COVID-19: Nigeria heading towards economy recession – Finance Minister

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…Economy could shrink as much as 8.9% in 2020

… States to get $1.5bn from World Bank

By Our correspondents

Federal Minister of Finance, Budget and Planning, Zainab Ahmed, has said the coronavirus pandemic and dwindling global oil prices are set to force the nation’s economy into recession in 2020.

Analysts had predicted that Nigerian economy might enter recession with the proposed oil production cuts under the Organization of Petroleum Exporting Countries (OPEC+) agreement to improve on its price globally.

Speaking at the National Economic Summit meeting in Abuja on Thursday, the Minister said that the ministry made a presentation to the council on the structures that the Federal Government was looking at and putting in place, or had put in place to tackle the challenges of COVID-19.

She said the nation’s economy could shrink as much as 8.9per cent in 2020 in a worst-case scenario without stimulus.

According to her, the country is in a very difficult and challenging time, facing a very significant economic downturn that has not been seen in the history of the country.

She said that the global economy was also facing the sharpest reversals since the great depression as it had both health and economic consequences.

Ahmed said that COVID-19 had resulted in the collapse in oil prices.

“This will impact negatively, and the impact has already started showing on the federation’s revenues and on the foreign exchange earnings.

“Net oil and gas revenue and influx to the federation account in the first quarter of 2020 amounted to N940.91billion.

“This represented a shortfall of N125.52 billion or 31 per cent of the prorated amount that is supposed to have been realised by the end of that first quarter.

“40 per cent of the population in Nigeria, today, is classified as poor; the crisis will only multiply this misery.

“The economic growth in Nigeria, that is the GDP, could in the worst case scenario, contract by as much as minus -8.94 per cent in 2020.

“But in the best case,  which is the case we are working on, it could be a contraction of minus -4.4 per cent, if there is no fiscal stimulus.

“But with the fiscal stimulus plan that we are working on, this contraction can be mitigated and we might end up with a negative –0.59 per cent.’’

Fitch Ratings Agency in May on the nation’s economy said  “Nigeria’s adherence to oil production cuts under the OPEC+ agreement will lead to deeper economic contraction and fiscal deficits and compound pressures on external finances from the slump in oil prices.

“Increased recourse to concessional multilateral loans will ease near-term liquidity pressures, but the risk of a disruptive macroeconomic adjustment will persist.

“We assume that Nigeria will comply fully with the production caps under the OPEC+ agreement, and have reduced our forecast oil output to 1.88 million barrels per day (mbpd, including condensates) in 2020 and 1.87mbpd in 2021, compared with our earlier forecast of 2.1mbpd for both years.

“We have adjusted our Gross Domestic Product (GDP) forecasts, and now expect Nigeria’s economy to contract by 3.0 percent in 2020, before a recovery to 3.0 per cent growth in 2021. Despite the OPEC+ deal, our oil price forecasts remain unchanged, at $35/barrel for Brent on average in 2020 and $45/barrel in 2021.

“The contraction in exports and remittance inflows means the current account will remain in deficit, despite a sharp drop in imports. We project the current account, which had been in surplus for much of the last 20 years, to record a deficit equivalent to 3.8 per cent of GDP in 2020 and 2.5 per cent in 2021.”

However, the minister said that the president set up the Presidential Economic Sustainability Committee in addition to the COVID-19 Response Committee that had been set up, the COVID-19 PTF as well as the Crisis Management Committee.

She said that the Federal Government was committed to supporting the financial viability of states, including the suspension of payments in respect of commitments, debts that have been secured with ISPOs by the states at the federal levels.

“So, we have already implemented suspension of deductions of a number of loans that have been taken by the states from April and also in May.

“The Economic Sustainability Committee is responsible for providing overall strategic vision, policy direction and general oversight of the implementation among others,’’ she said.

She said that some of the measures to mitigate the COVID-19 impact on the economy included the N500 billion stimulus package that the president had approved.

Ahmed said the package also included the increase in the social register by one million households to 3.5million for cash transfer programmes and palliatives and other social safety net programmes.

Meanwhile, the Minister said the World Bank has received a proposal of $1.5 billion to states as part economic stimulus to cushion the impact of the COVID-19 pandemic.

The first ever virtual NEC meeting and the fourth for the year, was presided over by Vice President Yemi Osinbajo

She said, “The World Bank maintains that the impact of the COVID-19 on Nigeria will lead to severe amplified human and economic cost, which will move the country into a recession.

“The World Bank planned a proposed package for immediate fiscal relief for the FG.

“This will also involve policy-based policy budget support for the Federal Government, focusing on measures to maintain macro financial stability and create fiscal space for proposed stimulus.

“The World Bank package has also got a proposal of $1.5billion for the states and this package will be dedicated to the states and it will be a programme for results which the states are already used to implementing.’’

According to her, the immediate fiscal relief for the states will include the acceleration of an existing programme to enable disbursement by end of September.

She said that by the end of September, the $1.5 billion plan would have been disbursed to the states.

“We are looking at an average of between N150billion to N200billion based on the plan to the 36 states.

“These are states that have already made some particular commitments and achievements so that they will be able to get immediate disbursements of parts of these funds.

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