…says economy to slip into recession in Q3
Mabogunje: Prospects of early recovery remain dim
The Lagos Chamber of Commerce and Industry (LCCI) has predicted that Nigeria’s appetite for borrowing could plunge the country into more debts that is likely to peak at N33 trillion by the end of 2020.
It also projected that the fragile economy could slip into recession by the end of the third quarter following the impact of COVID-19 on commercial activities and sectors that were struggling with growth before the crisis.
According to the chamber, the country’s debt profile is likely to hit N33 trillion by year end, equivalent to 22 per cent of gross domestic product based on the $3.4 billion and $288.5 million credit facilities from the International Monetary Fund (IMF) and African Development Bank (AfDB) respectively, with another $1.5 billion facility from the World Bank on queue.
The President of the LCCI, Mrs. Toki Mabogunje, made these known yesterday in Lagos while briefing journalists on the July 2020 state of the economy, saying that the profound impact of the pandemic on the economy had shown that the prospects of early economic recovery remain dim.
She explained that the economic fallout of the pandemic, notably disruptions to global supply chains, lockdown, travel restrictions, weakening oil prices, foreign exchange liquidity challenges and weak export, would manifest in the second quarter growth numbers, with more pronounced impact on sectors struggling with growth before this crisis.
Mabogunje aligned that the economy grew by 1.87 per cent in the first quarter, which marks lowest first quarterly growth level since the post-recession period, and a moderate slowdown from 2.1 per cent recorded in the corresponding period of 2019.
The LCCI president indicated that the chamber’s analysis of the numbers showed 21 sectors recorded moderation in growth, 13 sectors contracted, eight sectors expanded, and the remaining four sectors were in the recessionary territory. According to her, as the pandemic protracts and commercial activities remained subdued, the prognosis is that the economy could slip into recession by the end of the third quarter.
The LCCI president acknowledged various intervention efforts of the fiscal and monetary authorities towards mitigating the adverse effects of the pandemic on the economy, business environment and livelihoods, saying the Economic Sustainability Plan (ESP) is a welcome development in this regard.
Speaking on the country’s business environment amid COVID-19, the LCCI president said: “The business community continues to reel from the unprecedented crisis precipitated by the pandemic and associated containment measures.
“We note activities are yet to resume in certain sectors such as tourism, hospitality, entertainment and education.
“Many businesses are presently in dire financial straits as they battle with escalating costs, high receivables, loss of credit lines and other contractual obligations amid revenue shocks.
“The impact is more pronounced on micro and small enterprises, with inadequate financial buffers to withstand shocks of this magnitude.
“While we acknowledge the efforts by the federal and state governments, Central Bank of Nigeria (CBN) and private corporations towards assuaging the impact on the business community, we urge the government to swiftly come to the rescue of some sectors whose business models and earnings projections have substantially been disrupted by the pandemic.”
In addition, she stressed that the pandemic continued to dominate headlines domestically and globally, adding that the domestic and global economies continue to grapple with the profound impact of the pandemic, and as it protracts, the prospects of early economic recovery remain dim.
On the nation’s debt profile, the LCCI boss stated that: “The Lagos chamber is deeply concerned about the country’s rising debt portfolio.
According to official statistics from the Debt Management Office, public debt stock increased by 4.5 per cent to N28.63 trillion as of March 31, 2020, from N27.40 trillion as of December 31, 2019.
“We note the Federal Government’s resolve to raise funds locally and externally to bridge the deficit in the fiscal budget.
The Federal Government has secured $3.4 billion and $288.5 million credit facilities from the International Monetary Fund (IMF) and African Development Bank (AfDB) respectively, while discussions are on-going for another $1.5 billion facility from the World Bank.
This could possibly push the country’s debt stock to around N33 trillion by yearend, equivalent to 22 per cent of GDP. “We call for caution on the continued use of debt to meet fiscal obligations, especially at a time the country is struggling to generate adequate revenue.
The option of equity financing should be more rigorously explored, and it is a better and more sustainable financing strategy that could be deployed to bridge fiscal deficit.”
Speaking on the CBN exchange rate unification, the president said: “This is a step in the right direction towards unifying the multiple exchange rates and improving transparency of the country’s forex management and having regard to supply side challenges in the forex market.
“Depreciation of the local currency has positive and negative implications for the economy. It would boost the naira value of oil revenue, reduce exchange rate premium between official and parallel market rates, discourage roundtripping, ease the liquidity crisis in the forex market and correct external imbalances.
“We, however, acknowledge the implications for production cost, investment, Federal Government budget earlier predicated on N360/$, project cost with foreign currency components and external debt obligations by corporates and government.”