Key Takeaways from IMF’s Cut in Nigeria’s Growth Projection

The downgrade of Nigeria’s economic growth forecast by the International Monetary Fund, is a clarion call for the current administration to redouble its efforts in its mission to salvage the troubled economy, reports Festus Akanbi

Last Monday, the 2023 Annual Meetings of the World Bank Group and the International Monetary Fund (IMF) started in Marrakech, Morocco on a cautionary note amid the spectre of global inflationary trend and the rising cost of funds.

In what has been described as a baptism of fire of sorts, the Nigerian delegation, which was attending the annual event for the first time, was handed a not-so-desirable growth projection which the International Monetary Fund (IMF) reduced from 3.3 per cent to 2.9 per cent in 2023 and 3.1 in 2024 respectively, with the negative effects of high inflation on consumption.

According to the multi-lateral institution, the reduction contained in the World Economic Outlook released at the annual meeting showed that the 0.3 downward estimate reflected weaker oil and gas production than expected.

The World Bank had cut Nigeria’s 2022 growth forecast to 3.1 per cent from a previous forecast of 3.8 per cent in 2022. In its last Nigeria Development Update (NDU) launched in Abuja, the bank said the nation had to make hard choices or face a worse economic downturn in the months and years ahead.

The current administration has removed fuel subsidy and floated the exchange rate in line with the age-long recommendation of the IMF and World Bank. The immediate result has been the tumbling of the naira rate to over N1000 to the dollar, and the increase in the energy prices by four folds from N144 to N620, impacting an already worsening inflation scenario.

 Low-Hanging Fruits

However, the unpalatable report of the Bretton Woods institution notwithstanding, financial experts said rather than lamenting the sorry state of the nation’s economy, Nigeria’s policymakers should guard their loins and begin to change the narrative for the better.  

In an interview with our correspondent last week, Chief Executive Officer of DataPro Limited, Mr. Oladele Adeoye insisted the road to the current economic situation began a very long time ago when the successive administrations failed to do the needful in terms of good economic planning.

“There is no shortcut to addressing the twin problem of currency devaluation and inflation. These are aggregated outcomes of a long period of paying lip service to our economic framework which has now become highly vulnerable to the slightest of shock from the global market.

“However, can we start to rebuild from somewhere however little, the answer is definitely yes,” Adeoye said. 

On the appropriate low-hanging fruits to go for, Adeoye said the focus should be on how to earn foreign exchange, saying it is practically impossible to defend the Naira without earning a considerable amount of foreign inflow. 

He said: “Therefore, my first suggestion is for government to address the issue of oil theft and block leakages associated with it. The short-term drive should be to ensure at all costs that we pump enough crude to at least meet our OPEC quota so that more inflow can be attracted to the purse. Government should as far as possible tackle all kinds of corruption associated with roundtripping in whatever disguise. This is because, no matter the volume of inflow into the system, dollar speculators will not allow the benefits to be felt.” 

Stressing the need to ensure the expenditure side of forex is tightly managed, the DataPro chief executive said the measure should begin with the refineries.  He pointed out that the government should stick to the timeline of getting our refineries to work. This, according to him, will address energy costs, transport costs, and prices of food. 

On his part, the MD/CEO of SD&D Capital Management Limited, Mr. Idakolo Gbolade, explained that the downgrade of Nigeria’s growth projections was a result of the consistent failure to meet OPEC quota and inadequate investment in the oil and gas sector which has caused a reduction in revenue projections. 

He stated further that “the increasing inflation rate is also a major challenge and the instability of the naira is a factor that was also considered. The government needs to aggressively market the country to both local and foreign investors to increase economic activities in key sectors of the economy. The most important focus must be on the oil and gas, energy, telecommunications, manufacturing, and agricultural sectors.”

According to him, tax reforms must also be embarked upon in a way that would not hurt businesses and governments can increase their tax revenues. He added that the Nigerian government also needs to strongly intervene to stem the continuous slide in the value of the Naira and that the federal government should pursue its economic policies aggressively with all hands on deck. 

Group Executive Director, Cordros Capital, Mr. Femi Ademola believed that economic growth projections are momentary and that they are based on current realities and immediately foreseeable developments. He pointed out that the downgrade of Nigeria’s projection is due to a projected decline in economic activities due to the unavailability of fx and the high cost of business operations, explaining further that if these developments reverse, the growth projections would also be updated upwards. 

To redeem the situation, Ademola said that the most important tasks before the government is the increase in supply of fx and lower inflation, adding that these can only be solved by the resolution of security challenges in the country. 

“Improved security would improve oil production and supply of fx. It would also increase food production with a significant impact on domestic inflation. The resolution of these two important issues would help the country’s economic growth positively,” the investment banker said. 

 Rising Inflationary Trend

Nigeria’s annual inflation rate climbed to 25.8 per cent in August 2023, from 24.08 per cent in July and marking the highest rate since September 2005, reflecting the impact of the removal of fuel subsidies, the devaluation of the official exchange rate, and security issues in food-producing regions.

Free Fall of Naira

Nigeria’s external reserves did not fare any better, slipping from $34.1 billion at the end of Q2 to a slightly lower $33.2 billion by Q3’s end. This decline further adds to the concerns regarding the country’s economic stability. Both the apex bank and financial industry watchers agreed that fx backlog should be blamed for the current misfortune of the naira, as according to the Minister of Finance and Co-ordinating Minister of the Economy, Olawale Edun, up to about $6.8 billion of overdue forward payment, that is to say, a delay in payment to a vendor or service provider was responsible for the slump in the value of the naira.

This was corroborated by the new CBN Governor, Olayemi Cardoso when he explained “Right now, we have a situation where we are aware that there are unsettled obligations by the CBN. Whether it is $4billion, $5billion, or $7billion, I don’t know but the immediate priority will be to verify the authenticity and extent of what is owed.” As of Wednesday, the naira was trading at N1040 per us dollar in the black market.

 Oil Theft

The reduction in the growth projection has also renewed the worry over oil theft and the attendant revenue losses to the government.  Last week, the Senate mandated its committees on Petroleum Resources, (Upstream, Downstream,) Gas, Host communities, and Niger Delta to conduct an investigation on oil theft in the region. It specifically mandated the committees to investigate the actions of security forces, militia groups, local populace, company employees, and any individuals or entities suspected to be using sophisticated methods to pilfer from oil facilities within the country.

Between September 30 and October 6, 128 crude oil theft incidents were recorded across the oil-producing areas of the Niger Delta. This is according to a report from the weekly “Energy and You” series produced by the Nigerian National Petroleum Company Limited (NNPCL) and airing on the NTA News Network.

For Nigeria to regain its lost glory on the economic front, analysts said this is the time for President Bola Tinubu and his men to roll up their sleeves and lead by example.