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Published On: Mon, Oct 15th, 2018

Economy : IMF forecast signposts tougher times

President Muhammadu Buhari

By FELIX OLOYEDE 

Experts have noted that the reduction in the International Monetary Fund’s (IMF) growth outlook for the Nigerian economy in 2018 presages a rise in the jobless rate as the economy head into a new year. 

The IMF cut the country’s growth projections for this year from 2.1percent to 1.9 percent, arguing that Nigeria’s economy is underperforming due to reduction in oil production levels, and contraction in the agricultural sector on the back of a herder-farmer crisis.

 The country’s economy has slowed down in two consecutive quarters, from 2.11 per cent in Q4 2017 to 1.95 per cent in Q1 2018 and further weakened to 1.5 per cent at the end of Q2 2018. 

“The cut in Nigeria’s GDP projection by the IMF simply means that unemployment is expected to rise,” Professor Leo Ukpong, a financial economist and Dean, School of Business, University of Uyo told Business Hallmark.

According to him, a drop in expected output will force businesses to cut down their demand for labour. In turn, this will cycle back to an expected drop in consumer spending.

“Bottom line, we should expect an increase in unemployment and some more drop in GDP due to the follow through drop in consumption spending,” Prof. Ukpong explains. 

For Akinwunmi Ayodele, Head, Research, FSDH Merchant Bank, the IMF economic growth revision for the country means a contraction in job opportunities, which may lead to more poverty, particularly when the nation’s population growing at roughly 3 per cent.

Nigeria’s unemployment rate stood at 18.80 percent as at the third quarter of 2017, increasing from 16.20 percent in the second quarter of 2017.

But the country’s youth unemployment rate increased to 33.10 percent during this period from 29.50 percent in the second quarter of 2017. 

While briefing pressmen at the annual meetings of the International Monetary Fund and World Bank Group in Bali, Indonesia last week, Gian Maria Milesi-Ferretti, deputy director at IMF’s research department said the aggregate growth rate of Africa was being dragged down by Nigeria, South Africa and Angola, its three largest economies.

He explained that “In Nigeria and Angola, tighter monetary policy and moderation in food price increases contributed to tapering inflation. In Nigeria, inflation is projected to fall to 12.4 percent in 2018, from 16.5 percent in 2017, and to rise to 13.5 percent in 2019,” the report read. 

The reduction in Nigeria’s real GDP growth rate forecast for 2018 simply means that economic activities will not expand as much as earlier predicted, enunciated Moses Ojo, Head, Research and Business Development, PanAfrican Capital Holdings. 

“For the people on the street, this simply mean that the growth rate of economic prosperity will only be 1.9 per cent in the current year. On one side, if will compared this projected growth rate to the annual growth rate of population which is at 3.1 per cent, we can say that the people on the street will become poorer,” he maintained. 

But Vice President Yemi Osinbajo recently disclosed that over 300,000 traders have benefited from Federal Government’s interest free loan called Trader Moni Programme, aimed at lifting more Nigerians from poverty. 

He noted the Trader Moni Programme has so far disbursed over N15.18 billion to traders, artisans and farmers, from the N1 trillion it plans to spend annually on the vulnerable in the society. 

Meanwhile, the Fund also cautioned the country and other oil-exporting countries against their rising foreign debts, urging them to ramp up their revenues to make external borrowing sustainable.

Senator Udo Udoma, minister of Budget and National Planning concurred to the position of the IMF, but clarified in a statement by his Special Adviser on Media, Akpandem James that “Even though we in Nigeria have one of the lowest debt levels among our African peers, we realise that we need to improve our revenues to bring down our debt service to revenue ratio to more comfortable levels.

“We are broadening our tax base through policy reforms such as the tax amnesty programme. This, among, other measures, has resulted in the number of taxpayers rising from 13 million to over 19 million. We are also deploying technology in tax and customs’ collections to automate processes and enhance efficiencies.” 

On the other hand, the country’s foreign reserves has depleted further by USD439.48 million toUSD43.35 billion, hitting its lowest level since March, despite crude oil price reaching over four year high of USD82 per barrel in September. 

It has, however, moderated to USD80.43 on Saturday after the International Energy Agency said supply seemed to be adequate and the outlook for demand is lowering, although energy experts believe the Iran sanction and Venezuela crisis may push oil prices to about USD100. 

However, the Naira weakened by 0.28 per cent week-on-week toN362 against the Dollar in the parallel market, halting 20 sessions of flat trades at NGN360 and it depreciatedby 0.08 per cent to N364.12 in the I&E FX window. 

But the country’sforeign exchange market, however, remained stable last week, underpinned on CBN’s persisting interventions, wherein USD210 million was sold.

Meanwhile, analysts at Cordros Capital believe the FX market, particularly in the short to medium term would remain stable,as oil revenues- supported by rising oil prices and production, continue to shore up foreign reserves.

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