Amid record-high inflation, IMF downgrades Nigeria’s economic growth prospects for 2023

Nigeria’s rising inflation will slow its growth by 0.03, representing a drop to 2.9 in 2023, according to the International Monetary Fund (IMF), in its recently released World Economic Outlook (for October) released on Tuesday.

The IMF also disclosed that the projected drop in growth prospects follows a steady rising inflation rate reported in the country, since the start of 2023, and also in addition to reduced earnings from the oil and gas sectors.

The IMF’s World Economic Outlook (for October) is themed, ‘Navigating Global Divergences.’

It would be recalled that last month, the National Bureau of Statistics (NBS) reported an 18-year-high rate of 25.8 per cent inflation rate for August.

The NBS in its report disclosed that the country’s inflation rate has now hit a staggering 25.8 per cent in August, a figure representing an 18-year high last recorded in August 2005.

In addition to the listed factors, the experts also identified logistics costs and money supply growth as fueling inflation rise in the country.

According to the NBS, the country’s August inflation figure rose for an eighth straight month from July’s 24.08%, compounding a cost of living crisis worsened by President Bola Tinubu’s reforms.

According to the NBS, Nigeria’s GDP grew by 2.51 per cent in the second quarter of 2023.

The last time Nigerians experienced this level of inflation was in August 2005, official data shows.

It would also be recalled that the Central Bank of Nigeria (CBN) raised rates by a smaller-than-expected 25 basis points in July, contrary to analysts’ expectations. It is due to set rates again on September 26 and some analysts expect a more hawkish stance.

Earlier in July, the IMF had projected that Nigeria’s economy would grow by 3.2 per cent in 2023. Then, it predicted that growth in the country would be impacted by security issues in the oil sector.

Commenting on its new prediction for the country, the Washington-based lender said the country’s growth is expected to decline from 3.3 percent in 2022 to 2.9 per cent in 2023 and 3.1 per cent in 2024, with negative effects of high inflation on consumption taking hold.

“Growth in Nigeria is projected to decline from 3.3 percent in 2022 to 2.9 per cent in 2023 and 3.1 per cent in 2024, with negative effects of high inflation on consumption taking hold.

The forecast for 2023 is revised downward by 0.3 percentage point, reflecting weaker oil and gas production than expected, partially as a result of maintenance work.”

Growth in the sub-Saharan African region is expected to decline to 3.3 percent in 2023 due to worsening weather shocks, the global slowdown, and domestic supply issues, the IMF noted.

It, however, stated that this growth will pick up by 2024 to 4.0 per cent in 2024, which is still below the region’s historical average of 4.8 per cent.

Explaining the downgrading of Nigeria’s economic outlook, head of the World Economic Studies Division in the IMF’s Research Department, Daniel Leigh, highlighted that the downward review in Nigeria is due to the recent demonetisation move of the government, high inflation, and more.

“There is a downward revision for this year, partially this is due to the demonetisation, high inflation, shocks to agriculture and hydrocarbon output that is coming on top of the external headwinds.

“I will also add that President Tinubu has moved quickly with important reforms including ending the fuel subsidy and unifying the exchange rates. We welcome these initial bold reforms because we see them as paving the way for strong and inclusive growth,” said Leigh, who heads the department which produces the World Economic Outlook.

Overall, global economic growth is projected to slow from 3.5 per cent in 2022 to 3.0 per cent in 2023 and 2.9 per cent in 2024, well below the historical (2000–19) average of 3.8 per cent, the IMF declared.

“Advanced economies are expected to slow from 2.6 per cent in 2022 to 1.5 per cent in 2023 and 1.4 per cent in 2024 as policy tightening starts to bite. Emerging market and developing economies are projected to have a modest decline in growth from 4.1 per cent in 2022 to 4.0 per cent in both 2023 and 2024.”

Inflation, which has been on a global rise, is expected to fall from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024, the IMF highlighted. It further stated that low-income developing countries are expected to experience double digits inflation in 2023.