The April 15, 2020, International Monetary Fund (IMF), latest World Economic Outlook report, which painted a gloomy picture of Nigeria’s economy in the wake of the coronavirus pandemic is certainly not giving economic commentators much cause for joy.
The Fund in that report, warned that Nigeria’s recuperating economy would slip into a deeper economic predicament with a negative growth report of -3.4 per cent even as it added that the global economy would contract by -3 per cent this year with sub-Saharan African region contracting by -1.6 per cent and Nigeria topping the chart.
As the COVID-19 pandemic continues to inflict high and rising human costs worldwide, the International Monetary Fund (IMF) has projected a contraction in the global economy by -3 per cent this year. The cumulative loss to global Gross Domestic Products (GDP) over 2020 and 2021 from the crisis could be around $9 trillion, which is greater than the economies of Japan and Germany combined.
For the sub-Saharan African region, the report, projected a contraction of -1.6 per cent, with Nigeria topping the chart with a negative growth of -3.4 per cent, indicating a looming recession for Africa’s largest economy that is barely recovering from the 2015/16 recession .
Indeed, the anticipated negative growth is hinged on plummeting oil prices and food inflation, even as the latest report deviates from IMF’s earlier projection of 2.5 per cent growth for 2020 and 2021” IMF said.
It was perhaps against this backdrop that the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, warned that Nigeria could fall into a second recession in five years if drastic actions were not taken to cushion the economic blow inflicted by the coronavirus. She equally hinted that the economy could shrink by as much as 3.4 per cent this year without a massive stimulus plan that includes billions of Naira in Central Bank of Nigeria (CBN), Federal Government and international interventions.
Already the Minister has received the nod of the IMF for the release of $3.4 billion contingency funds to Nigeria’s Centre for Disease Control (NCDC) and an economic stimulus package of N850 billion that will help provide relief for households and businesses impacted by COVID-19 .
The IMF relief is coming with additional support and interventions from the USA, European Union, China, and Germany among others.
However, even as the torrents of financial and technical assistance are flooding into the country, some economic experts are apprehensive that any misappropriation of these resources would leave the Nigerian economy in prolonged coma even after the impact of the pandemic would have left other developing countries.
According to some of the commentators, Nigerian government with over $2trillion indebtedness compounded with annual debt servicing burdens the loans should adhere to recommendations that could include the restructuring of its debt service obligations and possibly get 12 months moratorium. .
This could be complemented by some debt buy back arrangements using quantitative easing (that is printing more naira).
Having witnessed similar trends in other regions that faced some of the World worst recessions in times past, the Muhammadu Buhari administration was advised to prioritiss agriculture and food processing so as to deal the issues of hunger and food inflation.
Speaking to Daily Sun on ways out of the current economic quagmire, a professor of Finance and Capital Markets at the Nasarawa State University, and former Commissioner for Finance, in Imo State, Uche Uwaleke, warned that unless some of these steps are urgently taken, Nigeria would surely relapse into a worst depression.
“It is evident that the Nigerian economy, as confirmed by the IMF, will witness a recession this year shrinking by as much as 3.4 per cent, according to the IMF. It is also not difficult to see why. COVID’19 has caused a lot of devastation not only in the health and education sectors, with the closure of schools, but also in the productive sectors of the economy which is currently in crisis due to movement restrictions and lockdowns in most cities in Nigeria. So, aggregate output has continued to drop with many people already out of jobs. Perhaps, the greatest hit has come from the oil sector following the crash in crude oil price for a country that depends on oil revenue for over 90 per cent of foreign exchange. As a consequence, the 2020 budget has been slashed thereby constraining the capacity of the economy to grow. So, there is no question about it. Economic growth will tank considerably and the economy will slip into recession this year. What is not clear is whether this could lead to a depression which is often taken to mean a prolonged recession lasting beyond this year or a deep fall in Gross Domestic Products (GDP) by as much as negative 10 per cent. In my opinion, three main related factors will conspire to determine whether or not a depression will result. “One is the duration of the COVID’19 pandemic. It is uncertain how long it will take the world to be completely free, interpreted to mean when a vaccine is found.
Two, the extent to which Organisation of Petroleum Exporting Countries (OPEC) and Russia can tackle the supply shock and influence oil price through production cuts. The third variable is how well the COVID’19 stimulus packages are implemented to lift businesses and save jobs. Regarding the first two, the government may have little or no control since they are largely exogenous factors. But on the response to the public health and economic challenges posed by the pandemic in Nigeria, the government should continue to rise to the occasion including ensuring that the stimulus packages are well targeted. I will also suggest a gradual and orderly easing of the lockdown in good time while encouraging the use of face masks by all citizens till the pandemic is effectively contained” he said.
Also speaking, development economist and consultant to several global institutions, Mr Odilim Enwegbara, said that among the many countries that would suffer recession due to the COVID-19 imbroglio, Nigeria’s case might be more devastating because not only because of its huge population, but more because it is a mono-economic source.
He further highlighted that beside fighting Boko Haram and grappling with low oil price, its Diaspora remittances have dropped from $25 billion a year ago to $5 billion because of COVID-19. “Nigeria is among the countries that will suffer most of the economic dire consequences of the this infectious viral disease. In fact, Nigeria’s case is uniquely dangerous because it has a very large population with an economy yet to be diversified into an industrial and manufacturing economy. Among its peer economies, it sits on debt service obligations that is the highest when compared to its revenue. It is dependent on oil which it neither directly produces nor directly sells. With its state of infrastructure worse than peer economies, it is more difficult to do business in Nigeria than in its peer economies. “So, with oil price now at its lowest ever in history of hydrocarbon business, it’s left with nothing to fall back to while the tsunami lasts.” He argued
In the meantime, he stated that creditors will not relent in demanding for their loan annual interest payment, which is more than N2 trillion in 2020 budget alone.
Enwegbara questions the sources that the Nigerian government could possibly find money especially the foreign currency component of the debt service obligations, given that its oil export earnings are going to be so low that if it could make few billions of dollars it could amount to a celebration of sort.
He posed other questions including the cost of running our foreign missions most of which require a lot in foreign exchange to run.
“What about Diaspora remittances that have always been another important source of forex and that in some years past were as high as $25 billion, but which as a result of COVID-19 might fall to as low as $5 billion if not less? What about the fight against insurgents like Boko Haram that costs a lot in forex. This is not to mention imports of the essential consumer goods that require the country to have at least enough in its foreign reserves to meet 90 days of its imports obligations?
These include essential medical and pharmaceutical products that must be imported in order to meet the country’s healthcare requirements. So, one can see why we should all be worried and hope that Nigeria can actually avert this looming bankruptcy that if allowed to happen might be difficult to recover from.
According to him, “Few options available are: sit down with creditors to restructure our debt service obligations and possibly get 12 months moratorium. Regarding those holding naira priced debts, we must buy back the debts using quantitative easing (a kind of printing of naira and using to payoff the debts). Multiple forex windows that create all sorts of speculations and fraud should be closed to allow only a single window that is market determined. This means that we have to replace dirty float currency policy with clean float, where the CBN no longer intervenes to distort the market. Agriculture and food-processing should be prioritised as this government is already doing by creating a special funding vehicle with zero interest rate. Corruption in government must be fought in Nigeria in a transparent manner and doing business with ease should become a way of life in Nigeria. “Nigerian Social Security Bank (NSSB), where Nigerians will have their social security numbers as the Bank Verification Number (BVN) and bank accounts with the NSSB with as little as N1000 so that the NSSB BVN is linked to each Nigerian’s bank account both locally and internationally. This will help government tax Nigerians as well as easily identify vulnerable Nigerians who can receive financial support directly from the government,” he said