International Monetary Fund (IMF) has projected a significant economic contraction for Nigeria, with Gross Domestic Product (GDP) seen falling by 5.4 per cent this year after an earlier forecast for a 3.4 per cent contraction and recovering to 2.6 in 2021.
The Fund in its June 2020 Global Economic Outlook, said Sub-Saharan Africa’s GDP is expected to shrink by 3.2 per cent in 2020 due to the impact of the COVID-19 pandemic.
IMF explained that Nigeria faces economic distress not only from the coronavirus outbreak but also from a sharp fall in crude prices. Nigeria’s government has said it expects its economy to contract by 3.4 per cent this year.
However, last month Nigeria’s finance minister said the economy could shrink by as much as 8.9 per cent in 2020 in a worst-case scenario. Meanwhile, the cost of living in Nigeria has risen steadily. Annual inflation rose for the ninth straight month in May, to a two-year high of 12.4per cent.
Commenting on South Africa economy, IMF projected 8 per cent decline in 2020, a bigger contraction than the 5.8 per cent forecast in April but recovers to 3.5 per cent in 2021.
South Africa’s strict nationwide lockdown, imposed in late March to curb the spread of the novel coronavirus sharply curtailed production across key sectors such as mining and retail, further hobbling an economy already in recession.
The lockdown remains in place, but some restrictions have been eased to allow key sectors to resume operations.
According to the IMF on the positive side, the recovery is benefitting from an exceptional policy support, particularly in advanced economies, and to a lesser extent in emerging market and developing economies that are more constrained by fiscal space.
Global fiscal support now stands at over $10 trillion and monetary policy has eased dramatically through interest rate cuts, liquidity injections, and asset purchases. In many countries, these measures have succeeded in supporting livelihoods and prevented large-scale bankruptcies, thus helping to reduce lasting scars and aiding recovery.
This exceptional support, particularly by major central banks, has also driven a strong recovery in financial conditions despite grim real outcomes. Equity prices have rebounded, credit spreads have narrowed, portfolio flows to emerging market and developing economies have stabilized, and currencies that sharply depreciated have strengthened. By preventing a financial crisis, policy support has helped avert worse real outcomes. At the same time, the disconnect between real and financial markets raises concerns about excessive risk-taking and is a significant vulnerability.
“Given the tremendous uncertainty, policymakers should remain vigilant and policies will need to adapt as the situation evolves. Substantial joint support from the fiscal and monetary policy must continue for now, especially in countries where inflation is projected to remain subdued. At the same time, countries should ensure proper fiscal accounting and transparency, and that monetary policy independence is not compromised.
“A priority is to manage health risks even as countries reopen. This requires continuing to build health capacity, widespread testing, tracing, isolation, and practising safe distancing (and wearing masks). These measures help contain the spread of the virus, reassure the public that new outbreaks can be dealt with in an orderly fashion, and minimise economic disruptions. The international community must further expand financial assistance and expertise to countries with limited health care capacity. More needs to be done to ensure adequate and affordable production and distribution of vaccines and treatments when they become available”, the Fund explained.