The World Bank has cut Nigeria’s economic growth forecast for this year, citing weakness from oil-output disruptions and low prices.
The bank, in its semi-annual Global Economic Prospects report, expects Nigeria to grow by 0.8 per cent, down from an estimate of 4.6 per cent in January. Growth could pick up to 3.5 per cent in 2017, it said.
Foreign exchange restrictions, fuel shortages and a plunge in oil production and prices had hit the economy, the World Bank was quoted by Reuters to have stated in the report.
The country’s economy contracted for the first time since 2004 in the first quarter of this year and the Governor, Central Bank of Nigeria, Mr. Godwin Emefiele, warned in May that a recession was imminent after a four-month delay in the nation’s budget stalled economic stimulus programmes.
Faced with the oil price slump, the key source of government revenue, the central bank has restricted access to foreign exchange. The country has held its currency, the naira, at 197-199 per dollar since March 2015, unlike some other oil producers that have let their currencies weaken.
The CBN’s Monetary Policy Committee had two weeks ago, after its meeting, announced plans to adopt a flexible exchange rate. But the blueprint for the proposed policy has yet to be released, putting further pressure on the naira at the parallel market.
The country is currently plagued by oil supply woes, as a resurgence of attacks by militants on oil and gas facilities in the Niger Delta has driven crude output to its lowest level in nearly three decades.
The Africa and Middle East Economist, Bloomberg, Mark Bohlund, in a new report, said the Nigerian economy was at risk of experiencing its first full-year recession since 1987, after output contracted by 0.4 per cent in the first quarter from a year earlier.
He said a drop in oil output to a 27-year low and paralysis in other sectors due to fuel and foreign exchange shortages meant that economic growth was likely to remain negative for the rest of this year.
The naira devaluation is unlikely to help much, with its beneficial impact expected beyond the end of this year, he said.
Bohlund said, “The first quarter contraction does not come as a surprise, but the drop in oil production was actually less damaging to activity than anticipated, dragging on real Gross Domestic Product growth by only 0.2 percentage point in the period compared with 0.7 percentage point in the fourth quarter and 0.6 percentage point in 2015.
“Instead, it was manufacturing that experienced the sharpest drop in activity, falling by seven per cent year over year. This is likely to have been partly connected to a decline in domestic demand but also to the difficulties of importing input materials due to foreign exchange controls.”