Things are looking up for Nigeria; end of recession in sight

Nigeria is expected to emerge out of recession this year, per a report by the International Monetary Fund (IMF). The assessment done by the IMF stated that growth would pick up slightly by 0.8 percent in 2017. This growth would mostly reflect some recovery in the oil production and a continuing strong performance in agriculture, although policy uncertainty, crowding out, and forex market distortions would likely drag activity, and accommodating monetary policy would keep inflation in double digit.

Since 2016, the Nigerian economy has been negatively impacted by low oil prices and production leading to her gradual slide into recession. In the second quarter of 2016, the National Bureau of Statistics (NBS) confirmed Nigeria being in recession, with figures showing growth contracting by 1.5 percent and annual inflation doubling to 18.6 percent. These figures were reflecting in fuel and electricity tariff hikes, as Naira grew weaker — broad money expanding at 19 percent year-on-year.

There were significant shortfalls because of under-execution in capital spending causing an increase in fiscal deficit from 3.5 percent of GDP in 2015 to 4.7 percent of GDP in 2016. This rippling effect resulted, over the same period, a doubling of Federal Government interest payments-to-revenue to 66 percent.

For a successful exit of recession, the Fund called for ‘’a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues that would create space for infrastructure spending, social protection and private credit sector’’. It also stated that “Acting on an appropriate and coherent set of policies to enhance an economic recovery remains urgent – a monetary policy that avoids direct financing of the government, ensures a unified and market-based exchange rate, and a rapid implementation of structural reforms.

The team, led by Amine Mati, senior resident representative and mission chief to Nigeria at the IMF, said Nigerian banks’ NPLs grew from 6 per cent in 2015 to 15 per cent in 2017. “Preliminary data for the first half of the year indicate significant revenue shortfalls, with interest-payments to revenue ratio remaining high (40 per cent at end-June) and projected to increase further under current policies,”

In reaction to this projection, the Chief Executive Officer (CEO), Financial Derivatives Limited, Mr. Bismarck Rewane, said he was optimistic that the country would exit recession this year in line with IMF prediction, if only some risk mitigates are put in place. He allayed fears on the risks highlighted by IMF, saying there is no country insulated from such.

Mr Reawane, also disclosed that when the undercapitalised banks are taking away, the Non- Performing Loan (NPL) ratio will drop to 8 percent, adding that the banking sector vulnerability remained responsible for the high level of NPL and the current level of interest rate makes loan recovery process slow and difficult as banks are forced to stop lending to private sector. The CEO advised that all that needs to be done at this stage was government to identify risk and manage them better with robust policies.

“The IMF had forecasted a growth of -1.8% for 2016. However, the economy is performing better than the IMF estimates so far. For the half year, it stands at -1.23% compared to an average of -1.80% expected on average by the IMF.”

Considering the persisting internal and external challenges, they emphasized that stronger macroeconomics policies are urgently needed to rebuild confidence and foster an economic recovery but the 0.8% growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty,” with inflation and unemployment hovering around worrying levels, the Central Bank of Nigeria has been placed under immense pressure to act, which may weigh on investor sentiment.

The IMF emphasized that ambitious structural reforms are key to achieving a competitive, investment-driven economy that is less dependent on oil. Priority should be given to improving infrastructure, enhancing the business environment, improving access to financing for small enterprises, and strengthening governance and anti-corruption efforts. Timely and effective implementation of these measures would promote sustainable and inclusive growth. It also welcomed progress in improving the quality and availability of economic statistics and encouraged further efforts to compile sub-national fiscal accounts.