Why IMF Downgraded Nigeria’s 2024 Growth Forecast to 3.1%

The International Monetary Fund (IMF) has downgraded Nigeria’s 2024 economic growth forecast to 3.1 per cent, down from 3.3 per cent previously estimated.

This adjustment, detailed in the latest World Economic Outlook, reflects weaker-than-expected economic activity in the first quarter of the year.

The IMF highlighted that this revision also impacts the broader Sub-Saharan Africa growth outlook, which decreased from 3.8 per cent to 3.7 per cent.

The Fund also urged countries facing high inflation, including Nigeria, to adopt tighter monetary policies to stabilise their economies.

In April, the IMF had earlier projected Nigeria’s growth to be 3.3 per cent in 2024, but lowered its forecast to 3.1 per cent in July.

The report was presented by Pierre-Olivier Gourinchas, IMF’s economic counsellor and director of Research, during a press conference unveiling the World Economic Outlook (WEO) at the ongoing IMF/World Bank annual meetings in Washington, D.C.

Gourinchas emphasised the importance of balancing monetary and fiscal policies to address inflation and debt challenges in affected regions.

The IMF stressed the need for governments to strike a delicate balance between curbing inflation and providing necessary support to vulnerable populations. Using Nigeria as an example, Gourinchas explained, “Fiscal consolidation becomes difficult when governments must also allocate resources for relief efforts, such as responding to flooding or supporting the poor and vulnerable.”

Debt sustainability remains a persistent issue across the region.

“Although some progress has been made in controlling debt, it is still too high, and the debt service burden remains significant,” Gourinchas added.

He expressed optimism, however, that the region could make further strides toward stabilising its economies if the right policy mix is maintained.

The IMF’s recommendations reflect its broader strategy of using monetary tightening as a tool to combat inflation while urging fiscal prudence.

“The challenge is immense, but there has been some progress over the past year,” Gourinchas remarked. “The key now is for countries to remain committed to these reforms, even though the road ahead may be difficult.”

The IMF/World Bank annual meetings have brought together policymakers and financial experts from around the globe to discuss strategies for addressing the economic headwinds facing both developing and developed nations.

For many African countries, particularly those battling inflation and high debt levels, the IMF’s guidance could play a critical role in shaping their policy responses in the coming months.

“In countries where inflation is very high, we recommend a tight monetary policy stance. In some cases, when possible, fiscal consolidation can help, though this is complicated by trade-offs many nations face,” he said.

The IMF highlighted Sub-Saharan Africa as a region of particular concern.

According to the WEO report, the region’s economic growth rate is expected to remain steady at 3.6 per cent this year, with projections showing a modest rise to 4.2 per cent next year. Despite these improvements, the economic landscape remains challenging due to weather-related shocks and conflicts.

“Growth in the region is subdued and uneven,” Gourinchas noted. “Weather shocks and conflict have affected several countries, and inflation, although stabilising in some places, still poses significant challenges.” He pointed out that while some nations are seeing inflation decline and approach target levels, about one-third of the countries in the region continue to struggle with double-digit inflation.

Weeks of flooding killed hundreds of Nigerians earlier in the year, washing away homes and farmlands and further threatening food supplies, especially in the hard-hit northern region.

The floods were mostly attributed to poor infrastructure and dams, killing 185 people and displacing 208,000 in 28 of Nigeria’s 36 states, according to the National Emergency Management Agency.

Unrest in the nation’s Niger Delta region has equally impacted oil production, Nigeria’s main source of revenue.

The report noted that global growth is expected to remain stable yet underwhelming in the year.

“However, notable revisions have taken place beneath the surface since April 2024, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies, in particular, the largest European countries.

“Likewise, in emerging markets and developing economies, disruptions to production and shipping of commodities—especially oil—conflicts, civil unrest, and extreme weather events have led to downward revisions to the outlook for the Middle East and Central Asia and that for sub-Saharan Africa.

“These have been compensated for by upgrades to the forecast for emerging Asia, where surging demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has bolstered growth, a trend supported by substantial public investment in China and India. Five years from now, global growth should reach 3.1 per cent—a mediocre performance compared with the pre-pandemic average.”

As global disinflation continues, the IMF said services price inflation remains elevated in many regions, pointing to the importance of understanding sectoral dynamics and calibrating monetary policy.

With cyclical imbalances in the global economy waning, near-term policy priorities should be carefully calibrated to ensure a smooth landing, it said.

“At the same time, structural reforms are necessary to lift medium-term growth prospects, while support for the most vulnerable should be maintained. Chapter 3 discusses strategies to enhance the social acceptability of these reforms—a crucial prerequisite for successful implementation.”