Due to Nigeria’s low oil production and the severe effects of flooding, the International Monetary Fund (IMF) has reduced Nigeria’s projected GDP growth for 2022 from 3.4% to 3%.
Following the conclusion of an official staff visit to Nigeria, the IMF revealed this in the statement for the 2022 Article IV Consultation.
The IMF also predicted a severe economic slowdown for the nation, resulting in GDP growth slowing to just 3%. The statement said, in part:
The second quarter of 2022 saw output grow by 3.4% (y/y), marking the seventh straight quarter of growth driven by the services sector in general and the trade, finance, and information technology sectors in particular.
Reason for the slowdown
Nigeria’s oil production has been declining since the middle of 2020, the multilateral lender claims, as a result of low investment and significant leaks brought on by subpar maintenance and theft.
The conflict in Ukraine has had an impact on domestic food prices despite Nigeria’s limited direct involvement, with headline inflation reaching a 17-year high of 21.1% (y/y) in October 2022. The pandemic’s disfiguring effects on the vulnerable are made worse by high levels of food insecurity.
The year-to-date weakness in oil production and the negative effects of recent flooding are reflected in the slowdown in growth. A sustained recovery in the oil sector is anticipated to start later this year, supported by government efforts to stop ongoing oil theft and taking new production into account.
“The effects of recent flooding and high fertiliser prices could become more entrenched, impacting both agricultural production and food prices in 2023 negatively. Similarly, further volatility in the parallel market exchange rate and continued dependence on central bank financing of the budget deficit could exacerbate price pressures,” the IMF explained.
Risks for the oil sector
According to the IMF, there may be medium-term downside risks to the oil sector due to potential price and production volatility. Natural disasters brought on by climate change also present negative risks to agriculture. A more robust recovery in oil production, investments in the gas industry, and the startup of the Dangote refinery with a large production capacity all pose upside risks.
