IMF lowers Nigeria’s 2016 growth projections to 2.3%

by Onyinye Nwachukwu, Washington DC

April 13, 2016 | 10:38 am
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International Monetary Fund (IMF) on Tuesday lowered Nigeria’s 2016 economic growth projections to 2.3 percent from its earlier January forecast of 3.2 percent amid fears that the negative impact of lower oil prices is now compounded by disruptions to private sector activity through exchange rate restrictions.

Officially kick-starting this year’s annual Spring meetings which it co-hosts with the World Bank, the IMF, in a new World Economic Outlook, said it was raising an alarm but then alerting that global economy was recovering too slowly, too low, fragile, presents risks and not distributive enough.

The new Outlook anticipates a slight acceleration in global growth this year, from 3.1 percent to 3.2 percent, followed by 3.5 percent growth in 2017. The IMF regrettably noted that its projections, however, continue to be progressively less optimistic over time.

The IMF sees growth in sub-Saharan Africa remaining weak this year at 3 percent, about 1⁄2 percentage point lower than in 2015, and 1.3 percentage points lower than forecast in the October 2015 WEO. Growth is projected to pick up to 4.0 percent in 2017, helped by a small rebound in commodity prices and timely policy implementation.

The ongoing slowdown is primarily driven by unfavourable external conditions: resource-intensive countries have suffered from the decline in commodity prices, while the region’s frontier markets are adversely affected by tighter global financing conditions.

Sub-Saharan Africa’s oil-exporting countries are now projected to grow at 2 percent in 2016 (a downward revision of 2.1 percentage points relative to the October 2015 forecast) and 3.4 percent in 2017.

“Within this group, growth in 2016 is expected to ease to 2.5 percent in Angola (down from 3.0 percent in 2015) and 2.3 percent in Nigeria (from 2.7 percent growth last year), as the negative impact of lower oil prices is com- pounded by disruptions to private sector activity through exchange rate restrictions,” the IMF said in its World Economic Outlook report released in Washington.

The effect of the decline in oil prices on the region’s oil-importing countries has, however been smaller than expected, as many of these economies export other non-renewable resources whose prices have also dropped.

In an Opening Statement to release World Economic Outlook, IMF chief economist, Maurice Obstfeld noted that global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. “Growth has been too slow for too long,” he stated.

The downgraded forecasts reflect a broad-based slowdown across all country groups. That slowdown results from continuing trends that we have highlighted in earlier editions of the World Economic Outlook. As always, there is considerable diversity in performance within groups.

The central scenario that the World Economic Outlook projects, however, now looks less likely compared with possible less favourable outcomes.

To support global growth and to guard against downside risks to that baseline scenario, the IMF proposes a three-pronged policy approach based on monetary, fiscal, and structural policies.

Obstfeld said the Fund is majorly concerned on two prominent fronts- financial risks and risks of noneconomic origin:

He noted that two distinct rounds of global financial turbulence have been noticed since last summer which featured abrupt sell-offs of risky assets, heightened risk aversion, spikes in emerging-market sovereign spreads, and sharp falls in prices of oil and other commodities.

Another is the continuing violent instability in a number of countries, notably Syria, continues to crater their economies, driving millions of refugees to surrounding countries as well as to Europe. Obstfeld called this “a humanitarian disaster.”

And according to the Chief Economist, these risks could more easily undermine a baseline outcome that is more fragile owing to lower growth.

“As this latest World Economic Outlook explains, a range of well-sequenced structural reforms can boost potential output, especially if accompanied by complementary fiscal support.

“But policymakers should not ignore the need to prepare for possible adverse outcomes. They should identify mutually reinforcing fiscal and structural policy packages to deploy collectively in the future in case downside risks materialise,” Obstfeld told journalists attending the Spring meetings.

“In addition, continuing international cooperation to improve both the functioning of the international monetary system and the stability of international finance are vital for global economic resilience.” He observed that that work has progressed considerably since the global financial crisis, but there is more to be done.

“With its downside possibilities, the current diminished outlook calls for an immediate, proactive response.

“To repeat: there is no longer much room for error. But by clearly recognising the risks they jointly face and acting together to prepare for them, national policymakers can bolster confidence, support growth, and guard more effectively against the risk of a derailed recovery,” he advised.

by Onyinye Nwachukwu, Washington DC

April 13, 2016 | 10:38 am
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