Nige­ria’s econ­omy may shrink fur­ther – IMF

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Nige­ria’s econ­omy will prob­a­bly con­tract this year as en­ergy short­ages and the de­layed bud­get weigh on out­put, ac­cord­ing to the In­ter­na­tional Mone­tary Fund.

“I think there is a high like­li­hood that the year 2016 as a whole will be a con­trac­tionary year,” Gene Leon, the fund’s res­i­dent rep­re­sen­ta­tive in Nige­ria, said in an in­ter­view in the cap­i­tal, Abuja, on July 8. While the econ­omy should look bet­ter in sec­ond half of the year, growth will prob­a­bly not “be suf­fi­ciently fast, suf­fi­ciently rapid to be able to negate the out­come of” the first and sec­ond quarters, he said.

Africa’s largest econ­omy shrunk by 0.4 per­cent in the three months through March, the first con­trac­tion in more than a decade, as oil out­put and prices slumped and the ap­proval of spend­ing plans for 2016 were de­layed. A cur­rency peg and for­eignex­change trad­ing re­stric­tions, which were re­moved last month after more than a year, led to short­ages of goods from gaso­line to milk and con­trib­uted to the con­trac­tion in the first quar­ter.

While con­di­tions that im­peded growth in the first half of the year, in­clud­ing short­ages of power, fuel, and for­eign ex­change, as well as the higher price of dol­lars on the the par­al­lel mar­ket, may have been re­duced, they still weigh on the econ­omy, Leon said.

The Wash­ing­ton-based lender cut its 2016 growth fore­cast for Nige­ria to 2.3 per­cent in its April Re­gional Eco­nomic Out­look from 3.2 per­cent pro­jected in Fe­bru­ary. The World Bank low­ered its fore­cast to 0.8 per­cent last month, cit­ing weak­ness from oil-out­put dis­rup­tions and low prices. Last year’s ex­pan­sion of 2.7 per­cent was the slow­est in two decades, ac­cord­ing to IMF data.

“Most peo­ple would agree that if you should fix one thing in this coun­try, it should be power,” Leon said. “There is a need to start chang­ing the power equa­tion from 2016, from to­day, not to­mor­row or later.”

While in­fla­tion will prob­a­bly con­tinue its up­ward trend through the end of this year, it is un­likely to ex­ceed 20 per­cent, Leon said. Price growth ac­cel­er­ated to 15.6 per­cent, the high­est rate in more than six years, in May and prob­a­bly quick­ened to 16.2 per­cent last month, ac­cord­ing to the me­dian of seven econ­o­mist es­ti­mates com­piled by Bloomberg.

The cen­tral bank’s Mone­tary Pol­icy Com­mit­tee “may be open to tol­er­at­ing a lit­tle more in­fla­tion if growth emerges as the pri­or­ity, as op­posed to chok­ing in­fla­tion and squeez­ing the lit­tle life out of growth,” Leon said. “But the cen­tral bank, in con­junc­tion with the MPC, needs to be clear to par­tic­i­pants in mar­kets what ex­actly their pri­or­ity is.”

If growth falls to zero per­cent “then that’s a huge gap the coun­try has to fill,” Leon said. If ex­pen­di­ture stays as planned, and rev­enue is less due to the lack of growth “then we should see not smaller but po­ten­tially a larger deficit,” he said.

The naira, which as pegged at 197-199 per dol­lar un­til June 17, strength­ened 0.1 per­cent to 282.33 per dol­lar at 3:13 p.m. the com­mer­cial cap­i­tal, La­gos. (Bloomberg)­fla­tion to rise to 20%

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