Macroeconomic reflection of the coronavirus pandemic in Nigeria.
At the end of December 2019, Chinese authorities reported several cases of acute respiratory syndrome in Wuhan City. The disease is now referred to as COVID-19 with 5 million cases, and over 300,000 deaths reported globally. In comparison, in Nigeria, we have 7,839 cases reported.
The coronavirus pandemic has plunged the world into a global health and economic crisis that transcends sectors and Markets. In a view to containing the virus, countries across the globe have adopted shutdown of the major economic, cultural as well as religious activities. However, the policy response adopted by various countries in Sub Saharan African nations, Nigeria inclusive in a bid contain the virus comes at a cost. The emphasis on lockdown, constraining movement to curb the virus is posing a danger to economies, businesses, and livelihoods of many in the region. Informal employment accounts for 89.2% of jobs in the region (ILO 2018). Most informal workers, particularly the self-employed, need to work every day to earn their living and pay for their basic household necessities. A Prolonged lockdown will put at risk the subsistence of their household.
According to the International Monetary Fund, the Global economy is expected to contract by -3.0% in 2020. Far lower than during the 2008/09 Global Financial Crisis (GFC). Consequently, Sub-Saharan Arica (SSA) and Nigeria’s economy are expected to contract by -1.6% and -3.4% respectively. The Brent crude price had its worst day one-day decline since 1991 in early March and now stands around $30/barrel.
The earlier oil price war between Saudi Arabia and Russia have succeeded in plummeting the oil price, which adversely affected oil exporters like Nigeria. Despite Nigeria’s dual human and material resource abundance, the country remains vulnerable to macroeconomic shocks mostly resulting from oil price crashes. The downward trend in the oil market transcends to social and economic consequences, notably for public sector spending in prone oil-reliant economies like Nigeria’s.
Crude oil proceeds are the largest source inflow and foreign in the country. Any friction resulting from the oil market will undoubtedly be reflected in Nigeria’s macroeconomic system. Thus, leading to repercussions in exchange rate volatility, dwindling foreign reserve, fall in FAAC monthly allocation, a surge in inflation, fall in revenue, uncertainty in stock markets, rise in the unemployment rate, and host of many others.
Relatively, the pandemic has necessitated the revision of projected remittance inflows to the SSA region from an earlier prognosis of $48bn – $51bn in 2019-2020. Timeframe about 5.6% rise which was earlier this year downsized from $48bn realized in 2019 to an expected $37bn in 2020 fiscal year, a 23% drop. In terms of job losses, migrant workers are the most vulnerable to be affected. Indeed, it will affect their income and livelihood, which will have a backlash on the monies they send back home. After crude oil, remittance inflow is the largest source of external finance to Nigeria’s economy far above Foreign Direct investment. Inevitably, Nigeria is heading towards another recession a few months after its recovery from the 2016 recession. The mono-economic nature of Nigeria’s economy is no longer capable of withstanding conflicting shocks; it’s high time for rejuvenating and diversification of the economy. The country possesses all the necessary financial, human, and natural efficacy to revamp other sectors capable of generating colossal capital inflow and investment into the economy.
The dual effect of COVID-19 pandemic and oil price shock compelled the Government to revise its 2020 appropriation bill of benchmark for oil price from $57 – $25 per barrel, reduction of oil production touchstone from 2.18mbpd to 1.9mbpd and adjustment of the Federal Government announces a wide range of Fiscal Stimulus measures in responding to Prevailing Macroeconomic shocks.
Top amongst them is the Presidential approval for the establishment N500bn COVID-19 Crisis Intervention Fund. From this, N6.5bn has been released to the Nigeria Centre for Disease Control to purchase more testing kits, staff training and establishment of Also, a drawdown on World Bank Facility ($82m) and complementary financing from the Regional Disease Surveillance Systems (REDISSE) to meet the COVID-19 emergency needs to flatten both the medical and economic curves effectively. Furthermore, $150m to be withdrawn from the Nigeria Sovereign Investment Authority (NSIA) to support the June 2020 FAAC allocations amongst Federal, State, and Local Government. Moreover, the leveraging of IMF’s COVID-19 Rapid Credit Facility (RFI) which amounts to $3.4bn to cushion the effect of the pandemic and sharp fall of oil prices.
Further regards to the 2020 budget the National Assembly has consented to the bid of the Federal Government to convert the N850bn initially outlined external debt to domestic source facility. Relatively the Federal Government is offering N150bn SUKUK facility for subscription to the public to support substantial capital projects. In its intervention, the Central Bank (CBN) has earlier set aside N50bn Target Credit Facility (TCF). The funds are
Conclusively, it is clear that the Nigerian Government is putting all the necessary efforts to steer the wheels of the economy. And they are committed to injecting of Funds to jumpstart the economy and accelerate the exit from the prevailing economic crisis. Although, the 2020 Finance ACT has allowed for tax exemptions to the small businesses, and a 10% reduction of the tax rate for medium-sized companies (i.e. from 30% to 20%) there is an urgent need for further tax relief and cuts. Both the Federal Government and CBN should adopt an expansionary fiscal and monetary stabilization policies. Waivers on import duty and lower tariffs should be upheld for essential service producers and capital inputs. As tougher days are foresighted ahead, there is greater synergy and coherence between the Federal Government and CBN to mitigate the macroeconomic effects.