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The International Monetary Fund (IMF) on Friday stated that the current drop in oil prices offers a unique opportunity for Nigeria and seven other oil-producing countries in Africa to implement politically difficult oil subsidy reforms.
IMF’s Director for African Development, Antoinette Sayeh who made the submissions at a press conference in Washington DC, United States of America at the ongoing IMF/World Bank Spring Meetings, added that in the short run, dealing with oil shock should be the priority.
Removal of oil subsidy in Nigeria and other African countries has been a very sensitive and controversial issue.
The IMF said although the eight African oil exporting countries would be hard hit with generally limited fiscal and external pressure, they are expected to undertake significant fiscal adjustment, which will ultimately dent their growth outlook.
“Faced with a massive shock and with limited buffers, oil exporters will have no choice but to undertake fiscal adjustment. Spending cuts should be directed, to the extent, to non-priority recurrent spending, but significant cuts in public spending cuts in public investment are unavoidable.
“Where feasible, exchange rate flexibility will also be important, to preserve scarce external reserves. The drop in oil prices also provides a unique opportunity to advance politically difficult energy subsidy reforms across the region,” Sayeh said.
But she noted that Sub-Saharan Africa’s economic outlook remained favourable, pointing out that the region is set to register another year of solid performance
However, she regretted that security-related risks, including those posed by Boko Haram and Al Shabab had recently posed risks to the positive outlook.
“Indeed, the region’s economy is expected to expand at four and half per cent in 2015, and will continue being one of the fastest growing region’s in the world- in fact, second only to emerging and developing Asia.
“That said, the economic expansion this year will be at the lower end range experienced in the recent years. This mainly reflects the impact of the sharp decline of the oil and commodity prices that we have witnessed over the last six months. However, as always for a region with so much diversity, the effect of this shock will be highly heterogeneous across the region,” she said.
Although she observed that Nigeria and the other seven other oil producers on the continent would be hard hit, she said much of the rest of the region’s near-term prospects remained quite positive.
According to her, most countries stand to benefit from lower oil prices, adding that for some of them, this positive effect will be partly offset by the decline in oil prices of some of the non-oil commodities they export.
“Overall, growth in oil importers, in particular, low-income countries should remain solid, driven by investment in infrastructure and strong consumption.
Sayeh, however, pointed out that a notable exception to this favourable picture among oil importers was South Africa, “where growth remains lack luster, held back by continuing problems in electricity sector.”
She pointed out that in addition, the Ebola scourge, although abating, continues to exact a heavy economic and social toll on Guinea, Liberia and Sierra Leone.
On whether the IMF could provide the kind of financial support to countries threatened by insecurity as was the case with Ebola-affected nations, Sayeh said such a possibility was fluid.
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