No thanks to the coronavirus we are faced with the double whammy of having to lockdown significant parts of our economy, and at the same time deal with the consequences of the collapse in oil prices. Last week the President announced the partial lockdown of two of our largest states, Lagos and Ogun, and the Federal Capital Territory. With a few exceptions the lockdown means that those economies have been asked to shrink at least temporarily. We are not the only one to use this tactic to try to slow down the spread of the virus. Everybody seems to be worried about recession but we, like many other countries, are deliberately putting ourselves there for good reason.
However, we also have a second major challenge besides the direct effect of the pandemic. Since January crude oil prices have collapsed from around $60 a barrel to around $30 a barrel as at Friday. This is important for us because we are still heavily exposed to that market. Crude oil still accounts for near 90 percent of our exports and around 65 percent of government revenue. Any collapse to oil prices was therefore going to have significant effects.
To make matters worse, these two shocks could not have come at a worse time. We recorded our largest negative quarterly current account balance since we started keeping track of such data quarterly. Which is typically a symptom of building foreign exchange problems. On the fiscal side we recorded our highest deficit as a percent of GDP. According to data from the central bank, we may have actually broken the deficit ceiling of three percent of GDP as set in the fiscal responsibility act. The first time we would have done so since shortly after the return to democracy. Our debt levels are also kind of high. Officially the debt to GDP ratio is low but we know the challenges with collecting taxes. Our debt and debt servicing costs to revenue ratios are already in debt crisis levels. And the final option of just getting the central bank to finance the deficits has already been in use for some time now. Credit to the federal government via overdrafts and “ways and means” has grown from about one trillion to over ten trillion in the last five years. It is not clear how much space there is left. Moral of the story, the options to respond to the two crises are limited.
The Nigerian economy is also not in great enough shape to be left to its own devices. We know that growth has been sluggish with GDP growth in the last quarter of 2019 at only 2.55 percent, still much slower than population growth. The last time we measured unemployment in 2017 it was above 23 percent. Given the sluggish growth between now and then it is probably much higher now. We also know that, by many measures, we are not the poverty capital of the world with the largest number of people living in poverty.
In short, if countries were patients, Nigeria would be the patient most deserving of an ICU bed. Where the ICU bed is in the hospital called the International Monetary Fund. Indeed, many countries are already queuing up asking for funds from the IMFs rapid credit facilities. The funds for countries in need of emergency funding. The facility does not even typically come with the much dreaded conditionalities that our policy makers love to hate. Perhaps it is time our policy makers genuinely consider asking for help. I know we like to pride ourselves as the giant of Africa but even giants need help sometimes. The difficulty of our situation is that we will only start to really see the effects when the rest of the world starts to recover from the pandemic. By them we may be in an even deeper hole than we are now.
NONSO OBIKILI
Dr. Obikili is chief economist at Businessday.
