Nigeria Economy | |
Nigeria Economy | |
2102 VIEWS | |
![]() |
Thursday,
April 23, 2020 / 11:20 AM / By FDC Ltd / Header Image Credit: Ecographics
Covid-19
has brought the global economy to its knees. The lockdowns, social distancing
and self-isolating rules in various countries have resulted in a virtual
economic paralysis and what could likely be the worst financial crisis since
the Great Depression.
Covid-19 & The
Nigerian Economy
Nigeria
is not spared from the economic implications of the Coronavirus pandemic.
Transmission channels of Covid-19 on the economy include the oil price effect,
global financial conditions, external trade effect and the foreign investment
flows. This explains why agencies such as the IMF and EIU are projecting a
contraction in Nigeria's GDP growth to -3.4% and -2.2% respectively. Whilst
both agencies estimate a slight recovery in 2021 to 2.4% and 0.9%, this will
depend largely on the adoption of key policy reforms.
Impact On Sectors
There
is no doubt that Coronavirus has disrupted activities in virtually all sectors
ranging from aviation, sports, hospitality, education amongst others. The only
sectors benefiting during the pandemic are sectors offering essential services
which include Pharmaceuticals, health care and telecommunications amongst
others.
Government Response
In order to mitigate the fallout, the fiscal and
monetary teams have introduced stimulus packages of varying magnitudes:
Monetary team
Contrary
to market expectations and the examples of advanced central banks, Nigeria's
monetary team is yet to cut its benchmark interest rate. This could be due to
the complexity of lowering interest rates at a time of heightened inflationary
pressures. Countries such as the US, UK, South Korea, Japan and China that have
cut interest rates since the Covid-19 outbreak all boast of single digit
inflation rates compared to Nigeria's double digit inflation rate of 12.2%.
Fiscal team
The
initial response of the fiscal team was to revise the 2020 budget assumptions
including the total estimated spending as well as the oil price ($30pb) and
production benchmark (1.7mbpd). With the current free fall in Brent price and
the additional OPEC output cuts of 9.7mbpd, these assumptions may need to be
revised again in the near term. In addition, the Ministry of Finance has sought
for financial support of $6.9bn from multilateral agencies including IMF, World
Bank and the AfDB. In reality, Nigeria stands a greater chance of securing
these loans with the adoption of a market determined and efficient price model
for exchange rates and refined petroleum products.
Is This Enough?
The
question on the minds of Nigerian business owners and consumers remains - is
this enough? Analysts are of the opinion that the FGN stimulus which represents
a miserly 0.34% of GDP is not sufficient to move the needle. A simple guideline
policy makers can use with regards to the necessary palliatives include the
following:
Appropriateness
Is this the necessary move at this time? Is this
solution tailor made for Nigeria? Have all possible options been exhausted?
Auspiciousness
Will Nigerians be better off? How to ensure the
palliatives get to the appropriate people?
Adequacy
Is this the right dose? Is this evenly distributed
across affected states?
Related News - Nigeria Economy
Related News - World Bank IMF and Dev Agencies