Nigeria’s economy projects 3.2% Growth in 2023

The International Monetary Fund (IMF) has kept its growth prediction for Nigeria’s economy in 2023 at 3.2%, according to its recent “World Economic Outlook: A Rocky Recovery 2023 APR” report. The IMF has also projected that Nigeria’s economy will grow by 3.0% in 2024. Although there were early signs that the world economy could achieve a soft landing in 2023, with steady growth and a decrease in inflation, stubbornly high inflation and recent financial sector turmoil have receded that possibility.

The report cited that although underlying price pressures have remained sticky in several economies, inflation has declined as central banks raised interest rates, and food and energy prices came down. However, side effects from the fast rise in policy rates have become apparent, as banking sector vulnerabilities have come into focus, and fears of contagion have risen across the broader financial sector, including non-bank financial institutions. Policymakers have taken forceful actions to stabilise the banking system.

The IMF report also noted that debt levels remain high, limiting the ability of fiscal policymakers to respond to new challenges. The outlook reflects the tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine, and growing geo-economic fragmentation. The report explained that fragmentation into geopolitical blocs has the scope to generate large output losses, including through its effects on foreign direct investment.

In most cases, the IMF recommends that governments aim for an overall tight stance while providing targeted support to those struggling most with the cost-of-living crisis. However, in a severe downside scenario, automatic stabilisers should be allowed to operate fully, and temporary support measures should be utilised as needed, fiscal space permitting. The report also stated that medium-term debt sustainability will require well-timed fiscal consolidation, but debt restructuring will also be necessary in some cases.