Because of Nigeria’s diminished oil output and the significant consequences of flooding, the International Monetary Fund (IMF) has revised Nigeria’s anticipated GDP growth for 2022 from 3.4% to 3%.
After the completion of an official staff visit to Nigeria, the IMF disclosed this in the report for the 2022 Article IV Consultation.
The IMF also forecasted a pronounced economic downturn for the country, leading to GDP growth decelerating to merely 3%. The statement indicated, in part:
The second quarter of 2022 experienced output growth of 3.4% (y/y), representing the seventh consecutive quarter of growth primarily fueled by the services sector and specifically the trade, finance, and information technology segments.
Cause of the deceleration
Nigeria’s oil output has been on a downward trend since the mid-2020, the multilateral lender asserts, due to inadequate investment and considerable leaks caused by poor maintenance and theft.
The situation in Ukraine has influenced local food prices despite Nigeria’s minimal direct involvement, with headline inflation soaring to a 17-year pinnacle of 21.1% (y/y) in October 2022. The pandemic’s detrimental effects on the vulnerable population are exacerbated by elevated levels of food insecurity.
The year-to-date decline in oil production and the adverse impacts of recent flooding are apparent in the slowdown in growth. A steady recovery in the oil industry is expected to commence later this year, aided by governmental efforts to curb ongoing oil theft and considering new production.
“The repercussions of recent flooding and elevated fertilizer costs may become more ingrained, adversely affecting agricultural output and food prices in 2023. Likewise, increased volatility in the parallel market exchange rate and ongoing reliance on central bank financing of the budget deficit could intensify price pressures,” the IMF elaborated.
Threats to the oil sector
The IMF notes that there might be medium-term downside threats to the oil sector due to possible price and production fluctuations. Natural catastrophes induced by climate change also present detrimental risks to agriculture. A stronger rebound in oil production, investments in the gas sector, and the launch of the Dangote refinery with significant production capacity all represent upside threats.
