A new World Bank report said on Wednesday that the Nigerian economy was projected to grow at a modest one per cent in 2018, against Sub-Saharan Africa’s estimate of 3.2 per cent in 2018 and 3.5 per cent in 2019.
The new report, Africa’s Pulse, a bi-annual analysis of the state of African economies conducted by the World Bank, said South Africa, which is the other top economy in the region is expected to grow at about 1.5 per cent.
Although the bank said there was nothing wrong with Nigeria’s foreign borrowing plan, it expressed concern that the country’s debt service to revenue ratio was raising sustainability issues, capable of negatively impacting efforts to sustain growth in the economy.
At the official launch of the report in Abuja, the Bank recommended ways to ensure the sustainability of the latest growth in the economy.
Performing the launching of the report, World Bank Chief Economist for Africa, Albert Zeufack, said Sub-Saharan economic growth, which showed a modest recovery, from 1.3 per cent in 2016 to about 2.4 per cent in 2017 falls below its April forecast of 2.6 per cent.
Mr. Zeufack said Nigeria and South Africa’s recent recovery from recession followed improving global conditions, including rising energy and metals’ prices and surging capital inflows, against a weak and sluggish pace of recovery which it noted would be insufficient to lift per capita income in 2017.
“Growth continues to be multispeed across the region. In non-resource intensive countries such as Ethiopia and Senegal, growth remains broadly stable supported by infrastructure investments and increased crop production. In metal exporting countries, an increase in output and investment in the mining sector amid rising metals prices has enabled a rebound in activity,” he said.
“Headline inflation slowed across the region in 2017 amid stable exchange rates and slowing food price inflation due to higher food production. Fiscal deficits have narrowed, but continue to be high, as fiscal adjustment measures remain partial. As a result, government debt remains elevated. Across the region, additional efforts are needed to address revenue shortfalls and contain spending to improve fiscal balances.”
The report said most African countries, including Nigeria, must pay attention to skills-building through smarter investments in foundational skills for children, youth, and adults, leverage spending to achieve better learning outcomes to enhance productivity growth, inclusion, and the adaptability of Africa’s workers to the demands of today’s markets and those of the future.
To sustain the momentum of growth, Senior Economist, Macroeconomics & Fiscal management of the World Bank, Gloria Joseph-Raji, said Nigeria would need to ensure that sources of growth of GDP, including consumption, public and private investment as well as net export, were addressed.
“Over the years, Nigeria’s growth was driven by private consumption, which accounts for about 70 per cent of GDP, with government spending at 10 per cent. To sustain the growth, Nigeria has to find ways to help the private sector unlock the bottlenecks in private sector productivity, growth and investment, particularly redressing infrastructure deficit, access to finance, electricity, transportation, and ease of doing business issues.
“Government must sustain the regime of the free flow of foreign exchange into the economy through the newly established import and export foreign exchange window, which has helped resolve the challenge of foreign exchange scarcity, with flows into the economy through the window in excess of $7 billion,” she said.
In 2015, about 80 per cent of the loans by the federal government came from the domestic market, with just 20 per cent from external sources.
But, with the borrowing activities in the domestic market, the result has been the crowding out of local investors from the money market, with interest rate as high as about 18 per cent, amid rising inflation.
A fresh debt strategy by the Debt Management Office, DMO for 2016-2019 sought to rebalance the country’s debt portfolio, by shifting the focus of government borrowing from domestic to more of lower interest foreign loans to reduce servicing cost.
As part of the rebalancing act, the government in the first quarter of 2017 went for the $1.5 billion Euro bond, and later the Diaspora bond of over $100 billion, with yields much less than 10 per cent of gross domestic product, GDP.
Criticism is trailing the latest proposal by the government to borrow about $5.5 billion, consisting the $2.5 billion Euro bond and $3 billion loan to refinance short-term, high-interest domestic borrowing, to reduce the cost of borrowing.
The World Bank said while the foreign borrowing proposal was not bad, it was concerned about the government’s unsustainable debt service to revenue ratio, which grew from about from 35 per cent in 2015, to about 60 per cent in 2016, in the face of substantially lower revenues as a result of the drop in global oil prices and disruption of operation following attacks on oil facilities in the Niger Delta.