Global credit ratings agency, Fitch, has cut Nigeria’s economic growth forecast for 2022 by almost half, citing an expected contraction in the oil and gas sector, rising inflation and little progress with economic reforms.
Fitch now expects Africa’s largest economy to grow by 1.8 percent this year compared to an earlier forecast of 3 percent. That’s more pessimistic than the World Bank and IMF’s forecast of 2.5 percent and 2.7 percent respectively. The Economist Intelligence Unit (EIU) also recently cut Nigeria’s growth forecast due to power supply issues, high inflation and expected monetary tightening.
Nigeria suffered the biggest downward revision of the Sub-Saharan Africa countries covered by Fitch and will only grow faster than South Africa and Sudan this year.
The growth projection for Nigeria is below the country’s average population growth rate of 2.6 percent and implies that Nigerians are in for another squeeze this year with jobs remaining scarce and poverty deepening as the economy shrinks in per capita terms.
While the expected growth in 2022 is above the 1.2 percent pre-pandemic five year average, it marks a considerable slowdown from the 3.4 percent growth in 2021.
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“We domestic oil production to contract by 10 percent in 2022,” Ben Weaver, Sub-Saharan Africa analyst at Fitch, said of the first factor driving the firm’s cut in Nigeria’s growth outlook.
“The oil and gas sector has received very little investments for some time now and new projects coming on stream will fail to offset declining output,” Weaver said.
The second factor is rising inflation which is seen curbing consumer demand and weighing on real incomes.
Inflation is accelerating globally amid the Russia-Ukraine crisis, paving the way for central banks to hike interest rates.
For Nigeria, inflation was already elevated before the Russia-Ukraine crisis led to higher food prices and energy costs but the situation is worsening.
Nigeria’s headline inflation rate quickened to 15.7 percent in February, according to the National Bureau of Statistics (NBS).
Fitch estimates the inflation rate to average 17 percent over the remainder of the year.
The third factor responsible for the ratings agency’s downgrade of Nigeria’s growth rate is the expectation that little progress will be made in addressing the country’s economic challenges.
“Further economic reforms are particularly unlikely now that the Vice President, Yemi Osinbajo, the administration’s key voice for business-friendly policies, has dedicated himself to his own presidential campaign for the 2023 election,” Weaver said.
Osinbajo on Monday, April 11, joined at least six other officials from the ruling All Progressives Congress (APC) to declare his ambition to run for president in 2023.
Fitch believes the leadership battle will be hard fought.
“With these few, we believe policymaking will remain slow over coming months as politicians continue jockeying for positions,” Weaver said.
As a result, Fitch cut its policy making process component of Nigeria’s short-term political risk index from 53.3 points to 36.7 points, the lowest score in Sub-Saharan Africa after the Democratic Republic of Congo.