…Projects 3.6% growth rate for Sub-Saharan Africa, says formulating appropriate fiscal response to cost-of-living crisis has become challenge
…Advises countries to minimise impact of future financial turmoil
OSAS EMMANUEL
The International Monetary Fund (IMF), has lowered Nigeria’s 2022 economic growth projection to 3.2 per cent, even as it said that growth in Sub-Saharan Africa is expected to decline to 3.6 per cent in 2022 as against 4.7 per cent recorded in 2021.
The new projected economic growth for Nigeria is 0.2 percentage points lower than the 3.4 per cent projected in its July 2022 report.
The Washington-based institution disclosed this recently in its World Economic Outlook for October 2022 titled, “Countering the Cost-of-Living Crisis.”
According to the IMF, this downgrade was due to tighter financial and monetary conditions. The report read in part, “This weaker outlook reflects lower trading partner growth, tighter financial and monetary conditions, and a negative shift in the commodity terms of trade. Overall, the financial institution said global growth was projected to slow from an estimated 6.1 per cent in 2021 to 3.6 per cent in 2022 and 2023.
The report in Sub-Saharan Africa, the growth outlook is slightly weaker than predicted in July, with a decline from 4.7 per cent in 2021 to 3.6 per cent and 3.7 per cent in 2022 and 2023, respectively.
A downward revision of 0.2 percentage points and 0.3 percentage points respectively. This weaker outlook reflects lower trading partner growth, tighter financial and monetary conditions, and a negative shift in the commodity terms of trade.
The report showed that growth in Nigeria is expected to decline to 3.2 per cent and 3.0 per cent in 2022 and 2023 respectively, as against 3.6 in 2021.
The report said Global growth is forecasted to slow from 6.0 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023.
IMF said that one-third of the world economy will likely contract this year or next amid shrinking real incomes and rising prices. It said that the global economy continues to face steep challenges, shaped by the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.
“The three largest economies, the United States, China, and the euro area will continue to stall. Overall, this year’s shocks will re-open economic wounds that were only partially healed post-pandemic. In short, the worst is yet to come and, for many people, 2023 will feel like a recession. In the United States, the tightening of monetary and financial conditions will slow growth to 1 per cent next year.
“Despite the economic slowdown, inflation pressures are proving broader and more persistent than anticipated. Global inflation is now expected to peak at 9.5 per cent this year before decelerating to 4.1 per cent by 2024. Inflation is also broadening well beyond food and energy. Global core inflation rose from an annualised monthly rate of 4.2 per cent at end-2021 to 6.7 per cent in July for the median country.
“Downside risks to the outlook remain elevated; while policy trade-offs to address the cost-of-living crisis have become more challenging. Among the ones highlighted in our report: the risk of monetary, fiscal, or financial policy miscalibration has risen sharply amid high uncertainty and growing fragilities; global financial conditions could deteriorate, and the dollar strengthens further, should turmoil in financial markets erupt, pushing investors towards safe assets.
“Increasing price pressures remain the most immediate threat to current and future prosperity by squeezing real incomes and undermining macroeconomic stability. Central banks are now laser-focused on restoring price stability, and the pace of tightening has accelerated sharply. There are risks of both under and over-tightening. Under-tightening would further entrench inflation, erode the credibility of central banks, and de-anchor inflation expectations. As history teaches us, this would only increase the eventual cost of bringing inflation under control.
“Formulating the appropriate fiscal response to the cost-of-living crisis has become a serious challenge. Let me mention a few key principles. First, fiscal policy should not work at cross-purpose with monetary authorities’ efforts to bring down inflation. Doing so will only prolong inflation and could cause serious financial instability, as recent events illustrate. Second, the energy crisis, especially in Europe, is not a transitory shock.
“The geopolitical realignment of energy supplies in the wake of the war is broad and permanent. Winter 2022 will be challenging, but winter 2023 will likely be worse. Price signals will be essential to curb energy demand and stimulate supply. Price controls, untargeted subsidies, or export bans are fiscally costly and lead to excess demand, undersupply, misallocation, and rationing,” IMF stated.
The Fund, therefore, said that the appropriate response in most emerging and developing countries is to calibrate monetary policy to maintain price stability, while letting exchange rates adjust, conserving valuable foreign exchange reserves for when financial conditions really worsen.
“As the global economy is headed for stormy waters, now is the time for emerging market policymakers to batten down the hatches. Eligible countries with sound policies should urgently consider improving their liquidity buffers, including by requesting access to precautionary instruments from the Fund.
“Countries should also aim to minimise the impact of future financial turmoil through a combination of preemptive macroprudential and capital flow measures, where appropriate, in line with our integrated policy framework. Too many low-income countries are in or near debt distress.
“Progress toward orderly debt restructurings through the Group of twenty’s common framework for the most affected is urgently needed to avert a wave of the sovereign debt crisis. Time may soon run out. The energy and food crises, coupled with extreme summer temperatures, are stark reminders of what an uncontrolled climate transition would look like,” it said.
