IMF Predicts High Inflation Rate, Slow Growth for Nigeria in 2019

• IMF Predicts High Inflation Rate, Slow Growth for Nigeria in 2019

The International Monetary Fund (IMF) has predicted slower growth for Nigeria in 2019.

The fund attributed this to falling foreign revenue and inconsistencies in Nigerian economic policies.

In the staff report released on Tuesday, the fund said Nigeria’s economic growth is expected to grow at 2.3 percent in 2019. Higher than the World Bank’s recent projection of 2.0 percent.

“The outlook under current policies remains challenging. Growth is expected to pick up to 2.3 percent this year on the strength of a continuing recovery in the oil sector and the regaining of momentum in agriculture following a good harvest.

“The pace of economic recovery remains slow, as depressed private consumption and investors’ wait-and-see attitude kept growth in the first half of the year at two percent, a rate significantly below population growth.

“Carryover from 2018 to 2019 helped increase public investment spending in the first half of 2019, but revenue underperformed significantly relative to the budget target in the first half of 2019. Over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in overreliance on expensive borrowing from the CBN to finance the fiscal deficit. Federal government interest payments continue to absorb more than half of revenues in 2019.”

The fund noted that the planned increase in Value Added Tax from 5 percent to 7.5 percent in 2020 will help support unstable oil revenue and reduce the effect of the new wage increase on prices.

“Revenue initiatives planned under the 2020 budget—including a VAT reform that increases the rate, introduces a minimum registration threshold and exempts basic food products—will help partially offset declining oil revenues and the impact of higher minimum wages, thus keeping the overall consolidated fiscal deficit elevated.”

However, the fund expected the capital flight to continue to weigh on international reserves while inflation is projected to surge in 2020.

“The current account’s shift to a deficit is expected to persist while the pace of capital outflows continues to weigh on international reserves. Inflation will likely pick up in 2020 following rising minimum wages and a higher VAT rate, despite a tight monetary policy.”

“Headline inflation has fallen, reaching its lowest level since January 2016, helped by lower food price inflation. Spurred by one-off increases in imports, the current account turned into a deficit in the first half of 2019 after three years of surpluses.”