The International Monetary Fund (IMF) has warned countries in sub-Saharan Africa to urgently address the challenges facing their economies. It holds much lesson for Nigeria as much as it does for the governments of the other countries in sub-Saharan Africa. The IMF’s warning was contained in its Regional Economic Outlook, released some days ago. It described the situation in the region at the moment as “living on the edge.” Besides, the report says the economic outlook of the region “is extremely uncertain” because of geopolitical tension, monetary tightening and food crisis.
With the region’s debt to GDP at 24.1 per cent, 23.8 per cent projected for 2023, many countries in sub-Saharan Africa are living in borrowed times as fiscal crisis resulting from fears of debt overhang and insecurity signal a present danger with far-reaching consequences if the economic challenges are not tackled immediately. However, the IMF has identified four policy priority areas governments in the region can explore to overcome the challenges. These include food security, a shift in the management of monetary policies, consolidation of public finances and the necessity to set the stage for sustainable growth.
Between 2010 and 2018, the debt to GDP of sub-Saharan Africa averaged 15.3 per cent, but rose to 22.8 per cent in 2019 and 26.5 per cent in 2020 amid the COVID-19 pandemic. Last year, the ratio closed at 24.6 per cent. Although within this period (2010-2018), Nigeria’s debt to GDP was the least at 9.1 per cent, but latest data from the IMF and the World Bank predicted an increase of 38.6 per cent next year from its present 37.3 per cent. Last year, Nigeria’s debt to GDP was 36.6 per cent, while that of entire sub-Saharan Africa was 57 per cent, and it is expected to come down to 53.7 per cent next year.
Also, Nigeria’s sovereign debt to GDP is rising because of the binge borrowing by the Federal Government, while that of Africa is going down, according to figures from multiple sources, including the IMF and the World Bank. Nigeria’s debt to GDP is estimated to close at 6.2 per cent for 2022. This is higher than the rest of the sub-Saharan Africa projected at 4.5 per cent. Put together, on almost every macroeconomic level, Nigeria’s economy is underperforming even when regional indebtedness is approaching the level last seen in the 2000s before the impact of COVID-19. Available figures show that many of the countries in the region are facing debt distress. Nigeria, Angola and Gabon, all oil-producing nations, have been on the throes of acute fiscal and monetary policy challenges, spreading over 1000 basis points over the last six months. Nigeria’s inflation rate has been on the increase for over a year now, with the latest inflation rate of 20.7 per cent being the highest since 2005.
Excessive importation is worsening the unemployment rate, according to the Manufacturers Association of Nigeria (MAN). The Federal Government’s Executive Order 003 and 005 targeted to boost local production through the patronage of locally-produced goods and lessen the amount spent on importation of goods have not yielded the expected results because of insecurity and foreign exchange instability.
In order to grow the economy, create jobs and broaden the revenue base of the country, the manufacturing sector needs huge investment support to scale up production through increased capacity utilisation and reduce patronage of foreign goods. But the goods produced locally must meet international market standards in both quality and packaging.
Unfortunately, businesses that will help the economy to grow and increase the GDP and reduce the debt to GDP ratio are collapsing. According to MAN, over 300 businesses collapsed in the last four years while some relocated to neighbouring West African countries as a result of power supply challenges and cost of raw materials. The last time Nigeria recorded an economic growth of 6 per cent was in 2014. Since 2015, Nigeria has not been able to achieve an annual growth of 3 per cent. In 2015, it was 2.79 per cent, 1.58 per cent in 2016, and an average of 1.95 per cent between 2017 and 2020.
Recently, the IMF lowered Nigeria’s economic growth projection of 2022 to 3.2 per cent. It also said Nigeria’s economic growth will slow to 3 per cent in 2023. This is an indication that the economy is wobbling, which will ultimately lead to lower GDP growth. It is also a pointer to the fact that government’s policies have not met their implementation targets. With only a few months to go, the government should consolidate on its projects.
Undoubtedly, countries in sub-Saharan Africa need competent leaders to fix their various economies. In Nigeria, the government needs to do more to improve the economy. The erratic power supply in the country must be improved upon as well as the ease of doing business and security. Let the government put in place measures that are necessary for economic growth. Small and medium enterprises need access to credit at reasonable interest rate. Diversification of the economy remains a major accelerator of growth and development.