report, IMF said, “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 multinational financial institution also affirmed that Nigeria’s Gross Domestic Product (GDP) contracted by 0.36 percent in the first quarter (Q1) of this year. This is coming just as economic experts have predicted that the economy will record another negative growth in the second quarter of 2016.
The negative growth forecast by IMF has also been corroborated by the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele. He told the Senate last week that recession appeared imminent because of more than two quarters of consecutive slow economic growth, noting that the performance of the economy in the last one year has been abysmal. He attributed the situation to current global economic conditions, accentuated by contracting growth, low oil prices and hyper inflation, which has hit an all-time high of 16.5 percent in June, according to the National Bureau of Statistics (NBS). Also, the Finance Minister, Mrs. Kemi Adeosun, told the Senate last week that Nigeria is “technically in recession.”
The IMF forecast also downgraded the economic forecasts of sub-Saharan Africa, especially that of South Africa, Ghana and Angola, which are among the leading economies in Africa. It explained that the downgrade of the region’s forecast is a reflection of the “challenging macroeconomic conditions” that have resulted in low-income countries experiencing significant downward revision in 2016. This, it added, was largely driven by economic contraction in Nigeria, and worsened by the negative outlook in South Africa, Angola and Gabon.
Altogether, the latest IMF forecast signposts the uncertainties that have beset Nigeria’s economy for over two years now, and the inability of our policy makers to respond effectively to the challenges facing the economy. The attendant soaring inflation is already affecting the living conditions of the people.
The indices upon which IMF based its forecast have been with us for many months, if not years. They predate the present administration. The fall in oil prices, energy crisis and inflation have, however, worsened in the last one year. Multilateral institutions like IMF and the World Bank have been issuing alerts on the country’s worsening economic situation.
The way forward is for the government to design strategies that can reverse the negative indices that led to the ongoing contraction of the economy. We also need sound monetary and fiscal policies that will stimulate economic growth. Nigeria needs to declare an emergency on the economy and come up with policies that can boost its key sectors and investors’ confidence.
The currency restrictions imposed by the CBN last year in an attempt to protect the dwindling external reserves obviously prompted investors to flee. It also led to dollar shortage that pushed down the value of the naira. Not surprisingly, therefore, the IMF forecast of 1.8 percent contraction may worsen in the third quarter of 2016, unless urgent steps are taken to reverse the trend.
We maintain that at no other time in recent history has our economy been in this danger. Our precarious economic outlook calls for government and policy makers to do something urgently to ensure sustainable economic growth that can lift our people out of poverty. There is hope that the economy will bounce back if government can strengthen its growth strategies.
The current challenges require the identification of measures that are required to turn the economy around. We will need to boost investment and improve good governance, service delivery and the transparency of policies. Increasing investments must start with the provision of an enabling environment in sectors such as power. We also need to provide access to credit at low interest rates, security and good infrastructure. Currently, power supply in the country has dropped to less than 3,000 megawatts.
Public expectation is that the CBN should do more than it has already done. It should improve its monetary policies. In that direction, we advise the CBN to take a comprehensive look at the macro-economic picture of the economy as it starts its Monetary Policy Committee (MPC) meeting in Abuja today. The expectation is that by the end of the meeting tomorrow, effective measures will be put in place to address the various challenges facing the economy. Nigerians also expect solutions to the economic crisis from the National Economic Council (NEC), which deliberated on the economy last Thursday.
Among other things, the economy needs exchange rate stability as part of a wider macroeconomic policy package to absorb the present supply shock. The new forex rules recently introduced by the CBN may be good, but the country needs more measures to achieve sustainable economic growth. These tough times require bold measures that will see the economy out of its present negative territory.