Nigeria’s response towards calming the economic and health crisis occasioned by the coronavirus (COVID-19) pandemic falls short in comparison with peer countries.
While central banks and governments in South Africa, North America, Asia and Europe have offered huge fiscal and monetary stimulus to prop up businesses hit by lockdowns and provide a safety net for the swelling ranks of the unemployed, a lack of fiscal ammunition has restricted the Nigerian government from providing similar relief.
As a percentage of gross domestic product, Africa’s biggest economy is spending roughly 3 percent as both monetary and fiscal stimulus, to heal its over 200 million populace and businesses currently reeling from the impact of the pandemic, according to World Bank data.
That compares with a stimulus worth 7 percent of GDP in South Africa; 9 percent in Poland, and 16.6 percent in Brazil. In advanced countries, like in the US, Canada and Japan, fiscal and monetary stimulus aimed at addressing the pandemic stood at 15 percent, 12 percent and 42 percent GDP, respectively.
“As much as the fiscal policy in Nigeria is, it is not as high as what is seen in other countries due to the country’s limited space,” Jasmin Rahman, International Monetary Fund’s (IMF) mission chief to Nigeria, says.
Rahman, who facilitated the $3.4 billion Rapid Financial Instruments Nigeria borrowed from the IMF after it suffered the shock of a huge drop in oil prices, states that Nigeria entered the crisis in a weak position with real GDP growth of 2 percent, roughly half the growth in peer countries; and inflation that was three times more than what was seen in peer countries.
Nigeria was also faced with fiscal and current account deficits much worse than before the contraction in 2016, when a crash in oil prices triggered 5-quarters of negative growth.
“The average Nigerian was experiencing both falling real per capita income and a high cost of living before the pandemic, hence, Nigeria entered the crisis with low policy stance and risky financing structure, not surprised the country has been hit hard,” Rahman states at a webinar hosted by the American Business Council and CitiBank.
The IMF expects the economy to contract by 5.4 percent this year, the worst contraction in almost three decades.
The government says revenues from oil, which contributes over 50 percent of government revenue, could fall by as much as 80 percent this year.
To cushion the effect of the health and economic impact of the pandemic and avert any further impending crisis on its economy, Nigeria is spending as much as N5.8 trillion as both fiscal and policy measures.
This comprises a N2.3 trillion fiscal packages embedded in its Economic Sustainability Plan (ESP), in which the government aims to support small and medium enterprises, and create 774,000 informal jobs for its teeming population.
The government believes that with strict implementation of the ESP, the country might enter a shallow recession with a negative growth of -0.59 percent by year-end, but come out of it in Q1 2021, according to Zainab Ahmed, minister of finance and budget and national planning, during an interview with BusinessDay in her Abuja office.
“The National Bureau of Statistics (NBS) has already done an initial assessment that the economy could go into recession to as much as 4.2 percent by 2020, but if we are fully able to deploy this N2.3 trillion, we might end up in -0.59 percent. That is a bit fair,” Ahmed said.
“Meaning that by the end of Q1 2021, we should have been out of the recession and back to steady growth. So, the implementation of the ESP is very important,” the minister said.
The Central Bank of Nigeria (CBN) governor, Godwin Emefiele, has sounded similar optimism with a forecast of a -1.03 percent contraction in GDP for the second quarter of 2020; even though many economists say a deeper recession is more likely.
Nigeria also has a monetary stimulus package worth N3.5 trillion. The fund, provided by the CBN for SMEs, households, pharmaceutical companies and domestic manufacturers, is supposed to help soften the blow of the pandemic on businesses and households.
The CBN joined other of its counterparts around the world in employing various orthodox policies including cutting benchmark interest rates by 100 basis points to 12.5 percent, reduced interest on loans given to smallholder farmers and businesses from nine to five, and introduced regulatory forbearance for Covid-19 affected businesses.
Irrespective, the economic shock could still be devastating on a country that is home to the highest number world’s poor.
The argument is that, if in other climes where the government is spending more as fiscal stimulus, yet the economy is not spared from the effect of the pandemic, how much more Nigeria, that is spending less.
For example, the US economy recorded its biggest economic contraction since the great depression, shrinking at an annual rate of 32.9 percent, according to the Bureau of Economic Analysis (BEA), the agency that publishes the data, while personal consumption declined by 34.6 percent.
Some 1.43 million additional US citizens have also filed for jobless claims, pushing unemployment figures in the country up.
A similar decline in output was seen in Germany after the Western European country’s GDP shrank by 10 percent in Q2.
“Nigeria’s fiscal and monetary policy response has been modest by the standards of comparable countries, making it harder for the country to avoid recession,” the World Bank said in the report titled ‘Nigeria in Times of COVID-19: Laying Foundations for a Strong Recovery’.
Years of poor fiscal discipline have made the Nigerian economy even more vulnerable to the crisis. Even before the pandemic, rising interest costs were crowding out crucial social and health spending.
Nigeria had reported 43,841 cases of the virus as of August 3, including 20,308 recoveries and 888 deaths, according to data from the Nigerian Centre for Disease Control (NCDC).
But for the low testing, the numbers could have been more. The country has succeeded in doing about 1,312 tests per one million of its population, data from Worldometer show.
Like elsewhere, strict five weeks of economic lockdowns have stripped many Nigerians of their livelihoods. More than 50 percent of the country’s population toils in the informal sector, according to NBS data.
The weighty economic impact of the virus is already being felt in businesses. Fast-moving consumer goods giants, including Unilever, Cadbury both recorded a huge drop in revenues.
Revenue of beer manufacturing company, International Breweries, dropped by more than 11.68 percent to N60.61 billion in the first half of 2020 from N68.63 billion in H1 2019.
MICHAEL ANI & FAVOUR OLAREWAJU
