It is no longer news that world economies are going through very turbulent times. A clear indication of the realities of the impact of the ravaging Covid-19 pandemic is that most economies, if not all, will plunge into recession. Brookings Institution expects Sub-Saharan gross domestic product (GDP) growth rate to drop to as low as 2 per cent while the UN Economic Commission says it could go as low as 1.8 percent. Nigeria, the biggest economy in the region would number among countries that will feel the impact most as acknowledged by members of the Economic Sustainability Committee. Bamidele Famoofo reports
The immediate impact of the ravaging Coronavirus pandemic on the Nigeria’s economy is that the largest economy in Africa by GDP may not likely be able to generate enough cash to fund its 2020 budget even though it has been slashed by about N1.5trillion.
The reason for this sudden negative turnaround is obvious- the nation’s surest source of revenue, oil, is not doing well in the international market at the moment as prices have dropped as much as over 50 per cent in recent times, no thanks to the pandemic called novel coronavirus.
Painting a clear picture of the current realities in the country, recently, Vice President Yemi Osinbajo, who heads the Economic Sustainability Committee (ESC) constituted by the president, said: “We must communicate to our people where we are now, and that we can no longer assume we are still where we used to be. We are faced with a challenge that no government in the history of Nigeria has ever faced. So, we have to redesign our economic planning and change our thinking.”
Governor of the Central Bank of Nigeria, Godwin Emefiele corroborating the position of the vice president told journalists after a brief with President Muhammadu Buhari in Abuja last week, said: “The Nigerian economy is not looking as simple as everyone thought it would be.” He said this is because “The global economy naturally like we all know at this time will naturally suffer growth problems and may even lead to recession globally.”
A Groaning Economy
In the last several weeks, prices of oil, a critical driver of the Nigerian economy, have crashed from the budget benchmark of $57 per barrel to less than $20 amidst the other worsening implications of the pandemic with forecasts of impending recession on a global scale.
The country’s foreign reserves have continued its downward trend dropping by $3.02billion from $38.53billion on January 2, 2020 to $35.51billion as of March 27, 2020, latest statistics from the CBN have revealed.
According to the figures, the reserves dropped from $39.8billion on November 11, 2019 to $39.24billion on December 13, 2019. This is after the fall by $1.26billion from $41.76billion on October 2 to $40.5billion as of the end of October.
The reserves dropped by $482.18million from N45.14billion as of July 8 to $44.65billion on August 8, 2019.
The CBN stated in its communiqué at its recent Monetary Policy Committee meeting that available data on key macroeconomic variables indicated the likelihood of subdued output growth for the Nigerian economy in 2020.
It stated that based on the current downturn in oil prices, staff projections indicated that output in 2020 would be less than earlier envisaged.
The committee noted the weakened revenue position of the federal government, arising from the sharp drop in oil prices.
It reiterated the need for government to urgently reduce reliance on oil revenue by gradually diversifying the economy and improving its tax collection.
To this end, the MPC noted the speedy response of the Federal Government to the oil price shock with the revision of the 2020 budget downwards. It was reduced by N1.5trillion and the oil price benchmark dropped from $57 to $30 per barrel.
The CBN Governor, Godwin Emefiele, gave the major downside risks to this outlook as “the continued spread of COVID-19; further decline in crude oil prices and the reduction in accretion to external reserves; reduced government revenue leading to weak aggregate demand; declining non-oil receipts; as well as infrastructural and security challenges.”
Responding to the economic challenge arising from the Covid-19 invasion, Buhari has set up the Economic Sustainability Committee headed by Osinbajo, to amongst other things develop a clear economic sustainability plan from now till 2023. Part of the responsibilities of the committee is to identify fiscal and monetary measures to enhance oil and non-oil revenues in order to fund the plan, develop a stimulus package and come up with other clear-cut measures to create more jobs while keeping existing ones.
While inaugurating the committee, the Vice President noted that “what Mr. President has asked us to do is to devise a strategy in order to be able to keep the economy going and also make provisions to ensure that we are able to retain jobs and indeed create more.”
“We also need to develop the Nigerian economy in a way that we will even take advantage of the challenges of these times and convert those challenges to opportunities,” Osinbajo added.
Speaking on the focus of the committee and what would be done to salvage the situation in the country, the vice president said, “what we will need to do is something that is bold, radical and one that our people can understand and buy into.
“We must design a broad vision that takes into account how to implement a big plan inclusive of a focus on mass local productivity and mass employment.
“The big plan of government is to find a way for us to be able to do mass housing, increase agricultural production, ensure massive local productivity by among several other options, increasing support to MSMEs, and majorly improve avenues to put more cash in the hands of our people and also make them productive.”
Any Help from World Bank?
The World Bank Group President, David Malpass, said the bank group is immediately launching emergency support through operations around the world. “And this urgent help to governments and companies is just the start of a broader effort. Given the unprecedented challenges that Covid-19 poses, the bank group expects to deploy up to $160 billion over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery.”
Speaking further on the planned intervention, Malpass said one of its first components will be $6 billion for expedited loan guarantees from the Multilateral Investment Guarantee Agency (MIGA). This will enable the purchase of urgent medical equipment and provide working capital for companies, including smaller businesses, while also supporting governments’ short-term funding needs.
Through financing and a wide range of technical support, the bank group will work to help countries shorten their time to recovery and lay the foundations for future growth. And across all the efforts to combat Covid-19, the focus will be on solutions that can help countries ensure protection and restore opportunities for their poorest and most vulnerable people.
Being a member of the World Bank Group, Nigeria is expected to emerge one of the beneficiaries of the intervention fund coming from it.