Nigeria will probably grow at a slower pace in 2023 compared to the previous year due to an acute cash crunch in the first quarter that marred economic activity in Africa’s biggest economy.
Fitch Solutions, the research arm of credit ratings agency Fitch ratings in its Africa Monthly Outlook report, expects Nigeria’s economy to grow by only 2.3 per cent this year, down from 3.1 per cent in 2022.
We forecast that Nigeria, Sub Saharan Africa’s largest economy and oil producer will record below-trend growth of 2.3 percent in 2023, down from 3.1 per cent in 2022.
Nigeria’s fragile economy, which has been in and out of two economic recessions in the last six years, experienced a scarcity of naira notes with currency in circulation hitting its lowest in 14 years during the first quarter.
Fitch said that the central bank’s decision to demonetise high-value banknotes has created acute cash shortages in Q1 2023, severely disrupting commercial operations and preventing payments.
Recall that the cash crunch disrupted economic activities, inflation rate and influenced hikes in interest rates.
Nigeria’s inflation rate accelerated to 21.91 percent in February 2023 from 21.82 in January, fuelled essentially by the cost of energy, food, and naira scarcity, according to the National Bureau of Statistics.
Fitch Solutions also reported that February’s disputed general election will have disrupted business activity.
It said that the cash crunch coupled with weak private sector activity will weigh on economic growth.
It said Nigeria’s PMI fell to a two-year low of 44.7 in February.
The monthly PMI by Stanbic IBTC Bank showed that the headline PMI declined to 42.3 in March from 44.7 in the previous month.
The Stanbic IBTC PMI report said as in the case in February, there were widespread reports from companies that customers were unable to commit to spending given cash shortages.
“This led to a substantial decline in new business, with the pace of contraction more pronounced than in the previous survey period.”
Fitch Solutions also forecast that Nigeria’s crude output will stagnate at an average of 1.5mn b/d in 2023, following a record decline of 14.0 per cent in 2022.