The International Monetary Fund (IMF) has reduced Nigeria’s projected GDP growth for 2022 from 3.4% to 3% due to the country’s low oil production and the severe impact of flooding.
Following the conclusion of an official staff visit to Nigeria, the IMF disclosed this in the 2022 Article IV Consultation statement.
The IMF also predicted a massive economic slowdown for the country, with GDP growth slowing to 3%.
Part of the statement said:
Output growth at 3.4 per cent (y/y) in 2022Q2 marked the seventh consecutive quarter of growth driven by various services sectors, especially information technology, trade, and finance.
Reason for the slowdown
According to the multilateral lender, Nigeria’s oil production has been declining since the middle of 2020 due to low investment and significant leakages caused by poor maintenance and theft.
Despite Nigeria’s limited direct involvement, the Ukrainian conflict has impacted domestic food prices, with headline inflation reaching a 17-year high of 21.1% (y/y) in October 2022. Food insecurity exacerbates the pandemic’s disfiguring effects on the vulnerable.
The slowdown in growth reflects year-to-date weaknesses in oil production and the adverse effects of recent flooding. Supported by the authorities’ measures to curb ongoing oil theft and considering new production coming on stream, a protracted recovery in the oil sector is projected to begin late this year.”
The effects of recent flooding and high fertiliser prices could become more entrenched, impacting both agricultural production and food prices in 2023 negatively. Similarly, further volatility in the parallel market exchange rate and continued dependence on central bank financing of the budget deficit could exacerbate price pressures, the IMF explained.
Risks for the oil sector
According to the IMF, the oil sector faces medium-term downside risks from price and production volatility. At the same time, natural disasters caused by climate change pose a threat to agriculture. Upside risks include a stronger rebound in oil production, investment in the gas sector, and the Dangote refinery coming online with a large production capacity.
