AROUND this time 12 years ago, the world was jolted by financial meltdown that resulted in the collapse of so many financial institutions. Eight years later, Nigeria was hit by recession that took over a year to exit. The country is yet to fully recover from that. This time will be different, the impact much worse. It’s not how long but how deep, no thanks to the Coronavirus-induced pandemic that may prove to be the most devastating economic challenge ever faced in decades. No doubt, the virus is spreading, wreaking havoc, taking lives and evaporating livelihoods.
It’s not clear where the crisis is leading us. However, one thing is clear: the pandemic has laid bare of any administration that does not value experts’ advice or take the task of governing seriously. And now, we are in uncharted waters that we lack the experience and expertise to pull our economy and our healthcare system from the gutters. According to the latest figures from the International Monetary Fund(IMF), Nigeria and other African countries need N114 billion to fight COVID-19. That’s an astonishing sum.
With economy in sudden free fall due to the deadly pandemic and its accompanying effects, where to get the money to reflate the economy is not as easy as it appears. Look at the books : According to Bloomberg News, Bonny Light, one of Nigeria’s benchmark grades, fell to about $13 or $15 barrel last week. That was what the traders monitoring the market said. That is because, swathes of Europe the staple market for Nigeria’s economy have gone into lockdown to contain the virus .
For Nigeria, that could pose a huge challenge since the country has very little space to store supplies if they are unwanted. The prices are well below the cost of producing oil in the country – about $22 dollar a barrel and lower still than the national fiscal break-even, assessed by Fitch Ratings which is about $33 a barrel. Forget about the optimism by the Group Managing Director of Nigerian National Petroleum Corporation(NNPC) Mele Kolo Kyari that the price will bounce back soon. For what is not in doubt is the fact that Nigeria depends on crude sales for about half of government revenues and 90 percent of foreign exchange earnings. Simply put, Nigeria is in uncharted territory. Besides, while Nigeria’s plight is playing out across the globe amid the convid-19 with actual oil cargoes often trading at huge discounts to headline futures, the pain in the neck is indeed severe. Note that Nigeria sells its oil at premiums. As at last Wednesday, Brent sold at $18.10 a barrel, and Bonny Light at $5.70. All of this means there could be a worse recession than that of 1987 if something is not done fast to fix the economy and position it on the path of growth.
Which is why the federal government is seeking a total of $7.05bn(an equivalent of N2.679 trillion at N380/$) from multilateral financial institutions and the Nigeria Sovereign Investment Authority(NSIA) to mitigate the impact of virus on the economy. A breakdown of the sources of the funds indicates that $3.4bn is being sought from the International Monetary Fund(IMF), $2.5bn from the World Bank and $1bn from the African Development Bank(AfDB), an unspecified amount from the Islamic Development Bank, as well as $150bn to be drawn from the the NSIA Stabilisation Fund to support the June 2020 Federation Account Allocation Committee(FAAC) disbursement to the three tiers of government in the federation.
The Minister of Finance, Budget and National Planning Mrs Zainab Ahmed who gave more insight into the details of the facility the federal government is seeking, both to reflate the economy , explained that that the government had already applied for the release of its contributions to the IMF, totaling $3.4bn under the Fund’s Rapid Credit Facility. That means the loan will not be tied to any IMF conditionalities. The Rapid Credit Facility is a Drawing Right for every member country to draw up to maximum amount it has contributed to the Fund, which is exactly what Nigeria has done. But that does not mean that the Fund will give that amount applied. It is subject to the process of negotiation. Under the World Bank facility, Nigeria requested to fully draw down on its outstanding $82million.
In addition, the N500bn stimulus package, according to the Minister, is proposed to be utilised to upgrade healthcare facilities which had earlier been identified by the Presidential Task Force on COVID-19 and approved by President Muhammadu Buhari. It will also be used to finance the federal government’s interventions to support states in improving their healthcare system, as well as the creation of what the government calls a “Special Public Works Programme”, and fund any additional interventions that might be approved by the government when the need arises. About N102.5bn has been set aside as direct intervention in the healthcare sector, from which N6.5bn is reported to have been made available to the Nigeria Centre for Disease Control(NCDC).
Although Nigeria had passed through similar trajectory in 2009/2009 ,as well as 2015/2026 that culminated in recession, our current lower fiscal buffers than the previous years, seem to make the present challenges much more daunting. The decline in international oil price and domestic production may be more severe if the outbreak of the virus becomes widespread. Already, Nigeria’s external reserves have slipped below $34bn, lowest in 29 months, according to data from the Central Bank of Nigeria( CBN).
It is sad that the outbreak of the Coronavirus pandemic has come at a time when the economic outlook was already bleak, recovery very sluggish, headwind inflation and external borrowing high coupled with weak revenue generation, hard times such as now presents opportunity for good leadership can encourage optimism, remove our fears and rejig the economy. That is why last week’s message by the CBN Governor Godwin Emefiele on the need for the country to start looking inwards to guarantee food security, high quality and affordable healthcare and cutting-edge education for citizens, is a step in the right direction.
As he captured the mood of the moment, Nigeria with estimated 200 million people “can no longer ignore repeated warnings about the dangers that lie ahead if we do not begin to depend on what we produce locally because of the security and well-being of our nation is contingent on building a diversified and inclusive productive economy”.
Now is the right time for Buhari administration to roll out rescue plan for the economy. The plan must be all-encompassing, targeting critical sectors of the economy, including funding for small businesses in the country that contribute 60 percent of our GDP and 80 percent of employment. This is why government can only ignore the informal sector at its own peril. We are waiting for the recommendations of the government’s Economic Sustainability Committee on how to stimulate the economy.
But investors expect to see a lot, including tax breaks and concessions and suspension of all forms of taxes for health sector, agriculture and agro-processing, among others. Altogether, to salvage the economy from collapse, requires salvaging investments across all levels – micro, small, medium and large enterprises.