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Recession: Nigeria faces dark days as crisis looms

FG unfolds plan to avert imminent crisis

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Following the health and economic emergencies caused by the COVID-19 pandemic, the President Muhammadu Buhari-led federal government has mapped out strategy to avert recession and a possible looming economic crisis.

Available date, however, shows that Nigeria won’t be escaping the impending crisis any sooner than 2025.

The plan is contained in an e-publication titled “Bouncing Back: Nigeria Economic Sustainability Plan” recently released by the government, and made available to ElombahNews.

In line with the plan, President Buhari established the Economic Sustainability Committee (ESC) on March 30, 2020.

Members of the Committee consists of Vice President Yemi Osinbajo, Minister of Finance, Budget & National Planning, Minister of Industry Trade & Investment, and Minister of Labour and Employment.

Others are Minister of State, Petroleum Resources, Governor of Central Bank of Nigeria, Group Managing Director of Nigerian National Petroleum Corporation [NNPC], and Permanent Secretary, Cabinet Office – Secretary.

After considering the Federation Account Allocation Committee [FAAC] in recent times, the government admitted:

“Neither the optimistic scenario nor the worst-case scenario is comforting, if compared to the average FAAC disbursement for the first three months of 2020, which was N669.9 billion.

“This means that at a $30 per barrel oil price, total monthly FAAC will be N184 billion less every month, while if the price averages $14 per barrel, the FAAC total will reduce by N270.9 billion a month.

“This will have serious implications for personnel costs, overheads and capital expenditures at Federal, State and Local Government levels, especially coming at a time when resources are needed to pay for compelling counter-cyclical and pro-poor policies.”

According to the publication, the National Bureau of Statistics [NBS] has modelled macro scenarios which show that economic growth could fall by as much as -4.40% to -8.91%, thereby leading to recession.

This, according to NBS, depends on the severity of the COVID-19 outbreak, length of lockdowns and quantum of stimulus deployed by government.

NBS data shows that in an optimistic scenario, with an average price of $30 per barrel of crude oil in 2020 and a stimulus of up to N3.6 trillion, growth will still decline by -0.42% in 2020, possibly rising to 3.03% in 2021 and 5.17% by 2025.

Is recession inevitable?

A lower stimulus of N2.3 trillion or 1.5% of GDP at the same oil price of $30 per barrel, it shows, will result in a fall in output of -0.59% in 2020 and a resumption of growth to 2.54% in 2021.

A more cautious scenario of $20 per barrel with a N3.6 trillion stimulus will result in negative growth of -2.42% in 2020 recovering to 1.19% in 2021 and 3.32% in 2025.

At the same price level, a N2.3 trillion stimulus will result in an annual growth rate of -2.82% in 2020. and 0.95% in 2021.

On the other hand, in a pessimistic scenario, if oil prices level out at $15 per barrel in 2020 due to a prolonged global recession or continued oil glut, then even with the stimulus of N3.6 trillion, the economy will decline by -3.01% in 2020 and only rise by 0.45% in 2021.

At the same price level of $15 per barrel, a N2.3 trillion stimulus will still result in a sharp decline of -3.66% in 2020.

In the optimistic scenario, and reflecting the stimulus, inflation is expected to rise to 15% by the end of this year.

It will only fall to single digits by 2023 while the cautious and pessimistic scenario will show more moderate inflation reflecting a generalised slowdown in economic activity.

With regard to external financing, the overall balance is expected to deteriorate from -$2.1 billion to -$16.2 billion, leaving a financing gap of $14.1 billion.

Some of this can be met through concessional borrowing of about $7 billion from international financial institutions, but that will still leave a financing gap of $7.1 billion dollars.

However, the concessional borrowing will evidently place some burdens on the country’s external debt situation.

Nigeria is expected to pay $165 million as interest on its bilateral official debts (mostly to China) and will likely get some relief following the G20 agreement in this regard.

But a greater problem will arise from interest payments due on outstanding Eurobonds, which amount to $655.48m for the rest of 2020.

How to avert recession

To avert a deep recession, the federal government expects to find ways to prevent or limit recession, and avert the accompanying prospects of business failures, job losses, and increased poverty.

It, therefore, resolved: “The generally accepted approach today is to deploy a stimulus package, an increase in government spending, tax discounts, loan re-payment deferments or re-structuring, all with a view to increasing aggregate demand by beefing up investments and consumer spending.

“The question then is not whether or not we should stimulate the economy but what size of stimulus package is capable of preventing a disastrous recession.

“We must now take urgent steps to forestall a severe economic downturn and the largest unemployment situation yet in our history.

“Consequently, over the next twelve months, the Federal Government will work in close collaboration with State Governments and the private sector to stimulate the economy by preventing business collapse and ensuring liquidity; retaining and creating jobs using labour intensive methods in key areas like agriculture, housing, digital business services and direct labour interventions.

“We must also undertake growth enhancing and job creating infrastructural investments in roads, bridges, renewable energy, and communication technologies; and extend the protection of vulnerable groups – including women and persons living with disabilities – through pro-poor spending.”

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