AS governments the world over struggle to respond to the deadly coronavirus pandemic, its economic impact has become obvious. Apart from business plans being disrupted, investors’ confidence is waning, while global stocks are seriously affected. In some countries, the fear of recession is imminent. Nigerian investors last week lost over N1.8trillion. The strain on the economy is severe. And the only way out is for the government to diversify the economy and carry out some structural reforms. This is not the best of times for oil-dependent countries like Nigeria. Already, oil prices are currently trading far below the government’s benchmark for the 2020 budget.
The pandemic has posed a big threat to the N10.55trillion budget based on oil production of 2.18 million barrels per day at $57 per barrel. Concerned that the situation may overwhelm the country if concrete steps are not taken, President Muhammadu Buhari set up a panel to quickly assess the situation and recommend a cut in the oil benchmark adopted for the 2020 budget. The Committee was also expected to cut down the size of the budget. The members of the Committee included the Minister of Finance, Budget and National Planning, Zainab Ahmed, Minister of State for Petroleum Resources, Timpreye Sylva, and Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, and the Group Managing Director, Nigerian National Petroleum Corporation (NNPC) Mele Kolo Kyari. The Committee was also mandated to make a quick assessment of the impact of the virus on the economy as it affects the crude oil prices.
Also, senior officials of government manning strategic revenue agencies were summoned for a meeting with the Finance Minister as Brent oil price plummeted to $33 per barrel. These developments have made the rejigging of key parameters of the 2020 budget most likely. Government is expected to release its next line of action in response to the impact of the virus on the economy. Undoubtedly, its implications on the level of fiscal deficit of the budget implementation, infrastructure financing, high borrowing and government’s capacity to fund capital projects will affect the country’s macroeconomic fundamentals.
One problem is the apparent paucity of buffer package for the economy. This is because external reserves and excess crude savings have dipped in recent months. According to the Office of the Accountant General of the Federation, the excess crude account balance is now $71.81million, while reserves as at last week stood at $36.37billion, down by $2.16billion, from $38.53billion at the beginning of this year. It will be recalled that the government has been exploring various means of generating revenue to buffer the effect of unstable oil prices through the hike in Value Added Tax (VAT) and the review of extant legislations, among others. But the outbreak of coronavirus seems to have jolted government’s revenue plans. The Finance Minister admitted that the outbreak of the virus had become a “severe strain” on the economy.
The situation has been made worse by the poor performance of key sectors of the economy. Even though the country exited recession almost three years ago, growth is still sluggish and weak to create employment opportunities for the fast growing population and lift millions of Nigerians out of poverty. There is need for government to embrace a comprehensive structural policy and regulatory reforms to unlock the huge growth potential in the economy. Before that, government must address the power supply challenges, insecurity and policy inconsistency.
More than ever before, this is the right time to deepen the diversification drive, especially in key sectors of agriculture and manufacturing. Currently, many manufacturers and service providers complain about acute shortage of raw materials and intermediate inputs. This has implications for capacity utilisation, employment generation and retention among others. We maintain that agriculture and manufacturing are central to the nation’s economic diversification and sustainable national development.
Without doubt, these sectors alongside others can create jobs, recreate the vanished “middle class” and transform many families that are at the fringe of harsh economic policies of government. Together with the support of the private sector, government should use the coronavirus pandemic to restructure the economy, cut down cost of governance and review the corruption-ridden subsidy regime. It is instructive that the government is considering reviewing the underlying assumptions of the 2020 budget. We enjoin it to also design strategies that can respond swiftly to emergency economic situations in the future.