The recently revised 2020 gross domestic growth projections for the Nigerian economy by the International Monetary Fund (IMF) portends a good omen for a nation that had been bogged down by gloomy economic outlook occasioned by the Covid-19 pandemic and ist consequential drop in oil revenue.
In its October World Economic Outlook report released in Washington last week, the IMF projected that Nigeria’s economy will contract by 4.3 per cent in 2020 in real terms. This is a 1.1 per cent improvement from the 5.4 per cent that was projected in June and deeper than the 3.4 per cent projected in April. The Washington-based institution projected that the economy will recover in 2021 by 1.7 per cent.
Gita Gopinath , IMF chief economist and director of the research department, said oil-exporting countries are battling the health and economic impact of the Covid-19 pandemic and the impact of low oil prices.
“They have been hit by the health crisis and they have been hit because they are oil exporters which had a collapse and more importantly, they just don’t have the resources that advanced economies have to deal with this crisis. Because we don’t have a financial crisis at this point, many emerging markets are able to borrow at record levels in foreign currency this year relative to previous years,” Gopinat said.
The IMF chief economist said the foreign debts being acquired by emerging market economies will not be enough and advised that there is a need for continued international support. This support, Gopinath explained, could be in terms of concessionary financing, aid and debt relief and restructuring.
“There are going to be developing and low-income economies that would need debt relief and, in some cases, restructuring of debt to make sure they have the space to do the spending that they need,” she said.
This contraction will be the worst recession in 37 years, and the second recession in five years, following closely after a negative economic growth of 1.58% in 2016. In 1983, Nigeria’s GDP at 2010 constant price receded by -10.93.
The World Bank had in its recent Nigeria Development Update (NDU) predicted that the Nigerian economy will plunge into severe recession, the worst in almost 40 years due to the collapse of oil prices and the outbreak of the coronavirus disease. The report titled, “Nigeria in Times of COVID-19: Laying Foundations for a Strong Recovery,” estimates that Nigeria’s economy would likely contract by 3.2% in 2020, with the assumption that the spread of Covid-19 in Nigeria is contained by the third quarter of 2020. However, if the spread of the virus becomes more severe, the economy could contract further.
It should be noted that the Nigerian economy was expected to grow by 2.1% in 2020 before the Covid-19 pandemic, which means that the pandemic has led to a reduction in growth by more than 5%.
According to the report, “The macroeconomic impact of the COVID-19 pandemic will likely be significant, even if Nigeria manages to contain the spread of the virus. Oil represents more than 80% of Nigeria’s exports, 30% of its banking-sector credit, and 50% of the overall government revenue. With the drop in oil prices, government revenues are expected to fall from an already low 8% of GDP in 2019 to a projected 5% in 2020.’’
Similarly, President Muhammadu Buhari said while presenting the 2021 budget proposal to the National Assembly that the country is heading for another recession, the second in four years. He noted, however, that the federal government has put in place plans to ensure rapid recovery in 2021. The president spoke against the backdrop of a significant increase in deficit beyond the provisions of the Fiscal Responsibility Act, following revenue pressures faced by the government.
He said: “The 2021 Budget was prepared amid a challenging global and domestic environment due to the persistent headwinds from the coronavirus pandemic. The resulting global economic recession, low oil prices and heightened global economic uncertainty have had important implications for our economy.
“The Nigerian economy is currently facing serious challenges, with the macroeconomic environment being significantly disrupted by the coronavirus pandemic. Real Gross Domestic Product, GDP, growth declined by 6.1 per cent in the second quarter of 2020. This ended the three-year trend of positive, but modest, real GDP growth recorded since the second quarter of 2017.
“I am glad to note that, through our collective efforts, our economy performed relatively better than that of many other developed and emerging economies. GDP growth is projected to be negative in the third quarter of this year. As such, our economy may lapse into the second recession in four years, with significant adverse consequences.
“However, we are working assiduously to ensure a rapid recovery in 2021. We remain committed to implementing programmes to lift 100 million Nigerians out of poverty over the next 10 years. We have also recently introduced the N75 billion Nigeria Youth Investment Fund, of which N25 billion have been provided in 2021 Budget.
The revised economic outlook of Nigeria by the IMF, though a welcome relief, should challenge the nation’s economic managers to go back to the drawing board and devise more pragmatic and sustainable policies to exit the economy from the woods as well as its propensity to slide into recession. One sure way to do this is to actualise the much touted economic diversification away from the over-dependence on crude oil.