Following the impact of the Coronavirus pandemic, the Central Bank of Nigeria (CBN) has hinted that Nigeria’s Gross Domestic Product (GDP) is set for a growth reversal. Nigeria recorded GDP growth of 2.27 per cent in 2019. Later, it appreciated to 2.55 per cent in the last quarter of 2019. But now, it is about to witness a significant downward spiral in 2020.
According to the CBN Governor, Godwin Emefiele, the “projections indicated that real GDP in the first quarter (Q1) 2020 would be slow because of the tepid global demand resulting from the COVID-19, depressed global demand and oil price war which has resulted in supply glut and decline in crude oil prices.” Nigeria’s oil price is currently below $24 per barrel, far less than the projected benchmark for the 2020 budget.
The outlook for the first half of 2020, the apex bank says, may dampen overall growth prospect for the year. There is no doubt that the Covid-19 pandemic is a huge public health risk which will continue to undermine any monetary and fiscal stimulus unless appropriate measures are taken to curtail its spread. This goal can only be achieved if infected persons are promptly treated while stepping efforts to stop movement of people across the country. Therefore, it is good that the apex bank has taken decisive action to safeguard the nation’s banking system and the economy from emerging headwinds. Some of these measures include provision of extended moratorium on loans by one-year, beginning from March 2020. This is to ease pressure on loans repayment. The CBN’s policy on Loan-to-Deposit ratio might have engendered massive credit to the private sector.
We agree with the Presidential Committee on COVID-19 that a reversal of the GDP has become inevitable because the economy is already under serious strains unless urgent measures are taken to contain the spread of the virus. The IMF had in its 2020 outlook downgraded its growth forecast for Nigeria’s economy to two per cent. This is against its initial projected growth rate of 2.5 per cent. No doubt, the pace of economic recovery in Nigeria remains very sluggish as declining incomes and weak investment continue to weigh on economic activity. The external vulnerabilities are increasing, reflecting a higher account deficit and declining reserves that remain highly vulnerable to capital flow reversal.
Available data on key macroeconomic variables indicated the likelihood of subdued output growth for the economy this year. More so, the manufacturing Purchasing Managers’ Index (PMI) is currently at its lowest in three years. There are fears that the two consecutive quarters of contraction could truncate the present administration’s promise to lift 100 million Nigerians out of poverty. The impact of the Coronavirus may lead to another economic recession.
When Nigeria experienced the first recession in 2016, external reserves was $25.34billion from $52.6billion in 2008, Excess Crude Account (ECA) had dwindled by $5billion, while external debt increased to $11.26billion. Unfortunately, Nigeria’s buffers were too weak to withstand the slide in oil price and heavy dependence of the government on windfall. Sadly, two years after Nigeria exited recession it became the world’s poverty capital, with almost 90 million people living below the poverty line. A worse scenario seems to be playing out with the COVID-19 outbreak which has already depressed price of crude oil which accounts for about 70 per cent of government’s revenue.
As a result of the negative territory which the economy has found itself, Nigeria’s balance of trade is expected to hit a deficit of over $3billion in the first quarter of 2020 and narrow to about $1.5billion in the second quarter, while fiscal deficit is expected to tip to nearly double from current figures to $4trilion in both quarters. Undoubtedly, this signals danger when considered that external reserves have fallen to around $35billion, foreign debt as high as $26.94billion and ECA as low as $71million. These are uninspiring figures that government policymakers should work with to avert acute economic crisis in the country.
Though Nigeria’s economy has been wobbling before the COVID-19 outbreak, there is need for all hands to be on deck to revamp the economy. As oil prices continue to fluctuate, the economy should be diversified. Government must pay greater attention to agriculture, manufacturing and solid minerals. The informal sector of the economy and private sector should be given incentives such as tax relief and low interest rate on loans. Our leaders should use the opportunity presented by the pandemic to revamp the economy and other critical sectors such as health and education.