Nigeria lowers 2016 forecast, expects economy to shrink 1.3 pct

October 5, 2016 11:09 AM

The International Monetary Fund (IMF) already predicted in July that Nigeria's economy would contract 1.8% this year.

Oil workers walk through pipe installations on a tanker at Bonga off-shore oil field outside Lagos, October 30, 2007.

Nigeria's economy is likely to shrink 1.3 percent in 2016, the National Bureau of Statistics executive said on Wednesday, a sharp downward revision of its estimates he said was prompted by sharp falls in the naira after dollar peg was dropped.

The NBS had predicted the Nigerian economy to grow 3.8 percent in 2016, but low oil prices have hammered the OPEC member's government income and the naira, and recession first appeared in the second quarter with 2.1 percent contraction.

A contraction in 2016 would mark Nigeria's first year of recession in 25 years. NBS head Yemi Kale said the economy was likely to shrink in the third quarter.

The International Monetary Fund (IMF) already predicted in July that Nigeria's economy would contract 1.8 percent this year.

The NBS had also revised its inflation forecasts, Kale said. Year-end inflation was estimated at between 17.1 percent and 18 percent, he said, up from 9 percent at the start of the year.

"All things remaining constant, year-end GDP should be around -1.3 percent from our internal model," he told Reuters.

Prior to ditching the currency peg in June, Nigeria had fixed its exchange rate at 197 to the dollar. Kale said the new projection factored in the currency float.

The naira has hit record lows on the black market in the last month, weakening to as low as 485 per dollar. It has held firm at around 305 on the official market, supported by central bank interventions.

Nigeria's economic growth started to slow by the second quarter of 2014 after an oil price collapse hurt government revenues and caused severe dollar shortages on the currency market.

Oil sales, which generate 90 percent of foreign exchange for the economy, contributed around 10 percent of Nigeria's GDP directly and around 52 percent indirectly through its links with other sectors, Kale said.

A record 2016 budget of 6.06 trillion naira aimed at tackling the recession was based on generating non-oil receipts largely from widening the tax net and raising debt at home and abroad to augment spending. So far the government has spent 720.5 billion naira on capital spending.

But Nigeria has yet to raise funds abroad and revenue problems have been exacerbated by militant attacks on energy facilities, which have cut crude production by a third.

The debt office launched a roadshow to Britain and the United States to promote a planned Eurobond issue while the African Development Bank will this month consider a $1 billion loan to Nigeria to help cover its budget deficit.