The International Monetary Fund (IMF) representative in Nigeria Gene Leon has said Nigeria’s economy will probably contract this year as power shortages, falling oil prices and the delayed budget weigh on output.
“I think there is a high likelihood that the year 2016 as a whole will be a contractionary year.”
Nigeria, Africa’s largest economy shrunk by 0.4% 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 for the naira by the CBN and foreign-exchange trading restrictions, which were removed last month after more than a year, led to shortages of goods from fuel to food items 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.
Gene Leon said:
“Most people would agree that if you should fix one thing in this country, it should be power, there is a need to start changing the power equation from 2016, from today, not tomorrow or later.”
The country’s generating capacity is 2,464 megawatts of electricity, 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.
The IMF Rep said;
“The Central Bank 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,but the central bank, in conjunction with the MPC, needs to be clear to participants in markets what exactly their priority is.”
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% 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% “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.