Despite Economic Crisis, IMF Ranks Nigeria’s Economy Biggest In Africa

Despite the current economic crisis being experienced by the Nigerian economy which was induced by the fall in global oil prices and the Coronavirus pandemic, the International Monetary Fund has rated the country’s economy as the biggest in Africa.

The IMF stated that Nigeria maintains its lead as the biggest economy in Africa, in terms of Gross Domestic Product of $442.9bn, and the 26th globally.

The IMF, in it World Economic Outlook, stated that the United States remains the biggest world economy with $19.48tn GDP; followed by China, $12.23tn; Japan, $4.87tn; Germany, $3.69tn; India, $2.65tn; United Kingdom, $2.63tn; France, $2.58tn and Brazil in 10th position with $2.05tn GDP.

The figures were based on nominal GDP, which do not take into account differences in the cost of living in different countries.

South Africa’s GDP put at $358.83bn is the second biggest economy in Africa; Egypt has $302.256bn GDP; Algeria, $172.781bn; Morocco, $119.04bn and Kenya’s GDP is put at $99.246bn.

Nigeria’s GDP is mainly driven by abundant crude oil, finance, transport and infrastructure.

The country records around 1.6 million barrels of crude oil a day, according to OPEC, making it the largest exporter of crude oil in Africa.

The petroleum exports make up 10 per cent of the total GDP and over 80 per cent of the export sector revenue.

Notwithstanding the rankings, the IMF has just returned a gloomy verdict on the Nigerian economy for 2020, noting that the outlook was challenging.

The multilateral institution, in its recently released 2020 Article IV Consultation on Nigeria, had stated that the country’s economy is contracting, inflation is increasing, and external vulnerabilities remain large.

It called on the government to embrace major policy adjustments and broad market reforms to stimulate the economy.

The IMF noted that exchange rate and monetary policy reforms, increased revenue mobilization and structural reforms will help to unlock Nigeria’s growth potential.

It said, “The COVID-19 global pandemic is exacting a heavy toll on the Nigerian economy, which was already experiencing falling per capita income and double-digit inflation, with limited buffers and structural bottlenecks.

“Low oil prices and sharp capital outflows have significantly increased balance of payments pressures and, together with the pandemic-related lockdown, have led to a large output contraction and increased unemployment. Supply shortages have pushed up headline inflation to a 30-month high.

“Under current policies, the outlook is challenging. Real GDP is projected to contract by 3.25 percent in 2020. The recovery is projected to start in 2021, with subdued growth of 1.5 percent and output recovering to its pre-pandemic level only in 2022.

“Despite an expected easing of food prices, inflation is projected to remain in double-digits and above the Central Bank of Nigeria’s target range, absent monetary policy reforms.

“Following a significant decline in revenue collections—from levels that were already among the lowest in the world—fiscal deficits are projected to remain elevated in the medium term.

“There are significant downside risks to this near-term outlook arising from the uncertain course of the pandemic both globally and in Nigeria.

“Recognizing the gravity of the situation, the Nigerian authorities have undertaken commendable and timely measures to counter the pandemic’s impact on lives and livelihoods.

“The authorities have also taken courageous steps to remove costly and untargeted subsidies in the power sector, which were largely benefiting better-off households.

“But more needs to be done. Major policy adjustments embracing broad market and exchange rate reforms are needed to address recurrent BOP pressures and raise the medium-term growth path.”

On the country’s Balance of Payment problems, the IMF said that a durable solution to Nigeria’s recurrent BOP problems requires recalibrating exchange rate policies to reduce BOP risks, instil market confidence and facilitate private sector planning.

It said, “The adjustments in the official exchange rate made earlier this year are steps in the right direction and the mission recommended a multi-step transition to a more unified exchange rate regime, with a market-based, flexible exchange rate.

“Significant revenue mobilization including through tax policy and administration improvements is required to create space for higher social spending and reduce fiscal risks and debt vulnerabilities.

“With high poverty rates and only a gradual recovery in prospect, revenue mobilization will need to rely initially on progressive and efficiency-enhancing measures, with higher VAT and excise rates awaiting until stronger economic recovery takes root.”

While welcoming this year’s reduced dependence on central bank financing of the budget, the IMF recommended its complete removal in the medium term.

This, it added, could be accomplished by improving budget planning and public finance management practices to allow for flexible financing from domestic markets and better integration of cash and debt management.

It said, “The mission also welcomed fiscal transparency measures introduced to facilitate tracking and reporting of budget emergency funding.

“The mission welcomed the recent submission of the Petroleum Industry Bill to the Parliament. The Fiscal Framework chapter of the bill appropriately rebalances the government take in onshore/offshore production, with the aim of providing a fair share to the government while remaining attractive to investors.”

“On the structural front, the IMF said the approval of the power sector recovery program financing plan, the ratification of the African Continental Free Trade Area, and the completion of key road projects are positive steps.

Going forward, the mission recommended decisive actions to tackle governance weaknesses and implement regulatory and trade-enabling reforms, including the lifting of trade restrictions, to unlock Nigeria’s strong growth potential.

ENDS