Nigeria’s poverty rate should be falling faster given its economic growth this decade, an official of the International Monetary Fund said.
The share of citizens in Africa’s most populous country of more than 160 million who are considered poor fell to 62.6 percent in 2010 from 64.2 percent in 2004, figures published by the World Bank show. The economy of Nigeria, Africa’s largest oil producer, expanded an average 7.2 percent a year during the same period, according to IMF estimates.
“It’s a bit of a conundrum,” W. Scott Rogers, the senior resident representative of the IMF in Nigeria, said in a May 16 interview in Abuja, the capital. “Income per capita has gone up yet poverty isn’t improving and we’re having a difficult time understanding why that is or how that could be.”
Economic growth has been largely driven by the non-oil industries, which expanded an average 8.5 percent a year from 2003 to 2011, the IMF said in a May 10 report, citing figures from the Abuja-based National Bureau of Statistics. Oil accounts for about 15 percent of the country’s gross domestic product.
Agriculture accounted for 48.7 percent of the country’s non-oil economic output from 2001 to 2011 while wholesale and retail accounted for 21.4 percent, according to the IMF. Agriculture expanded an average 6.6 percent a year, while wholesale and retail trade grew 12.2 percent a year, according to the lender.
“This is one thing we’ve learned over the last decade or two, that it’s not just the rate of growth in the aggregate that matters, it’s where it’s coming from and who’s enjoying it,” said Rogers. Still, “in Nigeria the growth is everywhere.”
The re-basing of the country’s GDP to a more recent year will probably provide a more accurate picture of the composition of the economy and where growth is coming from and may help understand why poverty hasn’t reduced by a larger rate in the country, said Rogers. The IMF started providing technical assistance to the statistics office in September on the re-basing exercise, he said.
The West African country’s GDP is currently based on production and consumption patterns in 1990. The statistics bureau will decide before the end of the month whether to use 2010 or 2012 as the new base year, the head of the agency, Yemi Kale, said on May 9. The updated data, to be released next year, will probably boost the reported size of the Nigerian economy while decreasing the annual rate of growth, according to Kale.
The IMF recommends that Nigeria should increase savings in its excess crude account, in which Nigeria saves revenue above a budgeted oil price, and the Sovereign Wealth Fund, to $20 billion, where the savings were in 2008, said Rogers. The ECA has savings of $7 billion, down from $9.2 billion in January, Finance Minister Ngozi Okonjo-Iweala said in a May 10 interview.
Annual negotiations between lawmakers and the government over what the benchmark price should be aren’t “meaningful” as long as funds that go into the account are spent, said Rogers. The oil price has rarely gone below the set price in the past seven years, and the country should have been accruing savings “the entire time,” he said.
Lawmakers raised the benchmark oil price in this year’s budget to $79 a barrel from the $75 price proposed by the government. Okonjo-Iweala and central bank Governor Lamido Sanusi said the move would stoke inflation and proposed that the price should be be determined in future by a technical committee instead of politicized negotiations.
“What’s important is that what’s saved is saved until the rule says when” it can be spent, said Rogers.
One of the risks to the achievements of Nigeria’s fiscal and monetary management is if government spending rises again ahead of the 2015 elections, including that of the states’ budgets and the excess crude account, said Rogers. The central bank may have to raise rates from the current record high if this happens, he said. The Abuja-based regulator’s Monetary Policy Committee will hold its policy rate at 12 percent for a 10th consecutive meeting tomorrow, according to all 11 economists surveyed by Bloomberg News.
“If fiscal policy starts to loosen as we go towards the elections, one of the jobs of central banks is to clean up the mess,” he said. “It doesn’t really have any other choice, and what does that do? It raises the cost of borrowing at a time of fiscal policy expansion. That’s just economics, that’s not Nigeria, but that’s the risk they’re facing now.”