The International Monetary Fund (IMF) has increased its growth forecast for Nigeria’s economy in 2022 from 2.7 percent to 3.4 percent, up from 2.7 percent in January.
The IMF announced the new projection in its World Economic Outlook update released on Tuesday.
It also projected the country’s economy to grow by 3.1 per cent by 2023 from the 2.7 per cent it earlier projected.
It, however, reduced the global growth projection to 3.6 per cent for 2022 and 2023, given the Russia/Ukraine War.
“Global economic prospects have worsened significantly since our last World Economic Outlook forecast in January. At the time, we had projected the global recovery to strengthen from the second quarter of this year after a short-lived impact of the Omicron variant. Since then, the outlook has deteriorated, largely because of Russia’s invasion of Ukraine—causing a tragic
the humanitarian crisis in Eastern Europe—and the sanctions aimed at pressuring Russia to end hostilities,” IMF said.
The lender projected Russia’s economy to shrink by 8.5 per cent in 2022 while Ukraine’s economy is projected to decline by 35 per cent.
The Fund has raised concerns about how the pandemic might have caused the interdependence between banks and governments which can eventually lead to a “doom loop” for emerging economies.
A doom loop is a phenomenon by which weak banks can destabilise governments that support them and over-indebted governments can push banks that hold their bonds over the edge.
“Governments around the world have spent aggressively to help households and employers weather the economic impact of the pandemic. Public debt has mounted as governments have issued bonds to cover their budget deficits. The average ratio of public debt to the gross domestic product—a key measure of a country’s fiscal health—rose to a record 67 percent last year in emerging market countries, according to Chapter 2 of the IMF’s April 2022 Global Financial Stability Report,” the report said.
“Emerging-market banks have provided most of that credit, driving holdings of government debt as a percentage of their assets to a record 17 percent in 2021. In some economies, government debt amounts to a quarter of bank assets. The result: emerging-market governments rely heavily on their banks for credit, and these banks rely heavily on government bonds as an investment that they can use as collateral for securing funding from the central bank.”
It said emerging-market economies are now at greater risk than advanced economies for two reasons.
“For one, their growth prospects are weaker relative to the pre-pandemic trend compared with advanced economies, and governments have less fiscal firepower to support the economy.
“For another, external financing costs have generally risen, so governments will have to pay more to borrow,” the fund said.
It advised that policymakers should develop resolution frameworks for sovereign domestic debt to facilitate orderly deleveraging and restructuring in case they are needed.