Nigeria’s economy contracted sharply in 2020, reversing three years of recovery, due to a fall in crude oil prices on account of lower global demand and domestic containment measures to combat COVID–19. Mobility restrictions hit aviation, tourism, hospitality, restaurants, manufacturing, and trade. Real GDP fell 1.8% in 2020, according to the IMF.
The IMF expects the economy to grow 2,5% in 2021 and 2.3% in 2022, supported by recovery in crude oil prices and production. Oil accounts for over 80% of exports, a third of banking sector credit, and half of government revenues. Stimulus measures outlined in the Economic Sustainability Plan and the Finance Act of 2020 could boost non-oil activity. The near-term outlook is subject to downside risks from pandemic-related developments. Aside from the pandemic, reduced fiscal space could limit government spending if oil prices fall. In addition, flooding and rising insecurity could hamper agricultural production. If foreign reserves diminish, that could lead to sharp exchange rate depreciation and inflation pressures that weighs on households’ purchasing power and contributes to social tensions.
Over the medium-term, growth prospects will remain constrained by decarbonisation trends that keep oil prices low and restrict oil-related activities, government revenue and export receipts. Inadequate infrastructure remains an ongoing constraint on the business environment. A large and youthful population offers significant potential for consumption. But high unemployment, poverty and growing inequality remain major challenges that hinder economic potential.