Foreign Exchange, Inflation Becloud Nigeria’s Growth Outlook, World Economic Report


· Warns COVID-19 may impede economic recovery
· Says S’Africa, Egypt face uncertain economic future

Gboyega Akinsanmi

Rising inflationary pressures and tighter foreign exchange liquidity, among others, are beclouding Nigeria’s economic growth projected at 1.5% in 2021, the United Nations Department of Economic and Social Affairs (UN-DESA) has said in a new report.

UN-DESA, a pioneer of sustainable development and the home of the Sustainable Development Goals (SDGs), warned that the new surge of COVID-19 might impede the country’s medium-term economic outlook with the poor access to the vaccines.

It expressed these concerns in the World Economic Situation and Prospects 2021, a world economic report UN-DESA produced in partnership with the United Nations Conference on Trade and Development (UNCTAD) and five regional commissions of the United Nations.

In its 198-page report that analysed the world economic situation and forecast prospects country by country, the department noted that all African states were experiencing an unprecedented economic downturn with major adverse impacts on the long-term development of the continent.

Among the largest economies, the report observed that Nigeria was dealt a severe blow by the twin shocks of low oil prices and COVID-19-related restrictions.
In 2020, the report acknowledged that GDP “is estimated to have contracted by 3.5% per cent, amid lockdowns, lower oil production and weak oil prices.”

Although output was projected to expand by 1.5 per cent in 2021, the report predicted that tighter foreign exchange liquidity, mounting inflationary pressures and subdued global and domestic demand “are clouding the medium-term outlook.”

The report, similarly, x-rayed how the crisis dealt a major blow to labour markets; and in 2020, unemployment rates increased across the continent, especially in urban areas.
However, the report observed that the nature of its impact “has been heterogeneous across the continent, being dependent on the severity of the downturn and the stringency of containment measures.”

As the COVID-19 discouraged some workers from job seeking, the report noted that the size of the labour force “has declined in large economies, such as Nigeria and South Africa, which can have longer-term consequences for potential growth and fiscal revenues.”

In Nigeria, specifically, the report noted that the unemployment rate had risen to 27.1 per cent by June 2020 and later to 33.3 percent by December 2020
Notably, the report observed that the number of Nigerians, who are unemployed, “stands at about 23.187 million, which exceeds the figure for the population of any one of more than 30 countries on the continent.”

Providing an overview of African economic status the report said the lower external demand and lower commodity prices, the collapse of tourism and lower remittances-exacerbated through the institution of much-needed domestic lockdowns and other measures required to control the spread of COVID-19 caused a severe and widespread deterioration of the economic situation.
After a strict lockdown, which led her economy to contract by what is estimated to have been 7.7 per cent in 2020, the report said GDP “is projected to expand by 3.3 per cent in 2021.”

However, the report observed that the growth projection, like the case of Nigeria, “is uncertain whether, amid power shortages, elevated public debt and policy challenges, a strong and sustained recovery will materialise in the medium-term.
“Raising potential output in South Africa is a step critical to tackling the strong impacts of the crisis on the labour market,” UN-DESA said in its comprehensive report.

In the case of South Africa, the report noted that the number of employed persons declined significantly throughout 2020, with the unemployment rate climbing to a record-high of 30.8 per cent in the third quarter.

Specifically, the report further clarified that if renewed supply disruptions and financial turbulence were to emerge, the inflation outlook could worsen.
In this regard, it warned that aggregate inflation trended upward in 2020 as a result of exchange rate depreciation in domestic currencies and food price inflation associated with supply disruptions in Nigeria, South Sudan, Sudan and Zimbabwe.

In Egypt, the report noted that higher fiscal expenditures supported by foreign currency financing secured through multilateral institutions and an easing monetary stance helped prevent a contraction on a yearly basis in 2020.

It noted that Egypt’s GDP “is estimated to have grown by 0.2 per cent in 2020; and in 2021, GDP growth is projected to climb to 5.4 per cent, underpinned by a strong recovery of domestic demand and facilitated by the absence of severe balance-of-payments constraints.
“The commodity-dependent economies are experiencing the full force of the crisis, and its impact has been exacerbated by the fall in the prices of commodities, especially oil.

“Algeria’s GDP is projected to undergo an expansion of 5.2 per cent in 2021, underpinned by the recovery in crude oil production after a contraction of 7.7 per cent in 2020.
“Still, Algeria’s fiscal position has weakened, and austerity measures planned by the government may hamper the recovery. A key challenge is the implementation of a reform agenda that can promote private investments.

“Angola’s economic difficulties are continuing after a prolonged downturn, with GDP growth projected at only 1.2 per cent in 2021. There are also significant downside risks associated with the inability of recent macroeconomic policies and structural reforms to ensure external and fiscal sustainability.”