Nigeria’s second quarter (Q2) Gross Domestic Product (GDP) figures are to reveal a significant dip in economic growth, as the pandemic lockdown and a debilitating dollar shortage inflict misery on Nigerians and their businesses.
It is almost a deja vu for Africa’s biggest economy which is now on the brink of its second economic recession in four years but the Federal Government, which has little fiscal levers to pull to help stem the rout, is seeking to calm frayed nerves. The impending gloom could bring fresh job losses for an economy already on its knees.
The National Bureau of Statistics (NBS) is due to release the Q2 GDP numbers in less than two weeks, but according to a leading economist familiar with the computations, “the second quarter numbers are obviously negative, but how negative, we still do not know at this moment.”
Nigeria would be joining other major economies in the world in witnessing a major contraction in output for the Q2, but Nigeria’s case has been worsened by years of failure to implement policies to lure investors and private capital which has meant that it entered the Covid-inflicted slow-down like a car already wobbling.
Tunisia’s economy slumped 21.6 percent while the US GDP plunged by a record 33 percent annual rate in the Q2 as coronavirus lockdowns raged. The UK has fallen into recession as GDP tumbled 20.4 percent in April-June.
Japan’s seasonally adjusted gross domestic product in April-June fell a real 27.8 percent from the previous quarter on an annualised basis, posting the sharpest drop in the post-war period, according to preliminary data released by the Cabinet Office yesterday.
Unlike Japan and the US, which have deployed massive stimulus to help their economies undergo a V shaped recovery, Nigeria does not have any such fiscal levers to pull.
The Japanese government earlier this year implemented a programme to distribute ¥100,000 ($1,000) per person to each resident of the nation as a coronavirus relief measure.
The US sent out 160 million payments of $1,200 totalling $260 billion to its tax payers in April.
For Nigeria, the absence of any meaningful stimulus and the failure to enact investor friendly monetary policies mean a major and painful economic recession is in the offing.
Minister of state for budget and national planning, Clem Ikanade Agba, somehow corroborated the emerging development when he said late last week that “Nigeria’s Q2 GDP growth is in all likelihood negative, and unless we achieve a very strong Q3 2020 economic performance, the Nigerian economy is likely to lapse into a second recession in four years, with significant adverse consequences.”
Making a presentation to the House of Representatives Committee on Finance at an interactive session on the 2021-2023 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), Agba said Nigerian economy faced serious challenges in the first half of 2020, with the macroeconomic environment significantly disrupted by the COVID-19 pandemic.
He decried the level of significant medium-term fiscal challenges, especially with respect to revenues, which if not addressed could snowball into a debt sustainability crisis.
The minister stated that the medium-term outlook for Nigeria suggested that fiscal risks were somewhat elevated, largely due to COVID-19 related disruptions, which had exacerbated structural weaknesses in the economy.
Apart from the COVID-19 pressures, global crude oil prices declined sharply, with Bonny Light crude oil price dropping from a peak of $72.2 per barrel on January 7, 2020, to below $20pb in April 2020. “In effect, the $57 crude oil price benchmark on which the 2020 budget was based became unsustainable,” the minister said.
Another key development in the international crude oil market was the massive output cut by OPEC and its allies (OPEC+) to stabilise the world oil market, with Nigeria contributing about 300,000 barrels per day (bpd) of production cuts.
According to the minister, “The impact of these developments is about 65% decline in projected net 2020 government revenues from the oil and gas sector, with adverse consequences for foreign exchange inflows into the economy.”
He said Nigeria was exposed to spikes in risk aversion in the global capital markets, which would put further pressure on the foreign exchange market as foreign portfolio investors exited the Nigerian market.
The shortage of foreign exchange has been worsened by a decision of the Central Bank of Nigeria (CBN) to halt its weekly foreign-currency sales since March.
The International Monetary Fund (IMF) predicts Nigeria’s economy will contract by 5.4 percent this year, the most in four decades. The latest official unemployment figures put the second-quarter jobless rate at 27.1 percent, the highest in a decade.
Agba, who represented the minister of finance, budget and national planning, Zainab Ahmed, at the five-day interactive session, said in response to the developments affecting the supply of foreign exchange to the economy, the CBN adjusted the official exchange rate to N360/$, and more recently to N379/$.
He explained that the disruptions in global trade and logistics would negatively affect custom duty collections in 2020, and that the COVID-19 containment measures, though necessary, had inhibited domestic economic activities, with consequential negative impact on taxation and other government revenues.
As a result, the projections for Customs duty, Stamp Duty, Value Added Tax, and Company Income Tax revenues were recently reviewed downwards in the revised 2020 budget.
Speaking more specifically on the revenue performance from January to June 2020, the minister said FGN’s retained revenue was N1.81 trillion or only 68 percent of target as at end of June 2020.
He said the NLNG dividends, recoveries and stamp duty collected during the period had, however, yet to be booked in the fiscal accounts.
In an effort to check the looming fiscal crisis, the Federal Government has instituted fiscal measures aimed at improving revenue and entrenching a regime of prudence with emphasis on achieving value for money.
Finance minister, Zainab Ahmed, in an interview with BusinessDay last month said she expected Nigeria to exit a shallow recession sparked by the coronavirus pandemic by the first quarter (Q1) of next year, if a N2.3 trillion Economic Sustainability Plan (ESP) approved by the Federal Government was strictly implemented.
The CBN governor, Godwin Emefiele, had sounded similar optimism with a forecast of a -1.03 percent contraction in GDP for the second quarter of 2020.
The Federal Executive Council (FEC) in June approved the immediate implementation of the Nigeria Economic Sustainability Plan (NESP) or stimulus that had an estimated N2.3 trillion price tag.
Given Nigeria’s limited fiscal space, the source of the funds was to be: special Accounts – N500 billion, CBN structured lending – N1.11 trillion, external bilateral/multilateral sources – N334 billion, other funding sources – N302.9 billion.
The plan aims to stimulate the economy by preventing business collapse and ensuring liquidity, retaining or creating jobs using labour intensive methods in key areas like agriculture, facility maintenance, and housing and direct labour interventions and extending protection to the very poor and other vulnerable groups – including women and persons living with disabilities – through pro-poor spending, among others.
Nigeria’s GDP decelerated in the Q1 of 2020 with a 1.87 percent growth compared to 2.55 percent growth recorded in Q4 of 2019.
Fiscal sustainability and macro objectives of government would require bold, decisive and urgent action, according to Agba.
“Government is determined to act as may be required. Thus, key reforms will be implemented with increased vigour to improve revenue collection and expenditure management,” he said.
