Global financial body, the International Monetary Fund (IMF) has predicted that the Nigerian economy will contract by 5.4 percent in 2020, lower than the 3.4 percent negative growth it had projected in April.
IMF’s Chief Economist and Director of the Research Department, Ms. Gita Gopinath, gave the projection during an online press conference on the latest World Economic Outlook (WEO) released yesterday in Washington DC.
Speaking on the multilateral institution’s latest projection for Nigeria, Gopinath said: “Our projection for sub Saharan Africa overall is -3.2 per cent in 2020 with recovery in 2021 at 3.4 per cent. So, this is a significant downward revision and we have some very large negative growth forecast for instance; South Africa is -8 per cent and for Nigeria, it is -5.4 per cent growth.
“The downgrade also reflects larger spillovers from weaker external demand. The downward revision to growth prospects for emerging market and developing economies over 2020–2021 (2.8 percentage points) exceeds the revision for advanced economies (1.8 percentage points). “Excluding China, the downward revision for emerging market and developing economies over 2020–21 is 3.6 percentage points.
“Overall, growth in the group of emerging market and developing economies is forecast at –3.0 per cent in 2020, two percentage points below the April 2020 WEO forecast. Growth among low-income developing countries is projected at –1.0 per cent in 2020, some 1.4 percentage points below the April 2020 WEO forecast, although with differences across individual countries.
“Excluding a few large frontier economies, the remaining group of low-income developing countries is projected to contract by –2.2 per cent in 2020.
“For the first time, all regions are projected to experience negative growth in 2020. There are, however, substantial differences across individual economies, reflecting the evolution of the pandemic and the effectiveness of containment strategies; variation in economic structure (for example, dependence on severely affected sectors, such as tourism and oil); reliance on external financial flows, including remittances; and pre-crisis growth trends,” it stated.
The IMF noted further that fiscal responses since the outbreak of COVID-19 have resulted in an increase in government debts across all emerging economies.
“Government debt is now projected to average 63 per cent of GDP in 2020, continuing its upward trend with a 10 percentage point surge from a year ago.
“As many low-income developing countries face tight financing constraints and a less severe impact of the pandemic thus far, the fiscal response to the pandemic has been modest, at 1.2 per cent of GDP on average, and mostly through budgetary measures.
“For example, Nigeria provided tax relief for employers to retain workers and raised health care spending 0.3 per cent of GDP, while Ethiopia has expanded its in-kind provision of food and shelter 1.8 per cent of GDP.”
Meanwhile, a Director at Fitch Ratings, Mahmoud Harby, warned that a sharp rise in Nigeria’s sovereign debt and a ballooning financing gap could trigger a rating downgrade.
Fitch had downgraded Nigeria to “B” in April with a negative outlook from “B+” citing aggravation of pressure on external finances.
“We have two elements that could lead us to take a negative rating action/downgrade on Nigeria. Aggravation of external liquidity pressures and a sharp rise in government debt to revenues ratio,” Harb, told Reuters.
“The debt-to-revenue ratio for Nigeria is set to worsen to 538 per cent by the end of 2020, from 348 per cent a year earlier, before improving slightly next year, Harb said.
“The medium debt ratio for “B” rated countries is 350 per cent, he added.
“Nigeria will need $23 billion to meet its external financing needs this year, Fitch estimated, noting that the country only has few options, including running down its reserves, after shelving plans to issue Eurobonds.
“The country’s foreign currency reserves could fall to $23.3 billion this year if foreign exchange access is normalised, Harb said, from around $36 billion.
“Nigeria could avoid a ratings downgrade if it strengthens its finances, reforms its forex policy and shows a path to reducing its deficit by boosting non-oil revenues,” he noted.