• Recovery May Be Slow Without Fiscal Adjustments
The World Bank Group, on Tuesday published its June 2017 Global Economic Prospects Report, noting the firming but fragile recovery in the world’s economy to 2.7% this year, up from 2.4% in 2016, from where it would stagnate to 2.9% for 2018 and the following.
The World Bank Group’s flagship report agrees with projections that Nigeria’s economy would come out of recession this year, closing with a modest 1.2% growth, before galloping to 2.5% in 2018 and 2019.
Help for Nigeria, the report said, is expected to come from a rebound in oil production, at a time she continues to enjoy exemption from the Organisation Petroleum Exporting Countries (OPEC) output cut after years of minimal production arising from trouble in the oil bearing Niger Delta region. The World Bank noted also the improved security in the oil producing region and the increased fiscal spending especially on capital projects by the Federal Government.
According to the report, there has been a remarkable decrease in militant attacks on oil pipelines, just as “economic recession in Nigeria is receding.
“In the first quarter of 2017, GDP fell by 0.5% (y/y), compared with a 1.7% contraction in the fourth quarter of 2016. The Purchasing Managers’ Index for manufacturers returned to expansionary territory in April, indicating growth in the sector after contraction in the first quarter.”
While non-resource intensive countries, including those in the West African Economic and Monetary Union (WAEMU), have continued to expand at a solid pace, the World Bank report identified several factors preventing a more vigorous recovery among resource rich nations like Angola and Nigeria, where “foreign exchange controls are distorting the foreign exchange market, thereby constraining activity in the nonoil sector.
“In South Africa, political uncertainty and low business confidence are weighing on investment.”
The report also foresees a 2.6% growth in Sub-Saharan Africa this year from the sharp deceleration to 1.3% in 2016, before strengthening “somewhat in 2018,” a reflection of the recovery in global commodity prices and improvements in domestic conditions.
Most of the rebound in Sub-Saharan Africa, the report believes, would “come from Angola and Nigeria—the largest oil exporters.
“However, investment is expected to recover only very gradually, reflecting still tight foreign exchange liquidity conditions in oil exporters and low investor confidence in South Africa.”
South Africa, on Tuesday reported a slip into recession, as its economy contracted by 0.7% in the 2017 first quarter, as against the expected 0.6% growth this year, from where it would rise to 1.1% next year.
The rise in government debt, exchange rate depreciation, and increased recourse to non-concessional borrowing for infrastructure development have resulted in rising debt servicing costs among African countries the World Bank noted also.
“However, for most countries in the region, the interest-to-revenue ratio remains sustainable, helped by the high share of concessional borrowing,” the World Bank said, even as it singled out Nigeria as “a notable exception… where the federal government’s interest-to-revenue ratio rose from 33% in 2015 to 59% in 2016.
“In Mozambique, debt levels have increased sharply to an estimated 125% of GDP at end-2016, and the interest-to-revenue ratio has risen to above 15%, which is weighing on the ability of the government to meet debt service payments.”
The report also noted that in countries Nigeria “where significant fiscal adjustments are needed, failure to implement appropriate policies could weaken macroeconomic stability and slow the recovery.”
Another country where this this risk is particularly significant, it noted is Angola, another major oil producing nation; as well as Mozambique.
In addition, increased militants’ activity in Nigeria, the World Bank Group noted the political uncertainty ahead of key elections in South Africa, just as drought pose risks to the outlook.
