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Fitch Solutions, a renowned provider of credit, debt market, country, and industry risk research, has projected that Nigeria’s short-term economic outlook will be impacted by the ongoing economic reforms initiated by the Tinubu government. The country’s average inflation rate is expected to reach 25.1% this year, with poverty rates also on the rise.
Under the leadership of Tinubu, Nigeria has ended its prolonged petrol subsidy regime and unified its foreign exchange rate, leading to a surge in petrol prices and a sharp depreciation of the naira against the US dollar, causing concern among citizens.
Fitch’s report titled “Key Economic Reforms Dim Nigeria’s Short-Term Economic Growth Outlook” forecasts a slowdown in Nigeria’s real Gross Domestic Product (GDP) growth to 2.7% in 2023 from 3.3% in 2022 due to the escalating living costs affecting domestic demand.
However, Fitch anticipates a modest economic growth recovery to 3.2% in 2024, partly supported by the launch of the Dangote refinery, which is expected to stimulate favorable trade dynamics.
The report highlights the challenges posed by increasing inflation rates in the second half of 2023, with an average inflation rate projected to be the highest since the 1990s, leading to reduced purchasing power and dampening private consumption.
Regarding Tinubu’s plan to borrow $800 million from the World Bank for the National Social Safety Net Programme, which aims to assist 12 million low-income households with monthly payments, Fitch believes the impact will be limited, given the high inflation rate, and poverty rates are expected to worsen.
Despite the weak short-term outlook, Fitch indicates that net exports could offer some relief in 2023, as crude production in Nigeria is predicted to increase by 7.0% following a three-year contraction, improving Nigeria’s export potential.
Looking ahead to 2024, Fitch projects a moderate acceleration in economic growth to 3.2%, with the removal of fuel subsidies and exchange rate devaluation continuing to exert pressure on consumer prices, especially in the first half of the year.
Fitch believes that economic reforms and the Dangote refinery’s operation will lead to improved economic conditions, potentially attracting international investors back to Nigeria. As a result, Fitch has raised its long-term growth forecast for 2023-2032 to 4.2% from its previous projection of 3.6%.
However, despite the positive outlook for the future, the immediate economic challenges, including rising inflation and poverty rates, pose significant risks to Nigeria’s economic growth prospects.
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