Nigeria Economic Outlook
Economic performance and prospects
The economy continued to show signs of recovery from the 2016 recession. GDP growth was estimated at 0.8% in 2017, up from –1.5% in 2016. The outlook beyond is positive, with growth projected at 2.1% in 2018 and 2.5% in 2019. This outlook is anchored in higher oil prices and production, as well as stronger agricultural performance. Oil prices rebounded to an average of $52 per barrel (Brent crude) in 2017 and are projected to reach $54 in 2018, up from $43 per barrel in 2016. Oil production also increased from 1.45 million barrels per day in the first quarter of 2017 to 2.03 million in the third quarter of 2017 following deescalation of hostilities in the delta region and is expected to remain at the same level in 2018 and 2019, in tandem with the Organization of the Petroleum Exporting Countries production restrictions.
Fiscal policy remained expansionary in 2017 as in 2016. Although total spending as a percentage of GDP declined from 13% in 2014 to 10.3% in 2017, revenues declined more sharply, from 11.4% to 5.6%. The budget deficit was estimated at 4.8% in 2017, up from 4.7% in 2016, and is
projected to improve to 4.3% in 2018 and 4.1% in 2019, as revenue performance improves. At 14%, unemployment remained high in 2017, the same as in 2016, and is expected to decline only slightly in 2018, to 13.5%, as recovery eases production constraints in manufacturing and agriculture.
Monetary policy continued to be contractionary in 2017 and is expected to remain so in 2018; the policy rate has been kept at 14% since July 2016 to support the naira and control inflation. Inflation has remained stubbornly high and in the double digits—an estimated 16.2% in 2017, up from 15.6% in 2016—but is projected to ease to 13.7%
in 2018 and 12% in 2019. Foreign currency liquidity has improved following the introduction of administrative measures by the Central Bank since early 2017. The measures include a trading window for portfolio investors at marketdetermined rates and the introduction of the Nigerian Autonomous Foreign Exchange Rate Fixing, which allowed commercial banks to quote forex rates that are close to parallel market rates. The naira remained stable for most of 2017 and is expected to strengthen slightly as the economy continues to recover.
The recovery in oil prices and production will help drive growth and provide fiscal space as the government pursues important structural reforms to diversify the economy. Faithful implementation of the Economic Recovery and Growth Plan (2017–20) holds the promise of weaning the country off its dependence on oil. The plan focuses on six priority sectors: agriculture; manufacturing; solid minerals, including iron, gold, and coal; services, including information and communication technology, financial services, tourism, and creative industries; construction and real estate; and oil and gas. The government has produced specific programs for each sector and defined broader growth policy enablers to drive the plan.
Nigeria still faces significant challenges, including foreign exchange shortages, disruptions in fuel supply, power shortages, and insecurity in some parts of the country. Revenue mobilization efforts are insufficient; at 5%, value added tax rates are among the lowest in the world, and revenue administration is inefficient. Poverty is unacceptably high; nearly 80% of Nigeria’s 190 million people live on less than $2 a day.