Violence, low vaccination, inflation threaten Nigeria’s recovery, World Bank warns

Debt refinancing, servicing costs could rise to unsustainable level

The World Bank has listed security tension, low COVID-19 vaccination and inflation as major factors that could dampen investment and economic recovery in Nigeria and some other sub-Saharan African (SSA) countries this year through to 2023.

The institution stated this in its January Global Economic Prospects, which downgraded global growth to 4.1 per cent on account of “many risks and considerable uncertainty”.

It equally estimated Nigeria’s growth to moderate to 2.5 per cent this year and scale up to 2.8 per cent in 2023.

The country exited the 2020 recession with marginal growth in the fourth quarter (Q4) 2020 but recorded a leap of 5.1 per cent and 4.03 in the second (Q2) and third quarter (Q3) of last year. With the full-year gross domestic product (GDP) data yet to be released, the World Bank 2021 growth to wrap up at 2.4 per cent.

The World Bank’s 2021 forecast is 1.9 per cent behind the Federal Government’s 4.2 per cent projection for the year. But the Bank is more bullish on the country’s 2023 growth than the Federal Government, which expects output to slow to 2.3 per cent next year on account of general election impact.

Like Nigeria, its closest regional rival, South Africa’s output growth is expected to slow to 2.1 and 1.5 per cent from 2022 through to 2023.

The World Bank’s growth projections about Nigeria are behind those of the entire SSA, which is estimated to grow at 3.6 and 3.8 per cent in 2021 and 2022 respectively.

In its outlook analysis, the World Bank said “geopolitical tensions and violence could hinder growth by dampening consumer and business sentiment and deterring investment” in Nigeria and other countries such as Afghanistan, Ethiopia, Sudan and Mali.

“In SAR and SSA, the effects of food insecurity on the ability of people to work at full capacity are a downside risk to growth in the near term, and an acute challenge for households,” it noted.

The Washington-based institution said the high inflation rate triggered by currency devaluation and food scarcity has impacted the purchasing power of many consumers. This, it said, is another downside of the recovery.

It warned that COVID-19 new variants remained major obstacles to growth. While the speed of vaccination has increased reasonably across the globe, the Bank was worried that SSA still faced low inoculation challenges.

“Risks to the baseline forecasts in EMDEs (Emerging Markets and Developing Economies) are primarily to the downside. All regions are vulnerable to continued outbreaks of COVID-19 and the spread of new variants of the virus, including the recently discovered and highly transmissible Omicron variant… In the regions where vaccination rates are the lowest – especially SSA – pronounced delivery delays stand to prolong the pandemic.

“Although economic disruptions related to COVID-19 appear to have become less severe during successive waves of cases as businesses and consumers have adapted, restrictions to slow the spread and preserve health care capacity may need to be implemented during resurgences in new cases,” it stated.

The Bank also pointed to risks relating to financial stress in most EMDE regions as rising inflation, driven by demand and supply factors “has triggered domestic monetary policy tightening in an environment of elevated debt”. It added that a sudden deterioration in investor sentiment and “faster-than-expected reversal of accommodative policy in advanced economies” could drive up debt refinancing and servicing costs to unsustainable levels in some countries and trigger capital outflows.

The International Monetary Fund (IMF) had, on Monday, raised a similar concern, saying policymakers in EMDEs would need to brace up for the feedback loop of impending hike in interest rates in the United States and other developed economies.

On household incomes, the World Bank outlook noted: “The pandemic has reversed at least a decade of gains in per capita income in some countries – in almost a third of the region’s economies, including Angola, Nigeria, and South Africa, per capita incomes are forecast to be lower in 2022 than a decade ago. After barely increasing last year, per capita incomes are projected to recover only at a subdued pace, rising 1.1 per cent a year in 2022-23, leaving them almost two per cent below 2019 levels.”