A new United Nations World Economic Situation and Prospects (WESP) report for 2024 has stated that Nigeria’s increasing public debt, persistent inflation as well as its rising cost of living pose serious risks to the country’s economic growth this year.
Nigeria currently has an inflation rate of 28.2 percent and as of Q2, 2024 had a public debt of N87.38 trillion, from N49.85 trillion in Q1, according to the Nigerian Bureau of Statistics (NBS).
The UN report also projected a slight increase in Nigeria’s growth rate, from 2.9 percent in 2023 to 3.1 percent in 2024.
The WESP is a report produced by the United Nations Department of Economic and Social Affairs (UN DESA), in partnership with the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions.
According to the document, policy reforms enacted by the government of Nigeria in 2023, especially in the hydrocarbon sector, contributed to a moderate improvement in the country’s growth prospects for 2024, with the 3.1 percent Gross Domestic Product (GDP) growth forecast.
“Policy reforms enacted by the government of Nigeria in 2023, especially in the hydrocarbon sector, have contributed to a moderate improvement in the country’s growth prospects for 2024, with GDP growth forecast at 3.1 percent.
“However, ballooning public debt, persistent inflation and a rising cost of living, together with a weak business environment, will pose a downward risk to growth prospects,” the report stated.
But it noted that efforts to increase in-country oil refining capacity would likely reduce domestic fuel costs in 2024 and beyond.
The UN report stated that international trade remained subdued across the globe in 2023, with Africa representing part of the trend and virtually no year-on-year growth in merchandise trade volume in Africa in 2023.
With overall GDP growth in African economies forecast to register moderate improvement in 2024, increasing to 3.5 percent on average, the UN report added that external conditions are projected to remain unfavourable for the African economies due to a weak global economic outlook and limited external financing opportunities.
“However, a recovery in domestic demand is projected for those countries that experienced economic shocks stemming from currency depreciations, electricity shortages or armed conflict,” it added.
It stated that while developed countries channel investments into sustainable sectors, developing countries struggle with capital flight and reduced foreign direct investment.
According to the report, international trade as a growth driver was losing steam, with global trade growth weakening to 0.6 percent in 2023, and projected to recover to 2.4 percent in 2024.
“Developing countries face challenges such as high external debt levels and rising interest rates, making access to international capital markets difficult. Decline in official development assistance and foreign direct investment for low-income countries contribute to debt sustainability challenges,” the report said.
The report also underscored the worsening impact of climate change, with extreme weather conditions in 2023 leading to devastating wildfires, floods, and droughts globally, stressing that these events have direct economic consequences, affecting infrastructure, agriculture, and livelihoods.
According to the report, tight financing conditions in international capital markets – deriving from the monetary policy stances of the United States Federal Reserve and the European Central Bank– limit external financing and refinancing opportunities for African economies.
“Consequently, African currencies – with the exception of the institutionally pegged CFA Franc – faced a depreciation pressures due to weak export earnings and limited external financing inflows.
“While these deteriorating external conditions limited the scope for economic expansion, factor such as armed conflicts, political instabilities, extreme climate events, and infrastructure bottlenecks also depressed domestic demand growth.
“GDP growth in African economies is forecast to register moderate improvement in 2024, in increasing to 3.5 percent on average,” the report pointed out.
It explained that efforts to promote stronger intra-regional trade in Africa, embedded most notably in the ongoing implementation of the African Continental Free Trade Area (AfCFTA), are yet to bear fruit.
“The effects of climate change continue to pose significant downward risks for the economy in Africa. Of the 68 climate vulnerable countries that make up the Vulnerable 20 Group, 28 are African,” the report stressed.
Although several countries have become increasingly active in investing in the green transition, the UN stated that climate finance flowing towards Africa falls far short of its needs.
“The estimated annual financing gap is about $120 billion, and the continent receives only 2 percent of global clean energy finance flows,” the report stated.
According to the UN, African economies faced significant inflationary pressures in 2023, resulting in an inflation rate higher than the recent average.
“The exchange rate pass-through from substantial currency depreciations raised the domestic prices of imports and increased inflationary pressures. Moreover, high fuel prices resulted in higher transport costs, which were passed on to consumers in the form of higher local prices for essential items such as food.
“Food inflation remained elevated, above 30 percent, for some of the larger economies, including Nigeria, Egypt and Ghana. The member countries of the Central Bank of West African States and the Bank of Central African States, however, managed to keep their inflation rates substantially lower than those of other African economies,” it added.
While more African economies are expected to turn to monetary easing in 2024, the monetary stance, the UN said, will remain generally tight unless the United States Federal Reserve and the European Central Bank enter the easing phase.
“Debt sustainability challenges continue to undermine growth prospects in Africa. According to the latest estimates, 18 countries in Africa recorded a debt-to-GDP ratio of over 70 percent in 2023, with many of them facing debt distress,” it stated.Emmanuel Addeh in Abuja
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