Connect with us

Economy

Analysts React as IMF Says Threats to Nigeria’s Economic Recovery High

Published

on

IMF
  • Analysts React as IMF Says Threats to Nigeria’s Economic Recovery High

The International Monetary Fund has predicted that the Nigerian economy will be out of recession this year with growth of 0.8 per cent though it says risks to the recovery remain high.

It, however, said the growth would not be sufficient to reduce unemployment and poverty in the country.

It said its staff team, led by the Senior Resident Representative and Mission Chief for Nigeria, Mr. Amine Mati, visited the country from July 20 to 31 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.

After shrinking by 1.5 per cent in 2016, the nation’s economy contracted by 0.52 per cent in the first quarter of this year, which is the fifth consecutive quarter of contraction.

According to Mati, the economic backdrop remains challenging despite some signs of relief in the first half of 2017.

He said following four quarters of negative growth, the non-oil economy grew by 0.6 per cent (year-on-year) on the back of a rebound in manufacturing and continued strong performance in agriculture.

He stated that various indicators suggested an uptick in activity in the second quarter of the year, adding that the headline inflation, which decreased to 16.1 per cent in June, remained high despite tight liquidity conditions.

Mati said, “Preliminary data for the first half of the year indicate significant revenue shortfalls, with the interest-payments to revenue ratio remaining high (40 per cent at end-June) and projected to increase further under current policies. High domestic bond yields and tight liquidity continue to crowd out private sector credit.

“Given Nigeria’s low growth environment and the banking system’s exposure to the oil and gas sector, non-performing loans increased from six per cent in 2015 to 15 per cent in March 2017 (eight per cent after excluding the four undercapitalised banks).”

He noted that the government had started implementing a number of important measures, with the Economic Recovery and Growth Plan driving the diversification strategy, and security in the Niger Delta improved through strengthened engagement.

He said the new Investor and Exporter FX window of the Central Bank of Nigeria had provided impetus to portfolio inflows, helped increase reserves above $30bn, and contributed to reducing the parallel market premium.

Mati added, “However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated.

“Concerns about delays in policy implementation, a reversal of favourable external market conditions, possible shortfalls in agricultural and oil production, additional fiscal pressures, continued market segmentation in a foreign exchange market that remains dependent on central bank interventions, and banking system fragilities represent the main risks to the outlook.”

According to him, in the near term, a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues will be needed to create space for infrastructure spending, social protection and private sector credit.

He said this should be simultaneously accompanied by a monetary policy “that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural.”

“Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy,” Mati added.

Reacting to the IMF’s position, the Board Chairman, Nigerian Economic Summit Group, a private sector think tank and policy advocacy group, Mr. Kyari Bukar, said the NESG had, at the start of the year, predicted that the economy would grow by 0.8 per cent.

He stated, “But we still have lack of clarity of the foreign exchange policy; we still have not coordinated our fiscal and monetary policies; and there is the debt burden.

“It is not just the borrowing that is the problem; if you’re borrowing for investment, that’s fine. We need to pay attention to our debt servicing, which is increasing.”

The Managing Director, Financial Derivatives Limited, Mr. Bismarck Rewane, said, “Even though the recovery has started, and we are going to have positive growth, the economy is still vulnerable to many domestic and exogenous variables.

“One major risk is the exchange rate falling below a particular level, and we are leaving the question of growth, the question of output and the question of economic activity, and those things are potent. It is one-dimensional diagnosis, and exchange rate being the critical variable.”

According to him, the government is aware of the risks and it has a team of people who can respond to them.

A professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Sheriffdeen Tella, said the delay in the passage of the budget had contributed in slowing down the recovery of the economy, adding that inflation had not fallen at the rate it should.

“Also, the Central Bank of Nigeria still retains high interest rate, which is inimical to the demand for credit in the economy; most businesses are still borrowing at very high interest rates, and, therefore, they will not borrow as much as they need to. So, the economy cannot expand on the basis of that,” he said.

He stressed the need for the harmonisation of the fiscal and monetary policies, adding that the CBN needed to bring down the interest rates to “enable investors who want to borrow money to run their businesses properly.”

The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said nothing fundamental had changed about the Nigerian economy to give one the assurance of a sustained growth or recovery.

He said the recovery of the economy so far was largely driven by the price of crude oil and volume of oil production, which he described as major risks.

“We know that even the Niger Delta militants are threatening again that they may resume bombing; so that is a major threat to the oil production volume. Once we begin to see growth in the oil and gas sector, which has been on the decline, then the economy should continue to grow.” he added.

Last month, the Monetary Policy Committee of the CBN said available forecasts of key macroeconomic indicators pointed to a fragile economic recovery in the second quarter of the year.

But the committee cautioned that the recovery could relapse into a more protracted recession if strong and bold monetary and fiscal policies were not activated immediately to sustain it.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Continue Reading
Comments

Economy

Nigeria’s Growth Forecast Lowered to 3% for 2025, Higher than Most Emerging Markets

Published

on

IMF global - Investors King

The International Monetary Fund (IMF) has projected a 3% growth rate for Nigeria in 2025, slightly down from the 3.1% forecasted for 2024.

Despite this slight decline, Nigeria’s projected growth remains higher than that of many emerging markets as detailed in the IMF’s latest World Economic Outlook released on Tuesday.

In comparison, South Africa’s economy is expected to grow by 1.2% in 2025, up from 0.9% this year. Brazil’s growth is projected at 2.4% from 2.1% in 2024, and Mexico’s growth forecast stands at 1.6% for 2025, down from 2.2% in 2024.

However, India is anticipated to see a robust growth of 6.5% in 2025, although this is slightly lower than the 7% forecast for 2024.

The IMF’s projections come as Nigeria undertakes significant monetary reforms. The Central Bank of Nigeria has been working on clearing the foreign exchange backlog, and the federal government recently removed petrol subsidies.

These reforms aim to stabilize the economy, but the country continues to grapple with high inflation and increasing poverty levels, which pose challenges to sustained economic growth.

Sub-Saharan Africa as a whole is expected to see an improvement in growth, with projections of 4.1% in 2025, up from 3.7% in 2024. This regional outlook indicates a modest recovery as economies adjust to global economic conditions.

The IMF report underscores the need for cautious monetary policy. It recommends that central banks in emerging markets avoid easing their monetary stances too early to manage inflation risks and sustain economic growth.

In cases where inflation risks have materialized, central banks are advised to remain open to further tightening of monetary policy.

“Central banks should refrain from easing too early and should be prepared for further tightening if necessary,” the report stated. “Where inflation data encouragingly signal a durable return to price stability, monetary policy easing should proceed gradually to allow for necessary fiscal consolidation.”

The IMF also highlighted the importance of avoiding fiscal slippages, noting that fiscal policies may need to be significantly tighter than previously anticipated in some countries to ensure economic stability.

Continue Reading

Economy

Nigeria’s Inflation Rises to 34.19% in June Amid Rising Costs

Published

on

Food Inflation - Investors King

Nigeria’s headline inflation rate surged to 34.19% in June 2024, a significant increase from the 33.95% recorded in May.

This rise highlights the continuing pressures on the nation’s economy as the cost of living continues to climb.

On a year-on-year basis, the June 2024 inflation rate was 11.40 percentage points higher than the 22.79% recorded in June 2023.

This substantial increase shows the persistent challenges faced by consumers and businesses alike in coping with escalating prices.

The month-on-month inflation rate for June 2024 was 2.31%, slightly up from 2.14% in May 2024. This indicates that the pace at which prices are rising continues to accelerate, compounding the economic strain on households and enterprises.

A closer examination of the divisional contributions to the inflation index reveals that food and non-alcoholic beverages were the primary drivers, contributing 17.71% to the year-on-year increase.

Housing, water, electricity, gas, and other fuels followed, adding 5.72% to the inflationary pressures.

Other significant contributors included clothing and footwear (2.62%), transport (2.23%), and furnishings, household equipment, and maintenance (1.72%).

Sectors such as education, health, and miscellaneous goods and services also played notable roles, contributing 1.35%, 1.03%, and 0.57% respectively.

The rural and urban inflation rates also exhibited marked increases. Urban inflation reached 36.55% in June 2024, a rise of 12.23 percentage points from the 24.33% recorded in June 2023.

On a month-on-month basis, urban inflation was 2.46% in June, slightly higher than the 2.35% in May 2024. The twelve-month average for urban inflation stood at 32.08%, up 9.70 percentage points from June 2023’s 22.38%.

Rural inflation was similarly impacted, with a year-on-year rate of 32.09% in June 2024, an increase of 10.71 percentage points from June 2023’s 21.37%.

The month-on-month rural inflation rate rose to 2.17% in June, up from 1.94% in May 2024. The twelve-month average for rural inflation reached 28.15%, compared to 20.76% in June 2023.

The rising inflation rates pose significant challenges for the Central Bank of Nigeria (CBN) as it grapples with balancing monetary policy to rein in inflation while supporting economic growth.

The ongoing pressures from high food prices and energy costs necessitate urgent policy interventions to stabilize the economy and protect the purchasing power of Nigerians.

Continue Reading

Economy

Inflation to Climb Again in June, but at a Reduced Pace, Predicts Meristem

Published

on

Nigeria's Inflation Rate - Investors King

As Nigeria awaits the release of the National Bureau of Statistics’ report on June 2024 inflation, economic analysts project that while inflation will continue its upward trajectory, the pace of increase will moderate.

This comes after inflation rose to a 28-year high of 33.95% in May, up from 33.69% in April.

Meristem, a leading financial services company, has forecasted that June’s headline inflation will rise to 34.01%, a slight increase from May’s figure.

The firm attributes this persistent inflationary pressure to ongoing structural challenges in agriculture, high transportation costs, and the continuous depreciation of the naira.

Experts have highlighted several factors contributing to the inflationary trend. Insecurity in food-producing regions and high transportation costs have disrupted supply chains, while the depreciation of the naira has increased importation costs.

In May, food inflation grew at a slower pace, reaching 40.66%, but challenges in the agricultural sector, such as the infestation of tomato leaves, have led to higher prices for staples like tomatoes and yams.

Meristem predicts that food inflation will persist in June, driven by these lingering challenges. Increased demand during the Eid-el-Kabir celebration and rising importation costs are also expected to keep food prices elevated.

Core inflation, which excludes volatile items like food and energy, was at 27.04% in May. Meristem projects it to rise to 27.30% in June.

The firm notes that higher transportation costs and the depreciation of the naira will continue to push core inflation up.

However, they also anticipate a month-on-month moderation in the core index due to a relatively stable naira exchange rate during June, compared to a more significant depreciation in May.

Cowry Assets Management Limited has projected an even higher headline inflation figure of 34.25% for June, citing similar concerns.

The firm notes that over the past year, food prices in Nigeria have soared due to supply chain disruptions, currency depreciation, and climate change impacts on agriculture.

This has made basic staples increasingly unaffordable for many Nigerians, stretching household budgets.

As inflation continues to rise, analysts believe the Central Bank of Nigeria (CBN) will likely hike the benchmark lending rate again.

The CBN’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) by 650 basis points this year, bringing it to 26.25% as of May 2024.

At a recent BusinessDay CEO Forum, CBN Governor Dr. Olayemi Cardoso emphasized the MPC’s commitment to tackling inflation, stating that while the country needs growth, controlling inflation is paramount.

“The MPC is not oblivious to the fact that the country does need growth. If these hikes hadn’t been done at the time, the naira would have almost tipped over, so it helped to stabilize the naira. Interest rates are not set by the CBN governor but by the MPC committee composed of independent-minded people. These are people not given to emotion but to data. The MPC clarified that the major issue is taming inflation, and they would do what is necessary to tame it,” Cardoso said.

Continue Reading
Advertisement




Advertisement
Advertisement
Advertisement

Trending