The International Monetary Fund, IMF, has raised alarm over the negative effects of high inflation on consumption of goods and services in the country, even as it downgraded its economic growth forecast for Nigeria to 2.9 percent from 3.3 percent.
However, the Fund also projected that the recent reforms by the Federal Government, namely, fuel subsidy removal and elimination of multiple exchange rates will lead to a stronger and more inclusive economic growth in the country, while calling for more interest rate hike to tame inflation.
The latest forecasts were contained in the IMF’s World Economic Outlook report, October 2023 released on the sidelines of the ongoing World Bank/IMF Annual Meetings in Marrakesh, Morocco.
The new forecast for Nigeria’s economic growth is 0.3 percentage point lower than the 3.2 per cent projected by the IMF in July. It is also 0.85 percentage points lower than the 3.75 per cent economic growth rate projected by the Federal Government in the 2023 budget.
Similarly, the IMF has reduced its economic growth forecast for sub-Saharan Africa to 3.3 per cent in 2023, down from the 3.3 per cent forecast made in July. But the IMF retained its growth forecast for the global economy at 3.0 percent.
“The global economy is limping along, not sprinting. According to our latest projections, world economic growth will slow from 3.5 percent in 2022 to 3 percent this year and 2.9 percent next year, a 0.1 percentage point downgrade for 2024 from July. This remains well below the historical average”, the IMF said.
Forecast for SSA, Nigeria
In its forecast for SSA and Nigeria, the IMF said: “In sub-Saharan Africa, growth is projected to decline to 3.3 percent in 2023 before picking up to 4.0 percent in 2024, with 0.2 percentage point and 0.1 percentage point downward revisions for 2023 and 2024, respectively, and with growth remaining below the historical average of 4.8 percent. The projected decline reflects, in a number of cases, worsening weather shocks, the global slowdown, and domestic supply issues.
In South Africa, growth is expected to decline from 1.9 percent in 2022 to 0.9 percent in 2023, with the decline reflecting power shortages, although with a 0.6 percentage point upward revision thanks to the intensity of power shortages in the second quarter of 2023 being lower than expected.
Head, World Economic Studies Division, IMF, Daniel Leigh stated this while speaking at a press briefing on the October WEO at the sidelines of the ongoing World Bank/IMF Annual Meetings in Marrakesh, Morocco.
He said: “For Nigeria in particular we have a growth forecast that goes from 3.3 per cent this year to 2.9 percent next year before going up to 3.1 in 2024 there is a downward revision for this year, partly this is because of the demonetization, the high inflation, the shocks to agriculture and hydrocarbon output. That is coming on top of all those external headwinds.
“We also add that President Tinubu has moved quickly with important reforms including ending the fuel subsidies and unifying the official exchange rates. We welcome these initial bold reforms because we see them as paving the way towards stronger and inclusive growth.”
Calls for further interest rate hikes
Meanwhile, the IMF has called for more interest rate hikes in Nigeria and other countries to curb continuous rise in inflation.
Making the call in a special report, titled, “In pursuit of stronger growth and resilience”, the IMF noted that high inflation rate is the most immediate risk to economic growth in the African continent, the IMF called for further monetary tightening (interest rate hike) in Nigeria and other countries still experiencing high inflation rate.
In a bid to curb rising inflation rate, the Central Bank of Nigeria, CBN has raised its benchmark interest rate, the Monetary Policy Rate, eight times to 18.75 per cent in July from 11.5 per cent in April last year.
But the inflation rate has continued to rise, reaching 25.8 per cent in August this year, the highest in 10 years.
Consequently, the IMF advised the CBN that further monetary tightening is appropriate in view of persistent rise in the inflation rate.
The IMF said: “In many cases, inflation is still high, public finances are still precarious, and confidence is still subdued. If they were to persist, these elevated imbalances would make the continent much more vulnerable to shocks.
“To ensure a more stable and sustained recovery, it is important that country authorities in Africa guard against any premature monetary policy easing and remain committed to their fiscal consolidation plans.
“Monetary policy efforts should remain tightly focused on price stability. This Is not only a priority to address the continent’s cost-of-living crisis but would also strengthen the credibility of central banks and overall macroeconomic resilience.
“In Africa, as elsewhere, the ability of the authorities to contain inflation amid global shocks owes much to improvements in policy frameworks over the last two decades.
“In many economies, advances in central bank independence, inflation targeting frameworks, exchange rate flexibility, macro prudential regulation, and communication have all played critical roles. However, actions to build on this progress and improved credibility are essential, particularly in light of the test posed by recent inflationary shocks.”
Meanwhile some economy experts have appraised the IMF positions on Nigeria with some level of acceptance.
2.9% is a fair forecast – Olayinka
Speaking to Vanguard on the IMF economic growth forecast and rising inflation, Tajudeen Olayinka, analyst and CEO, Wyoming Capital and Partners, said: “I think 2.9% is a fair forecast of Nigeria’s GDP growth rate by IMF, given current challenges with people’s low purchasing power and supply side’s foreign exchange access constriction. It could take the economy the whole of 2024 to enjoy a semblance of stability, provided the government continues to run a comprehensive adjustment program. The previous regime of President Muhammadu Buhari left a deep hole in the economy.”
GDP may underperform forecast – Adonri
Also speaking, David Adonri, Analyst and Executive Vice Chairman, Highcap Securities Limited, said: “Even with rising inflation, it is unfortunate that Nigeria’s GDP may underperform the earlier forecast. The downgrade by the IMF from 3.3% to 2.9% may cast doubt on the efficacy of current reforms in the short term.
“In reality, exacerbation of inflation due to the reforms will certainly cause initial consumer resistance until the economy adjusts to the new price level. If the reforms are maintained and continue with iron determination, efficiency of markets will take the economy to an efficient level that will enhance growth, especially if fiscal enablers are provided to bridge supply gaps.
“The increased employment of the domestic factors, as long term benefits of the market based reforms, together with fiscal measures can then grow the economy to double digits. IMF review is sound but should not elicit much worry if reforms and fiscal enablers are brought to bear on the economy.”
We seem to agree with the position of IMF – Chiazor
Victor Chiazor, analyst and Head of Research and Investment at FSL Securities Limited, said: “The report by IMF reviewing Nigeria’s GDP growth rate down to 2.9% for 2023 from an initial 3.2% earlier projected for 2023 does not come as a surprise. The report hinged its review on rising inflation and drop in purchasing power of the consumer. Also its review took into consideration weaker oil output and gas production believing that revenues are expected to remain low. We seem to agree with the position of the IMF as we do not see any major rail winds that can drive the Nigerian economy higher for the remaining three months. The government still has a lot of fine tuning to do if it is to report increased output for the Nigerian economy for the year 2024 but as for the current year, we estimate the growth rate to be around three percent.”
The policies are not working- Jolapamo
Speaking on the development, Chairman, Board of Trustee, Nigerian Indigenous Shipping Association, NISA, Isaac Jolapamo, said that the government has done what it should by floating the Naira and removal of subsidy but these policies are working for reasons nobody can give.
Jolapamo said that it is in the time of crisis that some people make money and for that reason, these people will want the crisis to continue.
He said: “The policies are not working and I am sure they will come out with a more workable policy to help the economy grow.
“When you talk about the removal of subsidies and the floating of the Naira, these two policies should have worked to cushion the economic effects on Nigerians but they are not working because Nigeria is a special place.
“Like I said earlier, even when we do something legitimate, we always want to make it illegitimate because it is in chaos that some people thrive and it is very unfortunate and people enjoy doing it.”
