The Nigerian authorities will fail to effectively deal with a range of challenges to political and economic stability. The economy will emerge from 2016’s recession only slowly, negatively affected by policy deficiencies (particularly pertaining to the naira currency) and the weak oil sector.
The ill-health of the president, Muhammadu Buhari, will also distract from policy-making; a power transfer to his vice-president appears likely before the next elections in 2019.
Nigeria’s parliament approved the 2017 budget finally in May, almost 1 year too late!. With the economy reeling from low oil prices, which have led to recession, a plummeting naira and a spike in inflation, the budget aims to jumpstart growth by ramping up capital spending on roads, rail, ports and power.
The significant fiscal shortfall is set to be plugged by a mixture of loans and bonds, although with foreign investors skittish, the government may have to turn to more domestic financing, which could increase interest rates at home. Although the latest indicators hint at a slight economic uptick, with the PMI moving further into expansionary territory in April, much remains to be done.
The foreign exchange market remains a particular worry, and in a recent staff visit the IMF urged the government to do away with currency controls so as to marry with official and parallel exchange rates and provide greater transparency for investors. In a bid to wean the economy of its dependence on oil, the government has announced an Economic Recovery and Growth Plan (ERGP), with specific measures for the ailing energy sector, although doubts remain regarding the government’s ability to meet the ambitious targets it has set.