The International Monetary Fund on Tuesday cut its growth forecast for the Nigerian economy this year, citing the continuous fall in oil revenues and weakened investor confidence.
The organization revised down its April forecast of 2.3 percent growth rate for 2016, saying it expects Africa’s largest economy to contract by 1.8 percent this year.
According to the IMF, Nigeria’s lackluster, and South Africa’s sluggish economic activity is expected to weigh on economic growth across sub-Saharan Africa.
“In 2016, regional output growth will fall short of population growth, implying declining per capita incomes,” it said.
Also, the dramatic turn of events in Nigeria has impeded growth as much as the plunge in oil prices, the main source of foreign revenue.
For instance, the activities of the militants in the southern oil region have forced production cutbacks by about 600,000 barrels per day, amid other internal unrest across the country, like the Boko Haram activities in the North.
Inflation rose to 11-year high in June as the cost of living jumped to 16.5 percent year-on-year after the central bank abandon its fix foreign exchange rate for a more flexible policy, allowing it to be battered by the scarce US dollar.
But with the central bank unable to effectively prop up the Naira value using its intermittent sales of forex at the interbank market, it is unclear how Africa’s largest economy intends to manage its surging inflation in the second half of the year.
The IMF, also cut its global growth forecast by 0.1 percent to 3.1 percent in 2016, while the U.K. growth forecast was lowered by 0.9 percent to 1.3 percent.
“With Brexit still very much unfolding, the extent of economic and political uncertainty has risen, and the likelihood of outcomes more negative than the one in the baseline has increased,” the IMF said.