Lower prices to hurt Africa’s oil producers say IMF report

Lagos, Nigeria (Capital Markets in Africa):- Lower oil prices will reduce growth in sub-Saharan Africa’s major petroleum producing countries and push governments to implement significant policy adjustments, according to the International Monetary Fund (IMF) report released on 28th April 2015.

It noted that SSA growth could slow to 4.5% this year from 5.0% in 2014, largely because of the weaker oil prices, while forecasting growth rising to 5.1% in 2016.

“For the eight oil exporters, (lower prices) will pose a formidable challenge and, with limited buffers, will require them to undertake significant fiscal adjustment,” said the IMF.

“Oil exporters are facing a challenging environment and their growth in 2015 to 2016 is expected to average 4.75%, substantially marked down from 7% expected in October 2014,” the report further stated.

In Nigeria, the continent’s biggest economy and largest oil exporter, authorities are cutting capital spending and have also adjusted monetary and exchange rate policies to relieve pressure on public finances and the currency. Nigeria’s real GDP growth in 2015 and 2016 is expected to average 5%, above the forecast for SSA as a whole, but still down from the 7.5% projected by the IMF in October 2014.

Angola, the continent’s second largest oil producer, should see 4.25% real GDP growth in 2015 and 2016, compared with 5.50% between 2012 and 2014. However, average growth in 2015 to 2016 is expected at 4.25% in the Economic Community of Central African States, which includes oil exporters Gabon and Equatorial Guinea, compared with a projection of 5% over the period made last October. That growth rate, however, requires sound fiscal management and an increase in oil production and there is a risk the figure will not be achieved, the IMF report recommended.

The impact of the commodity price decline is small in much of the rest of the region, where average real GDP growth projections are broadly unchanged there since 14 October 2014 at 4.75% in 2015 to 2016 and about 6.0% to 6.50% when South Africa, SSA’s second largest economy, is excluded.

“Lower oil prices represent a favourable development which, however, will be partly offset in some cases by lower prices of other commodities that they export,” the IMF comments on countries that do not export oil.

Oil rose as much as 3% on 12 May as a weak dollar lifted commodities denominated in the currency and OPEC raised slightly its forecast for world oil demand growth. The impact of oil has already been apparent in Nigeria, for example, which has seen delayed payments of salaries in some states, while the budget has had to be revised downwards and plans announced for fiscal austerity. This will naturally slow down economic activity, but positively, there seems to be some relief as the price of oil is showing signs of stability and indeed has been inching upwards. Developments on the oil price as the year progresses will thus remain keenly watched.

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