IMF: Nigerian Economy to Grow by 1.9% in 2018 But Subdued by Population Growth

Kunle Aderinokun, Chika Amanze-Nwachuku, Obinna Chima and Nume Ekeghe in Washington D.C.

The International Monetary Fund (IMF) has projected that the Nigerian economy will expand by 1.9 per cent in 2018, but would remain subdued due to population growth, cautioning that the country’s projected growth was still lower than its population growth rate of 2.7 per cent.

The IMF also pointed out that concerns about policy implementation and market segmentation in the foreign exchange market would be a challenge in the medium-term.

The Division Chief, Research Department, IMF, Oya Calesun, gave the forecast while briefing the media on the World Economic Outlook (WEO) released Tuesday at the IMF/World Bank Annual Meetings in Washington D.C.
In sub-Saharan Africa, the IMF also forecast that the Nigerian economy would grow faster than South Africa’s in 2017.
This is a reversal of the fund’s earlier projection in July that South Africa’s economy would grow by 1 per cent in 2017, while Nigeria will experience a 0.8 per cent economic expansion.

It said rising political uncertainty has reduced consumer and business confidence in South Africa.
According to the IMF, Nigeria’s growth this year was projected at 0.8 per cent owing to recovering oil production as well as improved output in the agricultural sector.
The Nigerian economy grew by 0.55 per cent in the second quarter of 2017, signposting the end of a crippling recession after five consecutives quarters of contraction.

This was partly influenced by growth in the oil sector and agriculture, the IMF affirmed.
The Central Bank of Nigeria (CBN), through its Anchor Borrowers’ Programme (ABP), has continued to intervene in the agriculture sector, resulting in improved production.
Through the ABP, the CBN has released N43.92 billion to 13 participating institutions as of October 1, while 200,000 smallholder farmers from 29 states of the federation have benefitted from the programme.

In addition, with the abundance of rainfall last year and this year, agriculture output has continued to improve.
The IMF in its report, however, stressed that the Nigerian economy was not yet out of the woods, noting concerns about policy implementation and market segmentation in the foreign exchange (forex) market that was still dependent on the central bank’s interventions (despite initial steps to liberalise the foreign exchange market).

It further added that banking system fragilities were expected to weigh on activities in the medium term.
“We see significant amount of heterogeneity. What we see in the headline numbers, a pick up in growth this year, which is largely driven by the larger economies – Nigeria, Angola and South Africa.

“In particular, in the case of Nigeria, stronger oil output and the dissipating problems in the Niger Delta and better agricultural production are playing positive roles in driving growth.
“Again, it is not a very strong growth. That is not to say a number of economies are not growing stronger. But there are still risks,” Calesun said while responding to a question on the Nigerian economy.
However, the IMF in the WEO, noted: “Nigeria is expected to emerge from the 2016 recession caused by low oil prices and the disruption of oil production.

“On May 25, 2017, OPEC agreed to extend to March 2018 the production agreement in place since January this year. The agreement entails a cut of 1.2 million barrels a day (mbd) from October 2016 production.
“Russia and other non-OPEC countries agreed to stick to current production, implying additional cuts of about 0.6mbd from the October 2016 level (bringing the total cuts to 1.8mbd).

“Notwithstanding efforts by the oil exporters participating in the production agreement, oil prices had fallen to less than $44 a barrel by late June, the lowest since November 2016, right before the initial production cuts were announced.
“The main drivers were stronger-than-expected US shale production and stronger-than-expected production recovery in Libya and Nigeria, which are exempt from production cuts.

“In addition, exports from OPEC countries appeared to be sustained at relatively high levels, even with lower production.”
Also, the fund estimated that growth in sub-Saharan Africa was projected to reach 2.6 per cent in 2017 and 3.4 per cent in 2018, which was broadly in line with its April forecast, with sizable differences across countries.
It noted that downside risks had risen because of idiosyncratic factors in the region’s largest economies and delays in implementing policy adjustments.

It upgraded global growth projections to 3.6 per cent for this year and 3.7 per cent for next year, in both cases 0.1 percentage point above its previous forecasts, but well above the 2016 global growth rate of 3.2 per cent, the lowest since the global financial crisis.
For 2017, most of the upgrade was due to brighter prospects for the advanced economies, while the positive revision for 2018 arose from emerging markets and developing economies, which are expected to play relatively bigger roles in the global economy.

“Notably, we expect sub-Saharan Africa, where growth in per capita incomes has on average stalled for the past two years, to improve overall in 2018.
“The current global acceleration is also notable because it is broad-based—more so than at any time since the start of this decade. This breadth offers a global environment of opportunity for ambitious policies that will support growth and raise economic resilience in the future.

“Policymakers should seize the moment: the recovery is still incomplete in important respects, and the window for action the current cyclical upswing offers will not be open forever,” it explained.
It stressed the need for structural reforms across countries, stating that for countries that had returned close to full employment, gradual fiscal consolidation was required to reduce swollen public debt levels and build buffers against the next recession.

“Higher infrastructure and educational spending, which are needed in some countries that do have fiscal space, can have the added benefit of boosting global demand, just as consolidation measures elsewhere subtract from it.
“This multilateral fiscal policy mix can also help reduce excess global imbalances,” it added.