Nigeria’s Economic Sustainability Plan seen offsetting IMF’s -5.4% growth projection

…as analysts expect negative growth Q2

The International Monetary Fund’s projected sharp recession for Nigeria with growth contraction of 5.4 percent in 2020 could be offset by the Federal Government’s Economic Sustainability Plan if implemented accordingly, according to analysts.

The Washington D.C.-based IMF on Wednesday released its World Economic Outlook Update titled ‘A Crisis Like No Other, An Uncertain Recovery’, estimating further plunge in Nigeria’s growth to -5.4 percent in 2020 from -3.4 percent it predicted in April.

The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. Nigerian government had estimated -4.40 percent decline in economy if it sticks to its budget with no stimulus. In 2021, global growth is projected at 5.4 percent.

Ayodeji Ebo, managing director, Afrinvest Securities Limited, said the revised negative growth rate may be attributed to the prolonged FX illiquidity that is impacting on business activity as well as increasing number of new cases. Notwithstanding, he said the actual negative growth will be premised on the action the FG to takes to salvage this situation.

“The Economic Sustainability Plan looks very robust but the implementation is key and can reduce the projected negative growth rate. Both the monetary and fiscal actors need to take decisive actions,” Ebo said.

FG launched the Economic Sustainability Plan with the objective to stimulate the economy by preventing business collapse and ensuring liquidity; retain or create jobs using labour-intensive methods in key areas like agriculture, facility maintenance, housing and direct labour interventions, among others.

“What the IMF released is only a forecast based on some assumptions. I do not think the Nigerian economy will contract that much this year given that Q1 of 2020 was able to post a positive growth of 1.87 percent,” Uche Uwaleke, a professor of finance and capital markets and chair, Banking And Finance Department, Nasarawa State University, Keffi, said.

He said the government and the CBN have pumped and are still pumping money into the economy to contain the negative impact of COVID-19 on the economy. By the same token, much of the external loans already secured for either balance of payment (BOP) support or for infrastructure have moratorium periods effectively postponing repayment obligations. Moreover, oil price is beginning to climb following compliance with production cut agreement coupled with the fact that the economy is gradually being reopened.

“All these factors will combine to ensure that any economic recession recorded will not be as severe as the IMF is projecting. I am optimistic that in the near future, IMF will be revising its forecasts confirming only a tepid recession for Nigeria,” Uwaleke said.

“In order to stimulate the economy, the CBN should continue on its new-found path of monetary accommodation while on the fiscal side, efforts should be made to ensure that stimulus packages as well as existing government Social Interventions Schemes are closely monitored for efficiency and effectiveness,” he said.

The Fund said Wednesday it now expected global gross domestic product to shrink 4.9 percent this year, more than the 3 percent predicted in April. For 2021, the fund forecast growth of 5.4 percent, down from 5.8 percent.

These forecasts are dire for a country like Nigeria as the health of the global economy impacts the demand for and price of oil as well as the direction of investment dollars.

Ayodele Akinwunmi, relationship manager, corporate banking, FSDH Merchant Bank Limited, said the economy might drop as much as that.

On what Nigeria can do to avert the development, Akinwunmi said the economy managers need to look at critical sectors that they can build and look at areas where they can involve the private sector to govern capital to invest in the critical sector of the economy.

“Sectors we have not been talking about before such as solid minerals, modular refineries. Government quickly needs to pay close attention to those sectors so that it can help us to move forward,” he said.

The disruptions due to the pandemic, as well as significantly lower disposable income for oil exporters after the dramatic fuel price decline, imply sharp recessions in Russia (-6.6 percent), Saudi Arabia (-6.8 percent), and Nigeria (-5.4 percent), while South Africa’s performance (-8.0 percent) will be severely affected by the health crisis, the IMF said.

Ibrahim Tajudeem, head of research, Chapel Hill Denham, said the revised number is probably a reflection of negative growth in Q2 combined with a possibility of negative growth in Q3. And looking at Q2, nearly all analysts are expecting a negative growth.

“So I think the IMF has further taken a look at Q2 and probably thinking that the negative growth will be more than they expected and they are probably looking at negative growth in Q3 and that already flags a recession for the country,” Tajudeem said.

Damilola Adewale, a Lagos-based economist and independent consultant, said, however, that IMF projections are not the final verdict.

“While I might agree that global growth could shrink by 4.9 percent given the intense economic damage of the virus on US, Eurozone, China and Japan, that constitute about 60 percent to global output, I don’t think Nigeria will contract by 5.4 percent this year given the resolve of the fiscal and monetary authorities to rescue the economy from further collapse,” Adewale said.

Going by stimulus injected by national government and monetary authorities globally, coupled with modestly rising business activities given relaxation in lockdown conditions, contraction should be marginal in the world economy, he said.

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