A second recession in five years could upend President Muhammadu Buhari’s legacy and become the enduring symbol of his two-consecutive tenures as democratic leader of the country now with a 50-50 chance of repeating 2016’s downturn this year.
The Coronavirus outbreak has dampened growth outlook for Nigeria’s economy, informing economists’ projections that the country could slip into another recession by the end of June after an initial contraction in the first quarter.
“There is now a near 50-50 percent chance Nigeria’s economy will again slip into a recession at the end of June after an initial contraction in the first quarter on the back of the adverse impact of the coronavirus outbreak on economic activity and lower oil prices,” said a leading economist who did not want to be named.
“If this happens, it will be the second time during the tenure of President Muhammadu Buhari and would be perhaps the most enduring symbol of his legacy when he leaves office,” the person said.
Bismarck Rewane, CEO of Lagos-based FDC Ltd, said the economy could contract by 0.5 percent in the first quarter and by 0.2 percent in the second quarter. FDC says the probability of a recession is 45 percent.
Godwin Emefiele, CBN governor, at the second Monetary Policy Committee (MPC) decision announcement warned that available data on key macroeconomic variables indicate the likelihood of subdued output growth for the Nigerian economy in 2020.
A day after, data on manufacturing Purchasing Managers’ Index (PMI) showed manufacturing sentiments in March at its lowest in almost three years, while non-manufacturing PMI entered “recession zone” or fell below 50 points or first time since 2017.
The PMI is considered by some analysts and economists to be a predictive tool for the output growth.
The implication is that two consecutive quarters of contraction would truncate President Buhari’s promise to “lay the foundation for lifting 100 million Nigerians out of poverty” and score him as one of the worst leaders for the country, by economic measures.
The risk of a recession for Nigeria is directly linked to the COVID-19 outbreak which is roiling markets and economies around the world but the lack of preparedness of the economy only highlights how prone Nigeria (and its leaders are) is to repeating same mistakes.
In 2016, the country had dwindled reserves to $25.84bn from $52.6bn in 2008, its Excess Crude Account had fallen by two-thirds to $5bn while external debt spiked almost four-fold to $11.26bn – its buffers were too weak to withstand the slide in oil price and heavy dependence of the FG on windfall put sub-national governments as well in fiscal turbulence.
The full impact was felt two years after emergence from the recession. Nigeria had become the world poverty capital with nearly 90 million living below poverty line.
Just four years after the rare recession (second in 25 years), a second recession is now a likely scenario but worse is the country’s buffers are weaker than ever.
The Coronavirus outbreak has depressed price of crude oil and slowed demand for Nigeria’s cash cow. Its biggest buyers are either under lockdown or not in need for oil right now, while domestic manufacturing has also slowed, setting the stage for another downturn.
Oil prices are forecast to average $28 in the first quarter and $40 in the second. The balance of trade for Africa’s largest oil producer is expected to swing to a deficit of $3 billion in the first quarter but narrow to $1.5 billion in the second quarter while the country’s fiscal deficit is tipped to nearly double from current figures to N4 trillion in both quarters.
External reserve has fallen to around $35bn, external debt is at a high of $26.94bn and Excess Crude Account has fallen to a record-low $71 million.
These are uninspiring numbers for Nigeria which has limited buffers to stave off another economic recession and continues to remain heavily dependent on crude oil exports. The country’s attempts at diversification are yet to yield the fruits required to weather the upcoming storm, economists say.
“There was always a chance that Nigeria could be back to where it was in 2016 but the prevailing realities all but confirm it if it was ever in doubt,” an Abuja-based economist said.
Now, President Buhari, touted “Baba go-slow”, and his economic team are faced with the daunting task of steering the country out of the imminent crisis with fewer policy tools at their disposal.
The Central Bank of Nigeria (CBN), which has been carrying the weight of its fiscal counterpart, could be President Buhari’s hope of averting the crisis.
In 2019, a decision by the apex bank to force banks to lend helped boost growth to 2.3 percent, its fastest since 2015.
In the fight against the impact of the coronavirus, the CBN made moves to ease pressure on loan repayments by reducing interest rates from 9 percent to 5 percent on its existing intervention programmes over the next one year; created a N50 billion fund to support households and Small and Medium Enterprises (SMEs) affected by COVID-19; introduced credit support for the healthcare sector; introduced regulatory forbearance to consider temporary and time-limited restructuring of loan terms and tenors to households and businesses affected by COVID-19, and strengthened the loan-to-deposit ratio (LDR) policy.
The bank also announced an intervention fund of N1.1 trillion to cushion the adverse effects of the coronavirus outbreak on the economy.
The fiscal arm, on the other hand, cut 2020 budget by N1.5 trillion and reviewed fuel selling price lower.
It is on the former that the preservation of President Buhari’s legacy rests.
Lolade Akinmurele & SEGUN ADAMS
