IMF forecasts 2.5% economic growth for Nigeria in 2021

•To give debt repayment relief

The International Monetary Fund (IMF) has revised upward its growth forecast for the Nigerian economy in 2021 to 2.5 per cent from its earlier projection of 1.5 per cent it announced in January.

The IMF announced the new projection in its World Economic Outlook update released on Tuesday.

This is just as there are strong indications that Nigeria may be warming up for a debt repayment relief as the World Bank Group and the International Monetary Fund (IMF) would recommend to the G20, an extension of the Debt Service Suspension Initiative (DSSI) by low-income countries until the end of 2021.

Meanwhile, the new growth projection is 1.0 per cent higher than the multilateral institution’s 2021 forecast in January. January’s forecast was a downward review from the forecast it shared in October 2020.

The Nigerian economy exited recession in the fourth quarter of 2020 with a modest 0.11 per cent growth.

The IMF also projected that in sub-Saharan Africa, growth will strengthen to 3.4 per cent in 2021, 0.2 per cent higher than the previous forecast.

The IMF expects the world economy to grow by 6 per cent in 2021, up from its 5.5 per cent forecast in January, a stronger economic recovery in 2021 as Covid-19 vaccine rollouts get underway.

It, however, warns of “daunting challenges” given the different rates of administering shots across the globe.

“Global prospects remain highly uncertain one year into the pandemic. New virus mutations and the accumulating human toll raise concerns, even as growing vaccine coverage lifts sentiment. 

“Economic recoveries are diverging across countries and sectors, reflecting variation in pandemic-induced disruptions and the extent of policy support. The outlook depends not just on the outcome of the battle between the virus and vaccines—it also hinges on how effectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis,” the IMF said in a statement,” it noted.

The multilateral institution also said global growth is projected at 6 per cent in 2021, moderating to 4.4 per cent in 2022. The projections for 2021 and 2022 are stronger than in the October 2020 WEO. 

“The upward revision reflects additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility. High uncertainty surrounds this outlook, related to the path of the pandemic, the effectiveness of policy support to provide a bridge to vaccine-powered normalization, and the evolution of financial conditions,” it added.

In its new report, the IMF said about 95 million people are likely to fall below the extreme poverty threshold during 2020–21.

“Higher debt service costs are also expected to constrain their ability to address social needs, including rising poverty and growing inequality, or to correct the setback in human capital accumulation during the crisis,” it said.

Similarly, in terms of debt payment relief, 

Nigeria is owing the two institutions about US$14 billion while the 2021 budget has projected to spend as much as N3.12 trillion in debt servicing during the fiscal year.

The possible relief is contained in a paper presented by staff of the World Bank/ IMF at the backdrop of its 2021 virtual Spring Meetings which commenced yesterday.

The recommendation which will further provide relief from debt service under the COVID-19 pandemic initiatives requires the approval of the Executive Boards of the organizations to become their official positions.

According to the paper, the recommendation has become necessary as most debtor countries have been found to be struggling with the negative effects of the COVID-19 pandemic on their economies.

“The economic outlook remains exceptionally uncertain at a time when many DSSI-eligible countries already have protracted breaches of DSA debt indicators.

The World Bank estimates that to attain levels of vaccination coverage to interrupt virus transmission, Africa would need about US$12 billion for vaccines and incremental costs for deployment, almost the same amount of official debt service deferred by current DSSI participant,” the staff said in the paper.

According to the paper, “In some IDA countries, the interest burden already exceeded pre-HIPC levels—and debt service burdens are highest in Sub-Saharan Africa.

“Overall external public and publicly guaranteed (PPG) debt-service-to-revenue ratios for IDA countries increased from 8.2 per cent to an estimated 11.8 per cent between 2017 and 2019. The situation deteriorated during 2020, with 54 per cent of IDA countries in or at high risk of debt distress.”

Nigeria’s ratio is said to be significantly above 70 per cent.

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