Amid Vulnerability, Nigeria’s Economy Musters Resilience

Zainab Ahmed

Amidst the growing pessimism from eternal agents that the Nigerian economy may not escape another recession following the impact of COVID-19, there’s been counter and strong postulations by domestic actors who believe the economy will soon be out of the woods going by the aggressive policy interventions by both monetary and fiscal authorities. James Emejo writes

Nigeria has a compelling case why to slide into another recession going by key macroeconomic indicators which are not impressive at this time in particular.

It happens that the government depends on over 80 per cent of oil revenue to meet its obligations amidst efforts to diversify the economy into agriculture.

But the outbreak and spread of the COVID-19 pandemic had caused significant distortion to the domestic economy as global oil price averaged below $20 for the first time in decades as patronage dwindled drastically while the virus continued to wreak havoc worldwide.

In fact, the impact of the virus necessitated the revision of the country’s benchmark oil price for 2020 budget to $25 per barrel from previously $57 per barrel and oil production to 1.9mbpd from 2.18mbpd.

Speaking on the impact of the pandemic on the economy at a global investor call organised by Citibank, Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said the federal government had reduced its revenue available for budget (including government owned enterprises (GOEs) from N8.4 trillion to N5.6 trillion while COVID-19-related fiscal expenditure gulped N500 billion.

Also, the country’s growth forecast of 2.9 per cent Gross Domestic Product (GDP) for pre-COVID-19 period had witnessed a contraction to 4.4 per cent post COVID-19.

GDP managed to grow by 1.87 per cent (year-on-year) in real terms in the first quarter of 2020 (Q1 2020).

One of the major concerns for the economy was the rising public debt and the huge amount required for debt service amidst the drastic dwindling in revenue.

Only recently, the International Monetary Fund (IMF) revised its forecast for the Nigerian economy, predicting a contraction by 5.4 per cent in 2020, lower than the 3.4 per cent negative growth it had estimated for the country in April.

This is as a director at Fitch Ratings further warned that a sharp rise in Nigeria’s sovereign debt and a ballooning financing gap could trigger a rating downgrade.

The country is also weighed down by other economic indices including rising inflation, unemployment, foreign exchange pressure among others.

However, amidst the seeming bleak economic future for the country, economic managers have not relented in ensuring the negative predictions about the country do not happen.

Evidently, both monetary and fiscal authorities have rolled out unprecedented interventions towards ameliorating the impact of COVID-19 on Nigerians in general since the outbreak and in desperate efforts to prove book makers wrong.

According to the finance minister, at the global investor call, which was designed towards wooing foreign capital into the economy, some of the fiscal measures taken to respond adequately to COVID-19 was the establishment of a N500 billion COVID-19 Crisis.

Others include the allocation of N102.5 billion ($335 million) in resources to be available for direct interventions in the healthcare sector, of which the sum, N6.5 billion had already been made available to the Nigeria Centre for Disease Control (NCDC) for critical expenditure .

The federal government, among other things, also approved the withdrawal of $150 million from the Nigeria Sovereign Investment Authority (NSIA) Stabilisation Fund to augment the Federation Account Allocation Committee (FAAC) disbursements.

Also, to cushion the impact of the pandemic on small businesses, the government introduced significant tax relief for Micro, Small and Medium-sized Enterprises (MSMEs) and approved extension of time for filing value added tax (VAT) and withholding tax from 21st to the last working day of the month, following the month of deduction.

According to Ahmed, the federal government had swiftly introduced fiscal measures to protect people, jobs and the economy, a development that could further stimulate the economy and ultimately avoid a recession.

On the monetary front, Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, had initiated the established N1.1 trillion intervention fund to cushion the adverse effects of the pandemic as well as disbursed N107.25 billion to boost local manufacturing and production across critical sectors.

The apex bank further earmarked the sum of N100 billion for the health services sector through the provision of loans to industry operators.

Also, in a bold initiative which is unprecedented, the CBN established a N50 billion fund to support households and Small and Medium Enterprises (SMEs) affected by COVID-19 among other measures.

However, several analysts believe the measures already taken by the government are modest enough to avoid a recession.

Emefiele had noted that there were robust buffers prior to the COVID-19 crisis and additional measures introduced by the CBN will help maintain the resilience of Nigerian banks .

According to him, non-performing loan (NPL) ratios have declined significantly since September 2018 while regulatory forbearance had been granted to banks in assessing loans to firms significantly impacted by the virus in order to deal with the impact of COVID-19.

He added that such firms might be granted a moratorium on loan repayments as well as restructuring of existing loans.

The CBN governor said total credit increased by N3.16 trillion ( US$8 billion ) or 20.45 per cent between April 2019 and April 2020 , attributing it largely to the CBN’s directive to banks on Loan Deposit Ratios, which encouraged increased lending.

The CBN governor noted that COVID-19 had impact on external position as foreign reserves had lost $8.5 billion decline due to $21 billion increase in imports in 2019 as well as offshore investors exiting OMO bills market in Q2 2019 and Q1 2020 among other adverse effects on the economy.

Nonetheless, the Federal Executive Council (FEC) last Wednesday approved N2.3 trillion sustainability package, recommended by the Economic Sustainability Committee chaired by Vice-President Yemi Osinbajo, to revamp the economy.

The FEC also approved N122.280billion billion to build seven roads in different parts of the country and another N14.90 billion for the award of contracts for 11 ecological projects in the six geopolitical zones in a measured effort to stimulate economic growth amidst COVID-19.

Emefiele, recently reiterated his commitment to steer the Nigerian economy away from the looming recession due to the global impact of the COVID-19 pandemic, in spite of the push by some vested interests to impugn the integrity of the bank.

Speaking in an interview with THISDAY however, Professor of Finance and Capital Markets at Nasarawa State University, Prof. Uche Uwaleke, said going by massive intervention programmes by both monetary and fiscal authorities, the IMF and other ratings institutions who had predicted that the country will fall into recession may eat their words eventually.

He said: “This IMF report is only a forecast based on some assumptions which may or may not crystallise. In it, the Fund is projecting that the Nigerian economy will tank by -5,4 per cent this year. Recall that the previous forecast was -3.4% worse down global average of 3 per cent. All things considered, I do not think the Nigerian economy will contract by as much as -5.4 per cent this year as this revised forecast indicates given that Q1 of 2020 was able to eke out a positive growth of 1.87 per cent.

“Also, the government and the CBN have pumped and are still pumping money into the economy to contain the negative impact of COVID’19 on the economy. By the same token, much of the external loans already secured for either BOP support or for infrastructure have moratorium periods effectively postponing repayment obligations. Moreover, oil price is beginning to climb following OPECs compliance to production cut agreement with OPEC+ coupled with the fact that the economy is gradually being restarted.”

The former Imo State Commissioner for Finance, said: “I expect the tempo of economic activities to pick up as soon as flight operations resume and the ban on inter-state travel is lifted. All these factors will combine to ensure that any economic recession recorded will not be as severe as the IMF is projecting.

“I am optimistic that in the near future, IMF will be revising its forecasts confirming only a tepid recession for Nigeria. It’s important that the government continues to ramp up the level of support especially to agric and SMEs.

“The CBN should continue on its new found path of monetary accommodation while on the fiscal side, efforts should be made to ensure that stimulus packages as well as existing government Social Intervention Schemes are closely monitored for efficiency and effectiveness.”

Also, speaking with THISDAY, economist and former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, predicted a possible growth by the end of the second quarter going by the economic stimulus by government.

He said: “Recession is not a wish, it is an economic situation that is clearly defined. When there is a decline in economic growth for two consistent quarters, it becomes automatically a recession.

“I do believe that with the easing of the lockdown and attendant increase in economic activities, the projected stimulus of N500 billion in the 2020 budget, there is a likelihood of a possible marginal growth at the end of the Q2 which ends on the 30th of June.

“Even if the economic decline is sustained because of the short period of ease of lockdown, the possible recession will be short-lived and may not last as long as the 2016 to 2017 recession. This is so as OPEC has been able to reverse the global steep oil price crash.”

Further relying on the deep domestic debt market which will adequately provide the balance required to plug the gap without crowding out the private sector as well as adequate reserves buffer to weather external shocks , it becomes reassuring that a recession may as well be avoided.

This is even as the government further assured that, “The Nigerian economy is ultimately resilient due to favourable demographics and a diversified real economy in which government’s share of economic activity is relatively small.”