The economic impact of the coronavirus pandemic will send personal incomes in Nigeria, Africa’s largest economy, back to levels seen some four decades ago, the World Bank warned on Thursday.
Africa’s biggest economy is faced with an unprecedented crisis that was made worse by the pandemic, and a lack of political will by the government to implement long-overdue economic reforms that would resuscitate the fundamentals of the economy.
During a high level discussion with government officials and the media on Thursday highlighting Nigeria’s development update in response to the pandemic, led by Shubham Chaudhuri, head of the World Bank’s mission in Nigeria, the lender said unlike many other countries, the pandemic hit Nigeria in four main areas, making the impact severe on the oil-dependent nation.
The first is a huge plunge in oil prices, its biggest foreign exchange earner and revenue for the government, with oil exports expected to fall by 43 percent, while fiscal revenues should collapse by as much as 25 percent in 2020.
Africa’s most populous nation also saw huge capital outflows with net portfolio investment projected to shrink by 2.1 percent points of the GDP due to global risk aversion and uncertainty around foreign exchange policies, the lender said.
Diaspora remittances, also a strong source of dollar inflows for the country, have also been affected, falling by about 50 percent this year, while at the same time the non-oil industry and services sector of the economy have been heavily affected by mobility restrictions, causing both sectors to contract by 4.6 percent and 3.6 percent, respectively, as of Q3 2020.
“Nigeria is facing an unprecedented crisis due to the pandemic that will require an unprecedented response,” the World Bank.
“Job quality has worsened with more workers engaged in precarious work in the agricultural space. More than 1 in 3 household heads who used to work in non-agricultural sectors report working agriculture,” the lender said.
Owing to the pandemic, Africa’s biggest economy slipped into two quarters of negative growth, contracting by levels not seen since the 1980s.
The country had barely recovered from the shock of economic recession, caused by the collapse in oil prices and months of turbulent attacks in the Niger Delta region of the country leading to the bursting of oil pipelines, making it tough for the Western African nation.
Rising commodity prices, soaring unemployment rate, escalating debt profile, falling per capita income, weak purchasing power, widening income inequality, deepening poverty and a general fall in the standard of living have all been the order of the day, with the World Bank forecasting Nigeria to contract by 4 percent this year.
The World Bank also said it has not tabled for consideration the $1.5 billion policy support loan requested by Nigeria.
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Instead, the applications that the board will consider on Monday, December 14, are two separate ones of $750 million each. The first is the $750 million support for state-level efforts on fiscal transparency (reported by BusinessDay in October), and the other is the $750 million for food security and the local economy, also for the states.
On the $1.5 billion budget support, the World Bank country director praised and recognised the measures the government has taken on reforms in the last few months but argued that “there needs to be a little bit more”. This confirms a BusinessDay story two months ago that the bank was stalling due to policy credibility concerns.
BusinessDay had reported in October that the World Bank is uncertain about the government’s commitment to reform.
“There is scepticism about the commitment to structural reform. They are trying to ensure the reforms started are followed through and the commitment is credible. Therefore, unless the i’s are dotted and the t’s are crossed, the fund will not be released,” our source said then.
In the call also, Chaudhuri mentioned that the bank’s exposure to Nigeria as at 2018 stands at about $7.5 billion. Since then, the bank has granted additional $3 billion, and if successful, the applications to be considered on Monday would raise the figure by $1.5 billion. Nonetheless, some of these have not been disbursed because the necessary steps to activate them have not been taken.
Early in the year, following the emergence of Covid-19 and the consequent fall in oil prices, the federal government had requested for $3.2 billion from the World Bank. Out of this $3.2 billion, $1.5 billion is for policy-based budget support, $750 million for fiscal relief for the states, and $750 million to help states directly with programmes on improving standard of living and support for farmers. These two related to states are the applications to be considered on Monday.
The $200 million, which has already been provided, is to make available $85 million for the Nigeria Centre for Disease Control (NCDC), established in 2011, and $115 million for states for fighting Covid.
Following oil price decline to less than $30 per barrel on average between March and May 2020, and an oil price outlook of about $40 for the remainder of the year, the government faced a $15-20 billion financing gap. The expectation of the government then is that the World Bank funding, in addition to the $3.4 billion received from the International Monetary Fund (IMF) in April, will help plug some of the gaps that had emerged since then, but this has to be based on necessary reforms.
The World Bank said added to the over 40 percent of the population living below $1.9 a day, an additional 11 million Nigerians are expected to fall into poverty by 2022.
According to the World Bank, even before the pandemic, about 2 million Nigerians were expected to fall into poverty in 2020, courtesy of a population growth that has outpaced economic growth, leading to a decline in per capita income of the citizens.
But with Covid that has resulted in the worst economic contraction since the 1980s, an additional 6.6 million Nigerians will be pushed into poverty, bringing the total newly poor to 8.6 million this year.
“This implies an increase in the total number of poor in Nigeria from about 90 million in 2020 to about 100 million in the year 2022,” the lender said.
The bank welcomed what it said are bold reforms taken by the government to keep the economy on track.
These reforms, it said, are around the removal of the oil subsidy by establishing a market-based pricing mechanism for gasoline, noting that the subsidy was costly, benefitted mainly richer households, and harmed the environment.
Another reform was on the transparency of oil revenues, as the state-owned petroleum company, the NNPC, has had its financials audited for the first time.
“Now the public has much more available information to assess NNPC’s financials,” the World Bank said.
There are also reforms around adjustment of electricity tariffs towards more cost-reflective levels, as the elimination of the electricity tariff will free almost 0.5 percent of GDP, which is equal to Nigeria’s total spending on health.
Debt transparency has also improved, with the compilation of a comprehensive catalogue of contingent liabilities which is critical to reducing the cost of borrowing, as well as crisis responsive budget (the FG and the 36 states adopted amended budgets for 2020).
“The crisis served as a wakeup call for the government to undertake some bold reforms,” the World Bank said.
“For the first time, Nigerian states responded to a fiscal shock in a coordinated manner, prioritizing Covid 19 response expenditure and identifying financing sources to avoid a rise in arrears,” it said.
Nevertheless, the World Bank noted that sustaining and deepening reforms is critical for a strong recovery.
Hence, it recommended some measures that would help in the much-needed recovery of the economy to include managing Covid-19 outbreak, enhancing macroeconomic management to boost investor confidence, safeguarding and mobilising revenue, prioritising public spending to protect critical development expenditures, supporting macroeconomic activities, and access to basic services providing relief for poor and vulnerable communities.
