IMF cuts Nigeria growth forecast to 2.3% after reviewing government policies

The International Monetary Fund (IMF) expects growth in Nigeria, Africa’s largest economy to decline to 2.3 percent in 2016 with non-oil sector growth projected to slow from 3.6 percent in 2015 to 3.1 percent in 2016 before recovering to 3.5 percent in 2017, based on the results of policies under implementation.

The internal lender said this in a statement it released at the end of its 2016 Article IV Consultation with Nigeria. Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

The IMF projects general government deficit (about 3.7 percent of GDP in 2015) to widen in 2016, although this will improve in 2017. The external current account deficit, which reduced from a surplus of 0.2 percent of GDP to a deficit projected at 2.4 percent of GDP in 2015, is likely to worsen further as Nigeria continues to feel the effects of lower oil prices and declining oil revenues. Also, further deterioration in finances of state and local Governments, deepening disruptions in private sector activity due to constraints on access to foreign exchange, and resurgence in security concerns will add to these debilitating effects.

Following the Article IV Consultation, Executive Directors of the IMF Board stressed the need for significant macroeconomic adjustment in Nigeria. They highlighted the importance of urgently implementing a coherent package of policies, in consultation with Fund staff and development partners, to safeguard fiscal sustainability and reduce external imbalances, and advancing structural reforms to support inclusive growth.

“Directors emphasized the critical need to raise non‑oil revenues to ensure fiscal sustainability while maintaining infrastructure and social spending,” the IMF said. “They urged a gradual increase in the VAT rate, further improvements in revenue administration, and a broadening of the tax base. Directors supported an orderly adjustment of budgets at the sub‑national level through reform in budget preparation and execution.”

A spokesman for the World Bank on Thursday said discussions between Nigeria and the World Bank are continuing on a possible loan or credit facility that is tied to policy reforms in the West African oil exporter. The country had in January asked the World Bank and African Development Bank for $3.5 billion in emergency loans to fill the deficit in its budget.