Though Nigeria’s economy recovered from the recession caused by the COVID-19 pandemic, the recovery has been slow and fragile, barely keeping pace with the country’s population growth. Per capita GDP has stagnated, and the cost of living crisis has been exacerbated by widespread poverty and high food insecurity. This is according to the International Monetary Fund (IMF), which has warned that the outlook for the Nigerian economy is subdued, with growth remaining too low to lift per capita income significantly.
The IMF’s sobering assessment of the Nigerian economy comes as inflation continues to rise, the naira weakens, and businesses struggle to stay afloat. According to the report, titled “IMF Executive Board Concludes Post Financing Assessment with Nigeria”, the country’s economic outlook remains bleak, with growth rates insufficient to improve living standards.
The multilateral body noted that Nigeria’s over-reliance on hydrocarbon exports has limited overall growth and contributed to inflationary pressures. Additionally, the report highlighted the devastating impact of security concerns, particularly in the north of the country, on agriculture and food security. As a result, 25 million Nigerians, or 13 per cent of the total population are seen to be facing food insecurity.
The report read in part, “Nigeria faces a difficult external environment and wide-ranging domestic challenges. External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation.
Per-capita growth in Nigeria has stalled, poverty and food insecurity are high, exacerbating the cost-of-living crisis. Low reserves and very limited fiscal space constrain the authorities’ option space. Against this backdrop, the authorities’ focus on restoring macroeconomic stability and creating conditions for sustained, high and inclusive growth is appropriate.”
On a positive note, the IMF projects a slight improvement in growth to 2.9% for 2023 and 3% in 2024, contingent on better hydrocarbon sector performance and control over oil theft.
In light of the current economic difficulties facing Nigeria, the IMF’s Executive Board completed a Post Financing Assessment (PFA) on January 12, 2024, which found that the country has the capacity to repay its $2.82 billion debt to the IMF. The PFA was conducted on a lapse-of-time basis, meaning that it took into account all relevant information available up to the date of the assessment. The assessment concluded that Nigeria has made progress in implementing reforms, but that further work is needed to improve the macroeconomic environment and boost growth.
The IMF also noted that in response to rising inflation, which has resulted in a significant increase in the cost of living, the Nigerian government has taken several measures to cushion the impact on the population. These include releasing cereals from the national grain reserve, providing subsidised fertiliser to farmers to boost agricultural output, and capped retail fuel and electricity prices to reduce costs for consumers. In addition, it pointed out that civil servants received a wage increase, and the VAT on diesel was suspended to lower transportation costs.
The IMF noted that the medium-term outlook for Nigeria could be significantly improved if the government successfully develops and implements a comprehensive reform agenda.
The IMF’s executive board commended the new administration for its strong start in addressing deep-rooted structural issues, such as inflation, fiscal responsibility, and revenue mobilization. However, the board also noted that Nigeria is still facing a number of challenges, including a difficult external environment, low reserves, and limited fiscal space.
The IMF emphasised the need for further monetary tightening and fiscal consolidation in order to restore macroeconomic stability and promote growth. In particular, it called for continued monetary tightening to rein in inflation, and fiscal adjustments to reduce the fiscal deficit and create fiscal space for investment in critical infrastructure and human capital.
The major financial agency of the United Nations also urged the complete elimination of fuel and electricity subsidies, arguing that they are expensive and ineffective. Instead, it advocated for the provision of targeted support to the most vulnerable members of the population through the use of social safety nets.