IMF reviews Nigeria’s 2016 growth projection downward to 4.1%

Says developing economies face increased challenges<em

The International Monetary Fund (IMF) has downwardly reviewed Nigeria’s 2016 growth projection by 0.2 per cent to 4.1 per cent, hinging the latest projection on tilting economic risks towards emerging markets.

According to the IMF, most countries in sub-Saharan Africa will see a gradual pickup in growth, but only if rates remain lower than those achieved during the past decade.

The IMF in its latest World Economic Outlook (WEO) Update projected a 0.2 per cent drop in 2016 growth projections for Nigeria from 4.3 per cent in October last year, to 4.1 per cent, while a further projection of 4.2 per cent is expected in 2017 as against the earlier projected 4.5 per cent.

The IMF report equally projected global growth at 3.4 percent this year and 3.6 per cent in 2017, slightly lower than the forecast issued in October 2015.

The Managing Director of IMF, Christine Lagarde had noted that emerging market and developing economies are now confronting a new reality of lower growth, with cyclical and structural forces undermining the traditional growth paradigm.

She said during her visit to Nigeria recently, that the country has to deal with the difficulties presented by falling oil prices, reduced emerging market demand and tightening global financial conditions that have led to sharply lower export earnings and government revenues.

“Some of the policy recommendations related to improving the competitiveness of the Nigerian economy were discussed. These include focusing on the critical area of infrastructure, where power, transportation, and housing are especially key. It also includes identifying ways to broaden the revenue base, particularly to create additional fiscal space to offset the impact of lower oil prices; and the need for careful decisions on borrowing, public spending, and managing the cost of fuel subsidies – with a view to safeguarding priority social sectors and the most vulnerable groups. This will require a package of measures involving business-friendly monetary policy, flexible exchange rate policy, and disciplined fiscal policy, and the implementation of structural reforms”, she added.

Under the WEO update, growth forecasts for most emerging markets and developing economies reveal a slower pickup than previously predicted, stating that most countries in sub-Saharan Africa will see a gradual pickup in growth, but only to rates that remain lower than those achieved during the past decade.

The IMF noted that beyond the short-run forecasts, there are important risks to the outlook, which are particularly prominent for emerging market and developing economies and could stall global recovery.

“These risks relate mostly to the ongoing adjustments of the global economy, namely China’s rebalancing, lower commodity prices, and the prospects for the progressive increase in interest rates in the United States”, the IMF added.

Growth is projected to increase from four per cent in 2015—the lowest rate since the 2008 and 2009 financial crisis—to 4.3 and 4.7 per cent in 2016 and 2017, respectively.

“This coming year is going to be a year of great challenges and policymakers should be thinking about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects,” said, IMF Economic Counsellor and Director of Research, Maurice Obstfeld.

”Those long-term actions,” he continued, “will actually have positive effects in the short run by increasing confidence and increasing people’s faith in the future.”

Furthermore, Obstfeld added that the new possibilities for 2016 include a sharper-than-expected slowdown in China, which could bring more international spillovers through trade, commodity prices, and waning confidence and a further appreciation of the dollar and tighter global financing conditions which could raise vulnerabilities in emerging markets, possibly creating adverse effects on corporate balance sheets and raising funding challenges for those with high dollar exposures.

“Similarly, a sudden bout of global risk aversion, regardless of the trigger, could lead to sharp further depreciations and possible financial strains in vulnerable emerging market economies. An escalation of ongoing geopolitical tensions in a number of regions, which could affect confidence and disrupt global trade, financial flows, and tourism. New economic or political shocks in countries currently in economic distress which could also derail the projected pickup in activity.