Nigeria’s economy will most likely contract this year as energy shortages and the delayed budget weigh on output, the International Monetary Fund has said.
“I think there is a high likelihood that 2016 as a whole will be a contractionary year,” the IMF Country Representative in Nigeria, Gene Leon, said.
While the economy should look better in the 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 added.
The nation’s Gross Domestic Product shrunk by 0.4 per cent 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 was 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 fuel to milk and contributed to the contraction in the first quarter.
Leon said while conditions that impeded growth in the first half of the year might have been reduced, they still weighed on the economy, Bloomberg reported.
He listed the conditions as fuel and power shortages, foreign exchange scarcity and higher price of dollars at the parallel market.
The Washington-based lender cut its 2016 growth forecast for Nigeria to 2.3 per cent in its April Regional Economic Outlook from 3.2 per cent projected in February.
The World Bank lowered its forecast to 0.8 per cent last month, citing weakness from oil-output disruptions and low prices.
Last year’s expansion of 2.7 per cent was the slowest in two decades, according to IMF data.
Leon said, “Most people would agree that if you should fix one thing in this country, it should be power. There is a need to start changing the power equation from 2016, from today, not tomorrow or later.”
Leon said while inflation would probably continue its upward trend through the end of this year, it might not exceed 20 per cent.
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 Monetary Policy Committee, needs to be clear to participants in markets what exactly their priority is,” he added.