The International Monetary Fund (IMF) has again raised concern about the rising Federal Government fiscal deficit, warning it could hit 6.1 per cent of the nation’s Gross Domestic Product (GDP) as oil production remains weak.
This was contained in the latest Staff Article Consultation report released in Washington on Wednesday after a discussion on recent economic and financial developments and the economic outlook for the country between the IMF staff team led by Jesmin Rahman and the Nigerian authorities at their meetings between June 6-10, 2022.
The new fiscal deficit projection by the IMF is 2 per cent over the N7.35 trillion of Nigeria’s fiscal deficit in the amended N17.3 trillion 2022 budget which represents 3.99 per cent of the country’s GDP.
Ripples Nigeria had earlier reported that the latest data from the Organization of the Petroleum Exporting Countries (OPEC) shows Nigeria lost its status as Africa’s largest producer of oil due to production dropping by 195,000 barrels per day (bpd) to 1.02 million BPD in May 2022.
Nigeria’s massive oil drop, owing to theft, vandalism and others came at a time oil price was trading above $100 per barrel and other major producers were reaping billions of dollars.
The development is the worst of the year, denying the country of largesse at a time Europe is shopping for alternatives to fill the vacuum created by the drop in Russia’s output owing to the sanctions over the invasion of Ukraine
These challenges and the escalating food prices and security, the IMF noted that the Nigerian economy outlook is very challenging.
It said: “The economic outlook is challenging with the high food prices raising food security concerns.”
However, the IMF noted that Real GDP growth was broadening to all sectors except oil, while inflation remains elevated.
The IMF staff team led by Jesmin Rahman held meetings with the Nigerian authorities from June 6-10, 2022, to discuss recent economic and financial developments and the economic outlook for the country.
The report of the team led by Rahman states that “Economic recovery continues to gain strength on the back of services and agriculture with GDP growth reaching 3.6 per cent (y/y) in Q1 2022.
At least data shows economic growth broadening to all sectors except oil, where production remains weak reflecting continued security and technical challenges.
“Inflation has reached 17.71 per cent (y/y) in May led by a renewed surge in food prices, exacerbated by the war in Ukraine, and raising food security concerns as over 40 per cent of the population live below the poverty line.
To contain inflationary pressures, the Central Bank of Nigeria has recently hiked its monetary policy rate by 150 basis points to 13 per cent.
Regarding the external sector, Rahman noted that the current account deficit narrowed significantly in 2021 helped by import compression and a higher net oil balance.
However, she added that the improving trade balance, which had continued so far in 2022, was having a limited impact on Foreign Exchange (FX) strains with the exchange rate premiums in the parallel market staying in the 35-40 per cent range since October 2021.
She noted: “Despite supportive oil prices, gross FX reserves fell to $38.6 billion at end-May 2022, having reached $41.5 billion in September 2021 boosted by SDR allocation and Eurobond issuance. Regarding the economic outlook, GDP growth is projected at 3.4 per cent (y/y) in 2022 while inflation is expected to remain elevated.
“The fiscal deficit of the Consolidated Government is expected to remain high at 6.1 per cent of GDP due in great measure to costly petrol subsidies and limited tax revenue collections.
” Downside risks to the near-term arise from further deterioration of security conditions, elections, low vaccination against Covid-19 and higher global interest rates.”
