Real GDP growth in Nigeria will be weak in 2016 - we forecast a 3.1% expansion - as the naira peg and capital controls will continue to weigh on economic activity through the course of the year, exacerbating the global oil price slump's effects on the Nigerian economy. While 3.1% growth would mark an acceleration on 2015's 2.8%, it is nevertheless a downward revision from our previous forecast of 3.6%. This revision is due to delays to the planned expansionary budget and a recent data release, which has shown the extent to which businesses are being hampered by capital controls.
The Nigerian government's move to secure USD6bn in loans from China signals two things: strengthening relations with the Asian giant and a reluctance to comply with the stipulations on economic policy which would likely have accompanied an IMF loan. Relatedly, Nigeria will be able to further delay any devaluation to the naira, which has been controversially pegged at NGN197-199/USD since February 2014.
Nigeria's current account deficit will narrow slightly in 2016 thanks to declining imports rather than any macroeconomic improvement or boost in exports. It will remain wide in 2017, but the launch of a new domestic oil refinery in 2018 will help narrow in the deficit thereon in.
A surprise reversal in monetary policy by the Central Bank of Nigeria (CBN) will spook rather than reassure investors. While central bank governor Godwin Emefiele has laid the blame for a slowdown in economic growth at the door of everyone but the bank, we do not expect any significant turnaround until there is some relaxation of the exchange rate peg and capital controls.
While we believe that security risks will eventually be contained, if the situation significantly deteriorates, this would potentially affect investment, exports, and growth.
Power sector reforms are crucial for long-term productivity gains. If these are slowed or stalled, this would lead to lower long-term trend growth than we currently expect.
|e/f = BMI estimate/forecast. Source: National Sources|
|Real GDP growth, % y-o-y||6.3||2.8||3.1||4.5|
|Nominal GDP, USDbn||545.8||476.0||463.5||488.8|
|Consumer price inflation, % y-o-y, eop||8.0||9.6||10.0||9.0|
|Exchange rate NGN/USD, eop||183.48||199.30||230.00||240.00|
|Budget balance, % of GDP||-1.2||-2.4||-3.4||-3.1|
|Current account balance, % of GDP||0.2||-3.2||-2.9||-2.5|
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