Key Reasons Why World Bank Says Nigeria’s Recession Will End In 2017
The storm may soon be over for Nigeria as the World Bank expects the rebound in the price of oil will pull the country out of its worst recession in 25 years. According to the bank’s latest forecasts, it expects Africa’s largest economy to grow by 1 percent in 2017 after contracting 1.70 percent last year. This will bring immense relief to a country cash strapped economy.
Reasons why Nigeria could return to economic growth and end the recession;
The World Bank cited rising oil prices as a reason for a return to growth in the Nigerian economy.
In Nigeria, ongoing exchange rate adjustment, coupled with the gradual improvement in oil prices, will provide a modest boost to domestic revenues. This, in turn, should help the federal and state governments meet some of their financial obligations, including the clearance of salary arrears. Meanwhile, stable currencies, lower inflation, and improved agricultural production should support robust consumer spending in agricultural exporters and commodity importers.
The Bank also projected that the Naira will stabilize encouraging a return of International investors and opined that the removal of fuel subsidies will also help contain current expenditures.
In Nigeria, the gradual stabilization of oil prices and an increase in oil production will help support a modest recovery. Policy reforms are helping to improve the environment for private investment. Fuel shortages have eased following an increase in prices. Policy tightening should help stabilize the naira, and encourage a return of international investments. …..Nigeria’s shift to a more flexible exchange rate is expected to boost government revenue, while the phasing out of fuel subsidies should help contain current expenditures. Nonetheless, the government’s plans to ramp up public investment to support the economy, if passed, will weigh on fiscal balances.
Last year was horrendous for Nigeria as the price of oil, which makes up 90 percent to foreign exchange earnings, fell by more than 50 percent and hence depleted the external reserve.
The central bank in bid to curb inflation and stop the external reserve from continued bleeding pegged the naira at N197-N199 for 15 months before adopting a flexible exchange rate regime in June last year that saw the currency lose 60 percent of its value against the US dollars.
Capital controls imposed by the Apex bank where 41 items were removed from the official foreign exchange window parallel economic activities as manufacturers were forced to buy dollars from the parallel market at N495 as against N305 at the interbank market.
Experts are of the view that the rise in oil price alone is not enough to pull the country out of the recession but a reversal of the capital control policy and the devaluation of the naira. The continued refusal to weaken the currency has caused capital flight as investors pull their money out of the equity market for fret that a sudden devaluation would lead to a significant loss of investment.
The country’s external reserves rose stood at $ 26.55 bn on January 9, this compares with $30.04 billion recorded as of the end of 2015. According to the National Bureau of Statistics, Nigeria’s foreign direct investment fell by 52.5 per cent in the third quarter of 2016 to 340.6 million dollars from 718 million dollars in the corresponding quarter of 2015.
Download the World Bank 2017 Economic Oulook for 2017 (including outlook on Nigeria) below