Will Nigeria’s Economy Fulfill IMF’s Prophesy?

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The economic situation appears to be growing worse than earlier expected in the fiscal year ending December 31, 2020. If the projection of the International Monetary Fund is anything to reckon with, the country will experience its deepest recession in decades as Gross Domestic Product (GDP) is tipped to fall by 5.4 percent. The ordinary Nigerians, however, will be at the receiving end as cost of living continues to aggravate with an ever rising inflation, Bamidele Famoofo reports

Nigeria’s economic woes will deepen in 2020 according to reports from the International Monetary Fund (IMF). The Bretton Woods Institution, which oversees the world’s monetary system’s stability, reversed its projections on Nigeria’s economy recently, when it says GDP will drop by 5.4 percent contrary to earlier target of 3.4 percent.

IMF’s Chief Economist, Gita Gopinath, said last month that the global outlooks are worse than previously expected and the fund may downgrade its April forecasts based on data its computing.

Fiscal Monetary Policies seem to have eased in first world nations and emerging economies.

But the downturn in economic performance is not peculiar to Nigeria’s economy as it is a global phenomenon. For instance, the IMF has said Sub-Saharan Africa’s gross domestic product is expected to shrink by 3.2 per cent in 2020 due to the impact of the COVID-19 pandemic. Sub-Saharan Africa was previous estimated contract 1.6 per cent.

In its World Economic Outlook update, the IMF projected that GDP in South Africa, the continent’s most advanced economy, would shrink by 8 percent in 2020, a bigger contraction than the 5.8 percent forecast in April.

South Africa’s strict nationwide lockdown, imposed in late March to curb the spread of the novel coronavirus, sharply curtailed production across key sectors such as mining and retail, further hobbling an economy already in recession.

The downturn is not a trouble for only developing economies as the GDP of United States is set to take an 8 percent hit in 2020, compared to 5.9 percent earlier predicted, 2021 growth forecast is pegged at 4.5 percent. The Euro Area is expected to shrink by 10.2 percent in 2020 and grow 6 percent in 2021.

Emerging Markets are expected to shrink by 3% while advanced economies by 8%, compared to 6.1% previously predicted.

China will see a little growth as it’s expected to grow by just 1%. Brazil is expected to shrink 9.1%, Mexico by 10.5% and India by 4.5%.

IMF warns that the reductions in GDP due to COVID-19 will widen inequality, with over 90% of emerging market economies expected to have per capita income declines.

Global trade for goods and services will also shrink by 11.9% this year.

The group expects 2 possible scenarios, first a possible second virus outbreak next year which will disrupt economic activity to about half the value expected for this year, emerging economies are expected to feel the heat more and global outlook will be 4.9% lower than 2021 forecasts.

The other scenario predicts a faster than expected economic rebound with global forecasts 3% higher than 2021 expectations.

Meanwhile Nigeria faces economic distress not only from the coronavirus outbreak but also from a sharp fall in crude prices.

Nigeria’s finance minister, Mrs. Zainab Ahmed Nigeria’s said the economy could shrink by as much as 8.9 percent in 2020 in a worst-case scenario. But the global lender expects Nigeria’s economy to rebound by 2.6 percent in 2021.

Meanwhile, the cost of living in Nigeria has risen steadily as annual inflation rose for the ninth straight month in May, to a two-year high of 12.4 percent.

IMF says the higher than expected GDP decline is a sign that poorer economies are being hit harder because, “for many countries that are staring out at lower per capita income levels when you have a growth hit of 3 percentage points, the distress that it causes in people’s lives is in a bigger magnitude than a similar decline for an advanced economy so these are very difficult times.”

“With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting,” IMF said in its revised World Economic Outlook.

Stimulus

Globally, Central Banks have announced stimulus plans up to $11 trillion, which is $3 trillion higher than April estimates. These plans are expected to soften the effects on the declining economic activity and limited the rising borrowing costs; also emerging markets portfolios have seen a recovery from earlier withdrawals.

The fund says the reduced global GDP could “tip some economies into debt crises and slow activity further”.

In Nigeria, government has approved N2.3 trillion (about $6bn) stimulus plan for Nigerians.

“The total package that we presented today is in the sum of N2.3 trillion. N500 billion of this is a stimulus package that is already provided for in the amended 2020 Appropriations Act. These are funds that we have sourced from special accounts. We also have N1.2 trillion of these funds to be sourced as structured low-cost loans which are interventionary from the Central Bank of Nigeria as well as other development partners and institutions,” Ahmed said.

“We have N344 billion that will be sourced from bilateral and external sources and also additional funds that we can source locally,” she added.

The Federal Executive Council (FEC) also approved the Nigeria Economic Sustainability Plan (NESP) as recommended by the economic sustainability committee led by Vice President Yemi Osinbajo as a means to distribute the stimulus to help the dwindling economy.

The goals of the NESP are to create jobs, pump money into the economy and hopefully stop it slipping into recession, support small businesses and prioritise local content (Made-in-Nigeria).

The NESP is a 12-month ‘Transit’ Plan between the Economic Recovery and Growth Plan (ERGP) and the ERGP-successor-plan currently being worked upon.

“There is a strategy that has been adopted and this whole plan is to enable us respond to the triple problem of low exchange rate, youth unemployment as well as negative growth which is facing us now,” Mrs. Ahmed said.

“The plan has to also support small businesses that have suffered severe impact of COVID-19 as a result of lockdowns, especially, the hotel industry; private schools, restaurants as well as the transport sector have been very well impacted by this.

“We have also seen a significant impact on the poor and the vulnerable and even people that were okay as small traders, have been hard hit …,” she said.

The minister also said the council noted interventions in the plan that would prevent businesses from collapsing and also infuse liquidity into the Nigerian economy.

“These will create jobs using labour-intensive methods such as agriculture, facility management, housing, construction, direct labour interventions that will create a lot of jobs very quickly. We had also proposed in the plan to undertake growth-enhancing jobs, creating infrastructure investments in roads, bridges, solar power, communications technology and several others.

“We have promoted in the plan, manufacturing and local production at all levels. We are advocating for the use of made in Nigeria in all of these public works that we will be doing as a way of creating jobs opportunities to enhance jobs sufficiency.

“So we expect – for road construction, for instance – we expect the minister of works not to buy bitumen but to consider the use of gemstones and cement or other materials that can be used here. That way we conserve our resources and will also be able to ignite other sectors within the economy,” she explained.

The official also spoke on specific interventions in the construction and housing sector.

“The same thing for housing as well. The design is to have 300,000 houses built using standard designs that will be done by the ministry of works and housing but using strictly low-cost materials.

“On the building sites, the plan is to have carpenters and others that will have multiplier effect on the economy,” she said.

She said “the third pillar for us is to ensure rigorous implementation and this is important because this is a 12-month plan that is meant to pull our economy from sliding into a deep recession.”

“It will also be a plan that will anchor to the successor period that we have already started working on,” she said. “It is a 12-month plan, a transit plan meant to be implemented quickly.”

“To that effect, the federal executive council has agreed that the procurement processes become relaxed in a manner that we are adopting a faster mood as opposed to using the longer procurement process.

“With the National Assembly passing the budget, we have funding ready to go but we need procurement to be done quickly so that this money can be put to immediate use,” she added.