Plunging oil prices stemming from the coronavirus outbreak led the International Monetary Fund to cut its estimate for Nigerian economic growth, highlighting the difficulties Africa’s top crude producer faces reviving and diversifying its economy.

The forecast was lowered to 2% from 2.5%, the lender said in a statement Monday after concluding an Article IV consultation. Nigeria needs a major policy overhaul to reduce vulnerabilities including widening current-account and budget deficits that jeopardize the economy, it said.

“Under current policies, the outlook is challenging,” the IMF said. “The mission’s growth forecast for 2020 was revised down to 2% to reflect the impact of lower international oil prices.”

The spread of the coronavirus virus has curbed demand in China, driving oil prices down nearly 13% this year, and below the $57-a-barrel the Nigerian government forecast in its 2020 budget. Nigeria, which depends on crude for 90% of its exports, has struggled to rebound from a plunge in prices that dragged its economy into its first annual contraction in 25 years in 2016.

To stoke the economy, which together with South Africa account for almost half of sub-Saharan Africa’s gross domestic product, President Muhammadu Buhari has forced private banks to hand out more loans. The IMF said that lending policy should be revisited given concerns about deteriorating asset quality.

The government also needs to urgently raise income beyond the oil sector to close the widening fiscal gap and lower debt-service costs that consumes 60% of its revenues, the IMF said.

The lender welcomed the central bank’s move to raise cash reserve requirements in January, but called for more tightening through conventional monetary policy to counter quickening inflation, which has been above the target range for more than four years. Consumer-price growth accelerated to 12.1% in January, the highest level in 21 months. (Bloomberg)

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