Growth in Nigeria, already suffering from the oil price collapse, will be further impacted by the unorthodox monetary policy being enacted in the country, which - contrary to its professed aims - is stifling existing domestic non-oil production. Looser monetary and fiscal policy will not be sufficient to compensate.
President Muhammadu Buhari remains determined to plough his own furrow, pursuing his own politically determined economic path in the face of criticism from businesses, investors and analysts around the world. He is single-mindedly attempting to reshape the Nigerian economy, clean up its ministries and business practices, and eliminate graft. Given the massive reliance on the oil sector, and the devastating effect fiscal leakage has had on Nigeria's development, these are worthwhile pursuits. However, the president - and Nigeria - must be prepared for hardship in their quest in the near term and we contend that too dogmatic a pursuit of these ideals will endanger the country's ability to attract foreign investment.
The ramp-up in spending that the Nigerian government has proposed will outpace any growth in revenues, and the fiscal deficit will widen as a result. This will be financed by borrowing on international markets and from multilateral bodies - which will likely come with conditions attached.
Nigeria's current account will remain in deficit in 2016 and over the course of our forecast period, thanks to the oil price collapse and a reliance on imported goods. This will be financed through borrowing from multilateral institutions and the international debt market.
In light of the recent monetary policy meeting in Nigeria we maintain our forecast that there will be a 100bps cut to the policy rate in 2016. Growth stimulation remains the primary concern, and with a naira devaluation looking increasingly uncertain, this will become even more important.
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|
|Nominal GDP, USDbn||545.8||441.9||457.8||479.3|
|Real GDP growth, % y-o-y||6.3||3.3||3.6||4.5|
|Consumer price inflation, % y-o-y, eop||8.0||9.6||9.0||8.5|
|Exchange rate NGN/USD, eop||183.48||199.30||230.00||240.00|
|Budget balance, % of GDP||-1.2||-2.6||-3.2||-2.8|
|Current account balance, % of GDP||0.2||-2.0||-2.5||-1.9|
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