Nigeria’s economy to gradually decline due to security issues in oil sector – IMF

The International Monetary Fund (IMF) has said that Nigeria’s economy is set to gradually decline because of security issues in the country’s oil sector.

This was stated in the IMF’s World Economic Outlook Update released on Tuesday, July 25.

According to the IMF, economic growth in Nigeria in 2023 and 2024 is projected to gradually decline, in line with April projections, reflecting security issues in the oil sector.

The report projected a 3.2% growth in 2023 and a 3% growth in 2024 for Nigeria.

The IMF also noted that crude oil prices rose by 39% in 2022 and are projected to fall by about 21% in 2023, reflecting the slowdown in global economic activity, which will affect resource-dependent economies.

The WEO pointed out that it is necessary to phase out untargeted fiscal measures, including those that blunt price signals.

The report gave an example of energy subsidies, which have become unsustainable because energy prices have broadly returned to pre-pandemic levels.

More insights on developing economies

Industrial activity slowdown – In the report, it was highlighted that developing economies like Nigeria, face a myriad of issues from rising inflation to a slowdown in industrial activity.

The report stated further that gross fixed capital formation and industrial production have slowed sharply or contracted in major advanced economies, dragging international trade and manufacturing in emerging markets with them.

The IMF also stated that international trade and indicators of demand and production in manufacturing all point to further weakness.

Debt servicing – The IMF report also stated that large short-term external financing needs are stretching the ability of numerous emerging market economies and low-income countries to service their debt.

The report said that sovereign spreads remain historically elevated, impeding market access for many economies reliant on short-term borrowing.

The IMF advocated for faster and more efficient coordination on debt resolution, including through the Group of Twenty (G20) Common Framework and the Global Sovereign Debt Roundtable, to provide a positive signal that lowers short-term borrowing costs and to avoid the risk of debt crises’ spreading.

Clean energy alternatives – In the report, the IMF also advocated for a push for clean energy investment.

This is necessary to ensure sufficient energy supplies given countries’ decarbonization goals. It also highlighted the fact that multilateral cooperation is essential to speed the green transition, mitigate climate change, and regulate potentially disruptive emerging technologies such as artificial intelligence (AI).

What you should know: The IMF advises central banks to focus on restoring price stability and strengthening financial supervision and risk monitoring as well as building fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable.