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IMF Says Nigeria's Economy To Decline This Year

Source: pointblanknews.com
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Nigeria's economy will probably contract this year as energy shortages and

the delayed budget weigh on output, according to the International

Monetary Fund.
“I think there is a high likelihood that the year 2016 as a whole will be

a contractionary year,” Gene Leon, the fund's resident representative in

Nigeria, said in an interview in the capital, Abuja, on July 8. While the

economy should look better in second half of the year, growth will

probably not “be sufficiently fast, sufficiently rapid to be able to

negate the outcome of” the first and second quarters, he said.

Africa's largest economy shrunk by 0.4 percent in the three months through

March, the first contraction in more than a decade, as oil output and

prices slumped and the approval of spending plans for 2016 were delayed. A

currency peg and foreign-exchange trading restrictions, which were removed

last month after more than a year, led to shortages of goods from gasoline

to milk and contributed to the contraction in the first quarter.

While conditions that impeded growth in the first half of the year,

including shortages of power, fuel, and foreign exchange, as well as the

higher price of dollars on the the parallel market, may have been reduced,

they still weigh on the economy, Leon said.
The Washington-based lender cut its 2016 growth forecast for Nigeria to

2.3 percent in its April Regional Economic Outlook from 3.2 percent

projected in February. The World Bank lowered its forecast to 0.8 percent

last month, citing weakness from oil-output disruptions and low prices.

Last year's expansion of 2.7 percent was the slowest in two decades,

according to IMF data.
“Most people would agree that if you should fix one thing in this country,

it should be power,” Leon said. “There is a need to start changing the

power equation from 2016, from today, not tomorrow or later.”

Nigeria generated an average of 2,464 megawatts of electricity on June 6 ,

according to information from the power ministry. This is less than half

of the installed capacity of 5,000 megawatts for a nation whose population

of 180 million people is the highest on the continent. It compares to

power generating capacity of more than 40,000 megawatts in South Africa,

which has a population a third of the size.
While inflation will probably continue its upward trend through the end of

this year, it is unlikely to exceed 20 percent, Leon said. Price growth

accelerated to 15.6 percent, the highest rate in more than six years, in

May and probably quickened to 16.2 percent last month, according to the

median of seven economist estimates compiled by Bloomberg.

The central bank's Monetary Policy Committee “may be open to tolerating a

little more inflation if growth emerges as the priority, as opposed to

choking inflation and squeezing the little life out of growth,” Leon said.

“But the central bank, in conjunction with the MPC, needs to be clear to

participants in markets what exactly their priority is.”

The Central Bank of Nigeria left its benchmark rate unchanged at 12

percent in May and will announce its next decision on July 26 .

The MPC is likely to increase the rate by 500 basis points in the next

year “to address the prevailing inconsistencies between an accommodative

monetary policy and a more flexible exchange rate,” Goldman Sachs said in

a note on July 8.
President Muhammadu Buhari signed a record budget of 6.1 trillion naira

($21.6 billion) with a deficit of 2.2 trillion, or 2.14 percent of gross

domestic product, in May after a delay of four months. The fact that the

budget was passed late means it's likely not all the capital spending

planned to boost growth will take place, or it will not be as prudent as

initially set out, Leon said.
If growth falls to zero percent “then that's a huge gap the country has to

fill,” Leon said. If expenditure stays as planned, and revenue is less due

to the lack of growth “then we should see not smaller but potentially a

larger deficit,” he said.
The naira, which as pegged at 197-199 per dollar until June 17,

strengthened 0.1 percent to 282.33 per dollar at 3:13 p.m. the commercial

capital, Lagos.
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