Nigeria’s economy will probably contract this year as energy
shortages and the delayed budget weigh on output, according to the
International Monetary Fund.
“I think there is a high likelihood that the year 2016 as a whole
will be a contractionary year,” Gene Leon, the fund’s resident
representative in Nigeria, said in an interview in the capital, Abuja,
on July 8. While the economy should look better in second half of the
year, growth will probably not “be sufficiently fast, sufficiently rapid
to be able to negate the outcome of” the first and second quarters, he
said.
Africa’s largest economy shrunk by 0.4 percent in the three months
through March, the first contraction in more than a decade, as oil
output and prices slumped and the approval of spending plans for 2016
were delayed. A currency peg and foreign-exchange trading restrictions,
which were removed last
month after more than a year, led to shortages of goods from gasoline
to milk and contributed to the contraction in the first quarter.
While conditions that impeded growth in the first half of the year,
including shortages of power, fuel, and foreign exchange, as well as the
higher price of dollars on the the parallel market, may have been
reduced, they still weigh on the economy, Leon said.
The Washington-based lender cut its 2016 growth forecast for Nigeria
to 2.3 percent in its April Regional Economic Outlook from 3.2 percent
projected in February. The World Bank lowered
its forecast to 0.8 percent last month, citing weakness from oil-output
disruptions and low prices. Last year’s expansion of 2.7 percent was
the slowest in two decades, according to IMF data.
“Most people would agree that if you should fix one thing in this
country, it should be power,” Leon said. “There is a need to start
changing the power equation from 2016, from today, not tomorrow or
later.”
Nigeria generated an average of 2,464 megawatts of electricity on
June 6, according to information from the power ministry. This is less
than half of the installed capacity of 5,000 megawatts for a nation
whose population of 180 million people is the highest on the continent.
It compares to power generating capacity of more than 40,000 megawatts
in South Africa, which has a population a third of the size.
While inflation will probably continue its upward trend through the
end of this year, it is unlikely to exceed 20 percent, Leon said. Price
growth accelerated to 15.6 percent, the highest rate in more than six
years, in May and probably quickened to 16.2 percent last month,
according to the median of seven economist estimates compiled by
Bloomberg.
The central bank’s Monetary Policy Committee “may be open to
tolerating a little more inflation if growth emerges as the priority, as
opposed to choking inflation and squeezing the little life out of
growth,” Leon said. “But the central bank, in conjunction with the MPC,
needs to be clear to participants in markets what exactly their priority
is.”
The Central Bank of Nigeria left its benchmark rate unchanged at 12
percent in May and will announce its next decision on July 26.
The MPC is likely to increase the rate by 500 basis points in the
next year “to address the prevailing inconsistencies between an accommodating monetary policy and a more flexible exchange rate,”
Goldman Sachs said in a note on July 8.
President Muhammadu Buhari signed a record budget
of 6.1 trillion Naira ($21.6 billion) with a deficit of 2.2 trillion,
or 2.14 percent of gross domestic product, in May after a delay of four
months. The fact that the budget was passed late means it’s likely not
all the capital spending planned to boost growth will take place, or it
will not be as prudent as initially set out, Leon said.
If growth falls to zero percent “then that’s a huge gap the country
has to fill,” Leon said. If expenditure stays as planned, and revenue is
less due to the lack of growth “then we should see not smaller but
potentially a larger deficit,” he said.
The Naira, which as pegged at 197-199 per dollar until June 17,
strengthened 0.1 percent to 282.33 per dollar at 3:13 p.m. the
commercial capital, Lagos.
http://www.bloomberg.com/professional/blog/imf-says-nigerias-economy-will-probably-contract-year/
No comments:
Post a Comment