International Monetary Fund (IMF) says Nigeria’s economy may shrink this year
The shrinking would be as a result of energy shortage and the delayed budget.

The IMF Country Representative in Nigeria, Gene Leon said: “I think there is a high likelihood that 2016 as a whole will be a contractionary year.”

He said that though, the economy should look better in the second half of the year, its growth will probably not “be sufficiently fast, sufficiently rapid to be able to negate the outcome of” the first and second quarters, Leon added.

The country’s GDP contracted by 0.4 percent in the three months through March, the first contraction in more than a decade, as oil output and prices slumped and the approval of spending plans for 2016 were delayed.
A currency peg and foreign-exchange trading restrictions, which were removed last month after more than a year, led to shortages of goods from gasoline to milk and contributed to the contraction in the first quarter.

Leon told Bloomberg that while conditions like fuel and power shortages, foreign exchange scarcity and higher price of dollars at the parallel market, which impeded growth in the first half of the year might have been reduced, they still weighed on the economy.
IMF cut its 2016 growth forecast for Nigeria to 2.3 per cent in its April Regional Economic Outlook from 3.2 per cent projected in February.
The World Bank lowered its forecast to 0.8 per cent last month, citing weakness from oil-output disruptions and low prices.
Last year’s expansion of 2.7 per cent was the slowest in two decades, according to IMF data.

“Most people would agree that if you should fix one thing in this country, it should be power. There is a need to start changing the power equation from 2016, from today, not tomorrow or later,” Leon said

The IMF representative held that while inflation would probably continue its upward trend through the end of this year, it might not exceed 20 per cent.

The central bank’s Monetary Policy Committee “may be open to tolerating a little more inflation if growth emerges as the priority, as opposed to choking inflation and squeezing the little life out of growth,” Leon said.

“But the central bank, in conjunction with the Monetary Policy Committee, needs to be clear to participants in markets what exactly their priority is,” he added.
Leon underlined the fact that President Muhammadu Buhari signed a record budget of 6.1 trillion naira ($21.6 billion) with a deficit of 2.2 trillion, or 2.14 percent of gross domestic product, in May after a delay of four months.
“The fact that the budget was passed late means it’s likely not all the capital spending planned to boost growth will take place, or it will not be as prudent as initially set out,” Leon said.

If growth falls to zero percent “then that’s a huge gap the country has to fill,” Leon said. If expenditure stays as planned, and revenue is less due to the lack of growth “then we should see not smaller but potentially a larger deficit,” he said.