Nigeria Economic Outlook 2017

The Nigerian economy is set to have closed 2016 with its worst economic performance in over 20 years as militant attacks on oil infrastructure, tight liquidity in the FX market and depressed private consumption dented growth. Although economic activity likely hit its trough in Q3, the latest leading indicators suggest that conditions remain extremely challenging. Government data show that the fiscal deficit widened in the first half of 2016 on lower oil earnings and non-oil tax revenues. This trend is set to worsen under the recently approved 2017 budget, which plans to increase expenditure, while the projection of a boost in oil output to 2.2 million barrels per day is considered unrealistic by critics. The bill envisages keeping the exchange rate unchanged at 305 NGN per USD, a rate far lower than the one traded on the parallel market, suggesting that pressure will continue mounting on the currency.


 The economy is expected to rebound in 2017 after last year’s contraction. The recovery, however, is fragile and depends mostly upon policy action by the government. Analysts consider that a further devaluation of the naira is key to attract investment into the economy and support domestic demand. Panelists participating in the FocusEconomics Consensus Forecast project that the economy will grow 1.3% in 2017, which is down 0.1 percentage points from last month’s forecast. They foresee a 3.0% expansion in 2018.
At its 23–24 January monetary policy meeting, all members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to leave the monetary policy rate and all other monetary policy mechanisms unchanged, meeting market expectations.

The Central Bank based its decision on the latest developments in the domestic economy and abroad. The latest data show that the economy is in deep recession and inflationary pressures remain strong. While rising commodity prices are expected to give short-term respite to the country’s battered public finances, the medium-term outlook remains beset by stagnation and uncertainty concerning global trade, investment inflows and political developments abroad.

The CBN stressed that the problems afflicting the economy such as low fiscal activity, a scarcity of foreign exchange, high energy prices and unpaid salaries can only be resolved by a commitment from the fiscal authorities and not by monetary policy. The Committee considers it would be imprudent to cut the rate, since it would “worsen the inflationary conditions and undermine the current outlook for stability in the foreign exchange market.” They also consider that such a move would be untimely since it would undermine aggregate demand, reduce existing income levels and stave off investment.

Against this backdrop, the MPC voted unanimously to leave the monetary policy rate unchanged at 14.00% and the liquidity ratio at 30.00%. The Committee also left the asymmetric corridor of plus 200 and minus 500 basis points around the key rate unchanged and the Cash Reserve Requirements at 22.50%.

The next Central Bank meeting is to be held on 20 and 21 March.
FocusEconomics Consensus Forecast panelists expect the monetary policy rate to end 2017 at 12.88%. In 2018, the panel sees the monetary policy rate rising and ending the year at 11.83%.