Friday, May 14, 2021

IMF Revises Nigeria’s 2021 Economic Growth Rate Upward to 2.5% from 1.5%…

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Naija247news, Nigeriahttps://www.naija247news.com/
Naija247news is an investigative news platform that tracks news on Nigerian Economy, Business, Politics, Financial and Africa and Global Economy.

In the just concluded week, the International Monetary Fund (IMF) in its April 2021 World Economic Outlook (WEO) report titled “Managing Divergent Recoveries”, revised Nigeria’s economic growth rate upward, to 2.5% in 2021 from the 1.5% growth rate projection in
its January 2021 WEO report.

Also, the global economy is expected to improve in 2021 – global growth rate was pegged at 6% – amid ease in lock down and as economies continue to adapt
to new ways of working.

Specifically, the new improved global economic growth rate forecast in 2021, which improved by 0.8 percentage
points than in the October 2020 projection, was reflective of the fiscal support in few large economies and the anticipated vaccine-powered recovery in the second half of 2020.

On the flip side, the IMF expects global growth rate over the medium term to mellow to 3.3% from 4.4% in 2022 amid projected damage to supply potential and other forces that predate the pandemic, including aging-related slower labor force growth in advanced economies and some emerging market economies.

According to the report, financial conditions in low-income countries generally did not respond as much as conditions in emerging markets did to monetary policy surprises by the Federal Reserve or ECB, or to news about US economic activity or COVID-19 vaccines.

However it pointed Nigeria and some other countries as exceptions.

First, positive vaccine news in 2020 lifted 10-year government bond yields, on average, in Nigeria, and the other four low- income countries (Ghana, Kenya, Uganda and Vietnam).

Second, positive ECB monetary policy surprises also lifted six-month government bond yields, on average, in the three low-income countries (Nigeria, Rwanda and Zambia).

Lastly, the currencies of low-income countries depreciated by about 1.2 percent, on average, vis-à-vis the US dollar for each 100 basis points of surprise tightening by the Federal Reserve, similar to the response of emerging markets.

Also, the IMF stated in its report that the increasing intervention funds received by the developing countries to cushion the effects of COVID-19 pandemic would have consequences on their economy as the huge debt service costs arising from the interventions would hinder recipients’ capacity to address social needs.

In another development, the Federal Government hinted on its plan to issue Eurobonds in 2021.

According to the Dircetor General of the Debt Management Office (DMO), Patience Oniha, the amount to be raised would be within the USD6.14 billion (N2.34 trillion) foreign borrowing plans for 2021.

According to approved budget for 2021, FG is looking to fund its N5.60 trillion budget deficit from foreign and local sources.

FG may have eventually turned to the commercial centre to issue foreign bonds as the USD1.5 billion loan it seeks from the World Bank suffered setback amid concerns over reforms to exchange rate.

Going by Nigeria’s total debt stock as at FY 2020, FG appears to still be within its target of domestic to foreign debt ratio of 70 max : 30 min; albeit, the rate at which the foreign loan is growing – a 20.48% year-on-year rise to USD33.35 billion in 2020 from 27.68 billion in 2019 – is quite alarming, when compared to the corresponding growth in exports proceeds despite the rise in crude oil prices at the international market in 2020.

We feel that the upward review of Nigeria’s growth rate to 2.5% may appear optimistic given the country’s associated structural challenges that are chiefly driving inflation rate higher and subjecting the Naira to further depreciation against the greenback.

This is more so that the African oil-rich country still grapples with worsening insecurity which has continued to spread to other relatively peaceful regions.

Against this background, we expect interest rate to stay relatively high in 2021, a position that would impact the country’s growth rate negatively.

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