Nigeria's economy in for a tough time, IMF says

Nigeria’s economy faces serious challenges in 2015 including high inflation and low growth, according to the IMF.

In its Article IV consultation on Nigeria, the IMF said on Monday that the country’s oil exports are projected to decline by 6% of GDP while total oil revenue is set to fall by 2.4% of GDP from 2014 levels.

“A sharp contraction in public investment and domestic demand is projected to reduce growth to 4.75%, with inflation potentially increasing to 11.5% from the effects of exchange rate depreciation,” it added.

The IMF also said risks to the banking sector persist, given its significant exposure to the oil industry and the potential for capital outflows.

Responding to the situation, in November 2014 Nigeria introduced an adjustment in the official foreign exchange rate and band, tightened monetary policy rates, and unveiled spending cuts totalling 1.7% of GDP in the proposed 2015 budget.

While welcoming the policy measures from last year, the IMF said additional policies would be needed, including greater flexibility in the exchange rate and further fiscal adjustment as "the oil price fall appears more permanent than temporary.”

The report was published in near tandem with a lowering of Nigeria’s ratings outlook by Fitch Ratings. While maintaining the country’s long-term foreign currency rating at 'BB-' and the local currency rating at 'BB', the agency downgraded Nigeria's sovereign ratings outlook to negative from stable.

Fitch said economic performance was likely to weaken, although non-oil growth would remain robust. With real non-oil growth set to ease to 5.5% in 2015 from 7.4% in 2014, “inadequate policy response remained a worry”.

The agency also flagged up heightened political uncertainty in the context of a tightly contested presidential election as a major cause for concern.