Why Nigeria’s economy is edging towards recession
Nigeria’s economy is teetering on the brink of a second recession in four years, except it puts up a strong third quarter performance.
Minister of Finance, Budget and National Planning, Zainab Ahmed, fired the warning at a five-day interactive session on the 2021-2023 Medium Term Expenditure Framework, MTEF, and Fiscal Strategy Paper, FSP, in Abuja.
Ahmed’s remarks come on the heels of earlier predictions by the World Bank that “the collapse in oil prices coupled with the COVID-19 pandemic is expected to plunge the Nigerian economy into a severe economic recession, the worst since the 1980s.”
In its World Bank Nigeria Development Update, NDU, report titled “Nigeria In Times of COVID-19: Laying Foundations for a Strong Recovery,” the bank estimated that Nigeria’s economy would likely contract by 3.2 per cent in 2020.
“This 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% in 2020, which means that the pandemic has led to a reduction in growth by more than five percentage points.
“The macroeconomic impact of the COVID-19 pandemic will likely be significant, even if Nigeria manages to contain the spread of the virus. Oil represents more than 80% of Nigeria’s exports, 30% of its banking-sector credit, and 50% of the overall government revenue. With the drop in oil prices, government revenues are expected to fall from an already low 8% of GDP in 2019 to a projected 5% in 2020,” the bank stated.
At the interactive session, Ahmed, who was represented by the Minister of State for Finance, Budget and National Planning, Clement Agba, said the COVID-19 pandemic had put further pressure on Nigeria’s foreign exchange.
“Nigeria is exposed to spikes in risk aversion in the global capital market, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market,” the minister said.
“Nigeria’s Q2 GDP growth is in all likelihood negative and unless we achieve a very strong Q3 2020 economic performance, the Nigerian economy is likely to lapse into a second recession in four years with significant adverse consequences.
“In response to the developments affecting the supply of foreign exchange to the economy, the Central Bank of Nigeria (CBN) adjusted the official exchange rate to N360, and more recently to N379,” she said.
According to the minister there also disruptions in global trade and logistics which would also negatively affect customs duty collections in 2020.