Economic growth in Nigeria will accelerate this year, driven by sectors outside its dominant energy industry, while inflation will continue its downward path, the International Monetary Fund said on Friday. Africa’s second-largest economy is set to grow 7.3% this year, up from 6.4% in 2013, the IMF said, a more optimistic outlook than Nigerian Finance Minister Ngozi Okonjo-Iweala’s projection for 6.75% growth. Inflation will end the year at 7%, down from 7.9% at the end of 2013, continuing a two-year downward trend supported by tight monetary policy, the IMF said.
Africa’s most populous nation plans this year to recalculate its gross domestic product, which could push it above South Africa as the continent’s biggest economy, although the rebasing has missed several deadlines already. The IMF’s forecast does not account for the rebasing. “Economic growth is expected to improve further in 2014, driven by agriculture, trade, and services,” the IMF said in a report following consultations with Nigerian officials. “Inflation should continue to decline, with lower food prices from higher rice and wheat production and supported by a tight monetary policy and a budget execution that maintains medium-term consolidation objectives,” it said. The IMF said there were risks to its projections, including the uncertain pace of the global recovery, lower oil prices and production, slow implementation of reforms and the continuation of a bloody Islamist insurgency in the north. It also cautioned against draining fiscal buffers.
Nigeria’s excess crude account, where Africa’s biggest oil exporter saves money from excess oil revenues not allocated for in the government’s budget, contained $2.28 billion at the end of last year, down from around $9 billion a year earlier. Forex reserves have also fallen, to a 19-month low of $40bn, and the naira, which had been stable, is under pressure from the emerging market asset sell-off and since President Goodluck Jonathan unexpectedly suspended respected central bank governor Lamido Sanusi last month, hitting investor confidence. Reserves remain at a relatively comfortable 5.6 months of imports, the IMF noted.
Nigeria will hold presidential and parliamentary elections next February and investors are concerned about a possible spike in government spending ahead of the vote and potential leakages in oil revenues, in a sector which has suffered a number of corruption scandals in recent months. “Policies should focus on rebuilding external and fiscal buffers, avoiding spending pressures from the political cycle, strengthening the transparency and governance of the oil sector,” the IMF said in its report. Nigeria estimated oil output would average 2.39 million barrels per day (bpd) this year, which oil industry experts think is overly optimistic and is likely to lead to an underfunded budget, as happened last year.
Large scale oil theft, which can reach 400 000 bpd, and outages caused by ageing pipelines and other infrastructure deficiencies are keeping output well below the sector’s 2.7 million bpd capacity. Despite robust growth and an attractive investment outlook, Nigeria still suffers from gaping inequality, the IMF noted. Thousands of new millionaires are created each year but most of the country’s 170 million people live on less than US$ 1 a day and unemployment is stuck at around 25%. “Despite significant job creation, unemployment and poverty are high and social indicators lag those of peers,” the IMF said.
“Continued weaknesses in labour markets, access to electricity, cost of doing business, and small and medium enterprises’ access to finance have prevented a transition to a more robust and inclusive growth path,” it said.