The International Monetary Fund (IMF) says it is likely that the Nigerian economy will contract this year. The Bretton Woods institution attributes the impending recession to energy inadequacies and the delayed budget. The delays in the budget’s passing will probably be among the regrets of many Nigerians this year, as analysts believe that it is now too little too late.
In an interview with CNBC Africa, Bismarck Rewane, Chief Executive Officer of Financial Derivatives Co. said, “The recovery is going to take much longer than expected because we’re doing a lot of things late. It is a very expensive delay. It is the main culprit [of the slow recovery]. Outcomes are going to be sub-optimal.”
The government plans to spend its way into recovery. Its budget this year is the largest in its history and it will lead to a fiscal deficit that is 2.14 per cent of Nigeria’s Gross Domestic Product (GDP).
The 6.1 trillion naira budget was signed four months late in May by President Muhammadu Buhari. After signing the budget, the President said: “We made a deliberate choice to pursue an expansionary fiscal policy despite the huge decline in government revenues from crude oil exports.”
Even with this record breaking budget, faith in Nigeria’s capacity to deal with the present economic challenges remains low.
In an interview with CNBC Africa's Esther Ugbodaga, Publisher of the Business Day newspaper, Frank Aigbogun said: “We’re finding a government that is not so aggressive about the economy. We’ve had two significant changes this year – the movement of the petrol price, and the foreign exchange liberalisation. Those are earth shaking changes that we’ve seen this year and the supporting policies required to cushion the effects on the people and the economy have not seen any movement.”
Some of the pressures that faced the country’s economy at the start of the year have eased, but the IMF does not believe the turn of the tide will be sufficient to prevent a year-long contraction. Gene Leon, the IMF’s representative in Nigeria said in an interview with Bloomberg: “I think there is a high likelihood that the year 2016 as a whole will be a contractionary year.” He expects that Nigeria’s economy will look better in the third and fourth quarters of the year, but he does not believe that growth will “be sufficiently fast....to be able to negate the outcome of” the year’s first half.
The IMF does expect recovery to be well underway by 2017. It estimates that the economy will grow by 3.5 per cent next year.
Senior Researcher at Harvard Business School, Efosa Ejomo, looks to the private sector for Nigeria’s future economic prosperity. He said: “CEOs can implement what we call market creating innovations. These are innovations that make complicated products cheap and available for a majority of people in the society. In doing so, CEOs not only generate a lot of wealth, but they also create a lot of jobs that can help the economy continue to flourish.” He also stressed the need to be patient and resilient in the current economic climate.
There are several economic benefits to private sector led innovations, but these cannot be expected to show results in the immediate term. Government spending is widely regarded as the most effective way to lifting aggregate demand and output in the short run. As people begin to feel the effects of the recession, it is likely that even more will wonder why the budget was not passed sooner when it was the stitch in time that could have saved jobs and prevented hardship.