Nigerian economy set to contract 1.8 percent as peace eludes delta

International Monetary Fund (IMF) has warned that Nigerian economy is set to decline into recession this year for the first time in more than two decades. In April, IMF estimated that the economy will grow 2.3 percent but yesterday it slashed that expectation and forecasted that the economy will be contracting 1.8 percent in 2016. IMF has also cut its growth forecast for 2017, from 3.5 percent to 1.1 percent. The economy has contracted 0.36 percent in the first quarter of 2016.

The government has been facing a myriad of problems. The economy is suffering from high inflation of 16.5 percent. In addition to that weak investor confidence, low power generations and low oil receipt. The country, which has been the biggest producer of crude oil in Africa didn’t have enough fuel a few months back for flights to take off. This oil has been the biggest trouble for Nigeria, which recently had to give in to market pressure to float Naira against the dollar. Since the drop in oil price, Naira has lost more than half of its value and the forward market is pointing to further weakness.

The trouble for Nigeria is twofold. At one hand, the economy is suffering from lower oil price and on the other lower oil production, similar to what happened to Saudi Arabia in the 80’s. However, unlike the Saudi’s the cutback in production isn’t a self-imposed one. Unrelenting attacks by the militants in Nigeria’s oil-rich delta has disrupted production. A peace attempt by the government has failed terribly. The government is struggling to provide any military solution to the problem as the army is being exhausted fighting Boko Haram terrorist group in the North. Without radical restructuring of Nigeria’s economy and the politics there can hardly be any solutions