The Nigerian economy is benefiting from government policy support, rising oil prices and international financial assistance. The authorities’ pro-active approach has contained the COVID-19 infection rates and fatalities. With the emergence of fuel subsidies and slow progress on revenue mobilisation, the fiscal outlook faces significant risks. Continued reliance on administrative measures to address persistent foreign exchange shortages is negatively impacting confidence. Without urgent fiscal and exchange rate reforms, the medium-term outlook faces sub-par growth.
The economy is recovering from an historic downturn
Helped by government policy support, rebounding oil prices and international financial aid, Nigeria exited the recession in 2020 Q4, earlier than expected. Output rose by 5.4 per cent (y-o-y) in the second quarter, mainly reflecting base effects from transport and trade sectors and continued strong growth in the IT sector. However, manufacturing and oil sectors remain weak, reflecting continued foreign exchange shortages, and security and technical challenges. Headline inflation rose sharply during the pandemic reaching a peak of 18.2 per cent y-o-y in March 2021 but has since declined helped by the new harvest season and opening of the land borders. Reported unemployment rates are yet to come down although COVID-19 monthly surveys show the employment level to be back at its pre-pandemic level.
The COVID-19 pandemic has been well managed, but there is a lasting imprint on the vulnerable
As much of the rest of Sub-Saharan Africa, Nigeria underwent a third wave of the pandemic in August 2021. The authorities’ proactive actions, including a robust infection tracking system and a national strategy for vaccine procurement and rollout, have helped keep infection rates and fatalities lower than in many other countries. The economic and social impacts of the pandemic have been more daunting with rising food insecurity and an increase in the already-high levels of poverty. Significant progress has been made in vaccine procurement. However, less than 3 per cent of the eligible population has been fully vaccinated reflecting limited vaccine supply, delivery bottlenecks and high vaccine hesitancy.
The outlook is for a subdued recovery
While real GDP is projected to grow by 2.6 per cent this year and continue in the range of 2.6-2.7 per cent per annum over the medium term, this is just above the population growth rate implying stagnant per capita income in the medium term. Moreover, despite an easing of food prices, inflation is projected to remain in double-digits, absent monetary policy reforms. There are significant downside risks to the near-term outlook arising from the uncertain course of the pandemic and the domestic security situation. In the medium term, there are upside risks from faster-than-expected reaching of the Dangote refinery’s production capacity along with effective implementation of the 2021 Petroleum Industry Act in terms of higher manufacturing production and investment in the oil sector.
Learn More: Nigeria and the IMF
