With IMF Projection, Hope Rises for Nigeria Exiting Recession

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Indications that the Nigerian economy would exit recession soon became rife with the confirmation by the International Monetary Fund that the  economic growth would be positive  this year. Kunle Aderinokun reports

The latest growth projection by the International Monetary Fund for Nigeria in its World Economic Outlook, April 2017, is a signal that the economy may be on its way out of recession.

IMF, in its estimation, has predicted that the Nigerian economy would grow by 0.8 per cent this year, citing recovery in oil production, continued growth in agriculture, and higher public investment. The projection is, however, lower than the Fund’s forecast last July in its World Economic Outlook update, where it predicted that the economy would bounce back with a gross domestic product (GDP) growth rate of 1.1 per cent in 2017. Analysts believe the economy could record higher growth than the IMF projection this year, provided the operating environment continue to improve and the managers are more creative in turning the economy around. Already, the IMF has endorsed the Economic Recovery and Growth Plan aimed at restoring sustainable, accelerated and inclusive growth and development. There are expectations that if the blueprint is fully implemented, the economy would not only recover, it would also be on the path of higher growth.   

Nevertheless, the projection is still encouraging, especially for a country, whose economy had been plagued with myriad challenges including disruptions in the oil sector coupled with foreign exchange, power, and fuel shortages, plunging it into recession after two consecutive quarters of negative GDP growth rate. Smarting from a contraction of -2.06 per cent (year-on year) in the second quarter of 2016, the economy had only managed to close the year with a negative growth rate of 1.5 per cent.

In releasing its WEO at the 2017 Spring Meetings of the IMF-World Bank meetings, the Bretton Woods institution explained that, in sub-Saharan Africa, a modest recovery is foreseen in 2017. “Growth is projected to rise to 2.6 percent in 2017 and 3.5 percent in 2018, largely driven by specific factors in the largest economies, which faced challenging macroeconomic conditions in 2016.”

The IMF, however, cautioned that, the outlook for the region remained subdued. According to the Fund, “output growth is expected only moderately to exceed population growth over the forecast horizon, having fallen short in 2016.”

“Many commodity exporters still need to adjust fully to structurally lower commodity revenues because commodity prices—the recent rebound notwithstanding— remain low (restraining stronger growth in Nigeria, Angola, and oil exporters within the Economic Community of Central African States),” it explained.

“Many of the largest non-resource-intensive countries will find it increasingly hard to sustain growth through higher public capital spending, as they have done in the past, in the face of rising public debt and a slowing credit cycle,” it added.

Many economic analysts and observers believe the IMF projection is a sign of good things to come and making good the prediction and even surpassing it, depends on the ability of the managers to be more extraordinary in their efforts.  

In his view, Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, expressed  no doubt that the Nigerian economy would see an increase in 2017. According to him, “With improved oil production and oil price averaging about $50/barrel, the country is in a good position to experience continuous accretion to foreign reserves and to meet the expected revenue projections for its budget. The moderation in exchange rate volatility and lower inflation in addition to release of capital votes could boost economic activities for the year. 

 “What is therefore apparent is that the economy will come out of recession this year and will record an overall positive growth at the end of the year,” he added.

Notwithstanding, Ademola noted that, the rate of growth was debatable and a lot will depend on the report of the Q1 2017 GDP when released on May 30, 2017. “The improvement in GDP growth as expected in the last two quarters is expected to continue with a near 0 growth for the Q1, 2017. This is expected to become positive by Q2 and end the year with an average of circa 1% driven by the improved economic environment through improved supply of foreign exchange, moderating inflation, increased focus on agriculture and food security and the investment in infrastructure development.”

“While the IMF is projecting 0.8 per cent, several analysts are expecting a growth rate ranging between 0.7per cent and 0.9 per cent. Whatever the growth projection may be, what is clear is that the Nigerian economy will experience a positive growth in 2017,” he concluded.

 Expressing the same optimism with Ademola, Chief Executive Officer, Global Analytics Consulting Ltd, Tope Fasua, said  “I have maintained that Nigeria could grow a lot faster than as projected.”

“We should be talking 15 per cent – 20 per cent growth rate per annum if we were doing the right things. Slow growth is a preserve of economies that have plateaued. Developing economies like ours should be playing catch up and thus growing in leaps and bounds,” he posited. Lamenting that, “Nigeria is suffering from low productivity. Its youths are unemployed,” Fasua believed, “If GDP measures the value of work done, or goods and services produced in a country each year, then getting our largest demographic to produce should lead to a much higher growth than 0.8 per cent.”

He, however, noted that, “What the IMF has done is to tell us that they don’t think we are going to think outside the box this year and so our growth will continue to be dismal. It is left to Nigerians to think properly about how to get this productivity going and so our GDP growth could be much better.”

While pointing out that,most analysts projected a return to growth for the Nigerian economy in 2017, Director, Union Capital Markets Ltd, Egie Akpata, said , “It is unclear how the IMF comes to its 0.8 per cent growth projection which on the surface seems conservative.”

“However, there is little debate that the level of economic growth in 2017 will be a lot less than in previous years.

Given the current trends in the oil market and the level of spending activity from the Federal Government, there does not seem to be any obvious catalyst to help drive growth beyond nominal levels that do not even match the population growth rate,” he added.

He, however, expressed belief that, “If oil prices remain at current or higher levels, Nigeria produces an average of over 2m barrels of oil a day and there is above average rainfall, it is conceivable that nominal GDP will grow above the IMF projected 0.8 per cent in 2017.”

Similarly, Director-General, West Africa Institute for Financial and Economic Management, Prof. Akpan Ekpo, said “The growth projection is pessimistic and it is okay.”

 Ekpo, who said he had always maintained that 80 per cent of the fiscal component of the 2017 budget must be implemented for the economy to exit the recession in the 3rd quarter of this year, argued that, “The 0.8% growth projection while marginal does not signal the end of the enormous economic challenges facing the economy. “

“There are signs that increased spending is beginning to have some impact. However, the slight increase in oil prices should not slow down efforts at diversifying the economy,” he added.

However, Chief Executive Officer, The CFG Advisory Ltd, Adetilewa Adebajo, pointed out that, “The greatest threat to growth and the ERGP is the current level of the fiscal deficit and the corresponding 66% of revenue going towards debt service.” This, he noted, was “highlighted in the recent IMF Article IV report and the ratio is clearly unsustainable if we expect to meet the reported growth target.” 

Besides, Adebajo also stated that, “Another critical challenge to growth, is how the Central Bank implements a market driven FX system to boost market confidence and address the over N2 trillion record level of NPLs of which according to the NDIC over 45 per cent are insider related” 

According to him, “The integrity of the banking system is also under pressure as a result of dollar illiquidity and banks cannot provide the necessary credit to stimulate growth and expansion.

Ultimately, the policies and implementation framework set out by government will be the key growth drivers.”