Bretton Woods Institutions, the IMF and World Bank, in their reports released recently gave informed opinions on each economy in the face of ravaging Covid-19 just as some Nigerian experts examine some underlining issues, Abdulwahab Isa reports
By their admissions last week, world respected financial bodies, International Monetary Fund (IMF) and the World Bank, projected that Nigeria is heading towards recession and ultimately landing on extreme poverty.
The predictions contained in their periodic reports respectively didn’t focus on Nigeria alone. It was a compendium of world economy outlook.
It examined the economy prognosis of each country, its stress level; the Gross Domestic Product and the underlining risks facing each economy to arrive at their conclusion.
The Bretton Woods Institutions predicated their conclusions based largely on incalculable COVID-19 damage on Nigeria’s economy and fragility of crude oil prices, her major source of income.
Since it debuted nearly four months ago, Coronavirus didn’t spare any economy, developed and developing. Each nation responded differently with a set of measures to contain the novel disease.
Nigerian government has already taken important health, fiscal and monetary measures to contain the outbreak.
The outbreak of Coronavirus coincided with all time crude oil price plunge, Nigeria’s economy main stay. In its report last week, the World Bank noted that collapse in oil price coupled with the COVID-19 was expected to plunge the Nigerian economy into a severe economic recession, the worst since the 1980s.
In the report, “Nigeria In Times of COVID-19, Laying Foundations for a Strong Recovery,” the global bank estimated that Nigeria’s economy would likely contract by 3.2 per cent in 2020.
The projection assumes that the spread of COVID-19 in Nigeria is contained by the third quarter of 2020. If the spread of the virus becomes more severe, the economy could contract further.
Before COVID-19, the Nigerian economy was expected to grow by 2.1 per cent in 2020, which means that the pandemic has led to a reduction in growth by more than five percentage points.
The bank noted that the macroeconomic impact of the pandemic would likely be significant, even if Nigeria manages to contain the spread of the virus.
Oil represents more than 80 per cent of Nigeria’s exports, 30 per cent of its banking-sector credit, and 50 per cent of the overall government revenue.
With the drop in oil prices, government revenue is expected to fall from an already low eight per cent of GDP in 2019 to a projected five per cent in 2020. This comes at a time when fiscal resources are urgently needed to contain COVID-19 outbreak and stimulate the economy.
Meanwhile, the pandemic has also led to fall in private investment due to greater uncertainty, and is expected to reduce remittances to Nigerian households, which in recent years have been larger than the combined amount of foreign direct investment and overseas development assistance.
“While the long-term economic impact of the global pandemic is uncertain, the effectiveness of the government’s response is important to determine the speed, quality, and sustainability of Nigeria’s economic recovery.
“Besides immediate efforts to contain the spread of COVID-19 and stimulate the economy, it will be even more urgent to address bottlenecks that hinder the productivity of the economy and job creation,” said Shubham Chaudhuri, World Bank Country Director for Nigeria.
According to the report, the human cost of COVID-19 could be high.
“Beyond the loss of life, the COVID-19 shock alone is projected to push about five million more Nigerians into poverty in 2020. While before the pandemic, the number of poor Nigerians was expected to increase by about two million largely due to population growth, the number would now increase by seven million – with a poverty rate projected to rise from 40.1 per cent in 2019 to 42.5 per cent in 2020,” the bank noted
Days after World Bank report, the IMF made similar projection in its World Economic Outlook.
It said the economy of Africa’s biggest country would likely shrink by 5.4 per cent this year due to the impact of the Coronavirus (COVID-19) pandemic.
The figure is a bigger contraction than the 3.4 per cent shrinkage in Gross Domestic Product (GDP) that the fund had forecast for the country in April.
The fund, which cited devastating impact of the pandemic, forecast a deeper recession for the global and sub-Saharan African economies this year.
While the fund is projecting that sub-Saharan Africa’s GDP will likely shrink by 3.2 per cent this year more than a previous estimated contraction of 1.6 per cent, it forecast that global GDP will contract by 4.9 per cent this year, more than the three per cent prediction.
Evaluating Federal government measures
The government is unrelenting on its containment measures since the outbreak of COVID-19. Both fiscal and monetary authorities rolled out series of measures to mitigate the impact of the novel disease and slump in economy.
On monetary side, the Central Bank of Nigeria (CBN) rolled out a number of interventions targeted at each sector of the economy. One of CBN’s interventions include Targeted Credit Facility (TCF) of the bank aimed at alleviating the impact of the Coronavirus on individuals and small businesses.
There is N50 billon COVID-19 stimulus loans being managed by NIRSAL Micro-finance Bank (NMFB) to fast-track the approval process of loans meant to help restore businesses and livelihoods.
There is a chain of other interventions and support by the apex bank to shield Nigeria from experiencing consecutive quarters of negative growth.
As part of effort to revive textile sector and keep productive hands in that segment engaged, the bank two weeks ago unveiled fresh incentives for cotton farmers.
The same goes for other critical stakeholders in agriculture sector where the apex bank is mobilizing resources for 1.6 million farmers in the 2020 wet season across the country.
On the fiscal side, the federal government rolled out incentives,comprehensive measures aimed at ‘soften’ the ground for business and shielding the economy from Covid-19 pang.
Minister of Finance, Budget and National Planning, Hajiya Zainab Usman, in her first world press briefing on Covid -19, listed measures the Federal Government lined up to protect the economy.
To cushion the effect and shield the local economy, government, she said, had applied for its 100 per cent contribution of $3.4 billion with the International Monetary Fund (IMF) to ramp up efforts to combat the pandemic.
In addition, the Federal Government, the minister added, applied to World Bank for loan request in the sum of $2.5 billion, African Development Bank ( AfDB) $1 billion while another $150 million would be withdrawn from the Nigeria Sovereign Investment Authority (NSIA) Stabilization Fund to support the June 2020 FAAC disbursement.
Experts differed largely in their views on IMF/World Bank report on Nigerian economy.
Professor Uche Uwalake of Nassarawa state University, Keffi, said the report was a forecast and not reality and, therefore, not sacrosanct.
He said he did not believe Nigerian economy would contrast by the by 5.4 per cent this year, given a number of initiatives adopted by fiscal and monetary authorities.
“IMF report is only a forecast based on some assumptions which may or may not crystallise. In it, the fund is projecting that the Nigerian economy will tank by -5. 4 per cent this year. Recall that the previous forecast was -3.4 per cent worse down global average of three per cent.
“All things considered, I do not think the Nigerian economy will contract by as much as -5.4 per cent this year as this revised forecast indicates given that Q1 of 2020 was able to eke out a positive growth of 1.87 per cent.
“Also, the government and 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 BOP support or for infrastructure have moratorium periods effectively postponing repayment obligations”.
“Moreover, oil price is beginning to climb following OPECs compliance to production cut agreement with OPEC+ coupled with the fact that the economy is gradually being restarted.
“I expect the tempo of economic activities to pick up as soon as flight operations resume and the ban on inter-state travel is lifted. 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.
“It’s important that the government continues to ramp up the level of support especially to agric and SMEs. 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 Intervention Schemes are closely monitored for Efficiency and Effectiveness,” Uwaleke, Head of Banking and Finance department of the university, submitted.
On his part, Dr. Obadiah Mailafia, a former Deputy Governor at CBN, differed. He suggested in a recent article that Nigerian government should heed advice by both institutions-World Bank and IMF.
He suggested confidence building in the economy, calling for robust plan for the economy, with the right model and the right instruments to implement all the policies towards restoring long-term economic growth.
“Confidence is vital in economic policymaking in our day and age. Economic actors always anchor their expectations on the people they can trust to run the economy and to deliver those public goods that will enhance the greatest good for the greatest number. Policy credibility is fundamental. People need to know that you know what you are doing” .
“We must create that peaceful and harmonious social order, without which economic development is well-nigh impossible. In our 21st century knowledge economy, an eco-system that nurtures creativity and entrepreneurship is a sine qua non for any kind of progress. It calls for the highest quality of political leadership and inventiveness in state craft,” he said in a recent article published in the media.
Predictions by Bretton Woods Institutions – the World Bank and the International Monetary Fund (IMF) are not sacrosanct. Given the level of interventions by fiscal and monetary authorities to shield economy, Nigerian economy may escape recession.