- forecasts 4.7% GDP growth in 2017
Nigeria will need to undergo painful reforms to come out of the present economic crisis. This was asserted in a recent report by Business Monitor International (BMI) a Fitch Group company, in its fourth quarter Country Risk Report focused on Nigeria, which includes 10-year forecasts to 2025.
The BMI stated in the research that oil prices would remain low over the medium to long term and with the international market of Brent crude averaging $65.7 per barrel over the next 10 years.
It, however, gave hope in the forecast as it said that there will be a real GDP growth in the nation’s economy in 2017, which will strengthen to 4.7 per cent.
‘‘In 2017, there will be a modest recovery in the country’s goods export growth, as a rise in oil prices from a projected $46.5 per barrel (/bbl) in 2016 to $57.0/bbl, coupled with a 10.6% rise in production, contribute to the current account deficit, narrowing to 3.2% of GDP”.
According to the report, for Nigeria to get around the economic malaise, investment must be made in critical sectors of the economy, including energy and transport infrastructure that will play strategic roles needed to transform the economy over the medium to long term, adding that with a narrow tax base, revenue mobilization would remain a key issue for the present administration.
The report predicted that with lower oil prices and its concomitant sharp adjustment in government revenue, coupled with a narrow tax base, domestic revenues will fall way short of the figure that is needed to plug the country’s gaping infrastructure deficit.
“We project a further acceleration to 5.5% by 2018 as the expansionary budget is implemented and a pick-up in global oil prices improves Nigeria’s fiscal and current account position.
‘‘We forecast an average real GDP growth rate of 4.3% over the next 10 years, compared to an average 6.8% over the previous decade, and 7.2% the decade before that.
“President Buhari’s efforts to diversify the economy away from an overreliance on oil will see little success in the near term, given the quick-fixes his policies have concentrated on. In order to see a meaningful advance in economic diversification, a more concerted effort to improve the business environment is needed.
‘‘Looking further ahead, we expect that the development of a massive refinery by the Dangote Group will lead to a sharp improvement in the current account deficit from 2018 onwards. The refinery will have an annual capacity of 600,000 barrels per day which will cater for Nigeria’s domestic needs and curb growth in imports. Partly due to this development, we project that the current account deficit will fall to 0.4% of GDP by 2020”.
The report also states that Nigeria will endure an economic contraction in 2016 as external and domestic challenges, exacerbated by a series of controversial monetary and fiscal policy developments, have led to a fall in manufacturing activity, declining oil production, a delayed implementation of an expansionary budget and reduced inflows of investment.
“We believe that the economy bottomed out in the second quarter of the year. However, despite some limited improvement ahead, any positive growth over the next two quarters will not be sufficient to offset the poor H1, and we forecast a 0.8% real contraction this year as a result.
‘‘In 2016, Nigeria’s current account deficit will be the widest recorded since 1998, according to our forecasts, as the country struggles with a slump in global oil prices exacerbated by plunging oil output.
‘‘The Central Bank of Nigeria will enact a further 200 basis points of hikes over the next six months in a bid to encourage a return in international investment. High structurally driven inflation will keep real interest rates negative, but the tighter monetary policy will be a strong signal to investors.
“While we believe that the security risks Nigeria faces on a number of fronts will eventually be contained, if the situation significantly deteriorates into a more intense level of conflict, this would potentially affect investment, exports, and growth.
“Power sector reforms are crucial for long-term productivity gains. If these are slowed or stalled, this would lead to lower long-term trend growth than we currently expect.” The report explained.
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