The current recession was anticipated due to several early warnings of both local and foreign experts and several measures taken to ameliorate impacts on the economy, but with soaring inflation rate of over 14%, dip in foreign exchange reserves and continued land border closure among others, the dream of exiting recession in 2021 may look more realistic than gambling with the first quarter of 2021 prediction.
By Goddy Ikeh
ON Saturday, November 21, the National Bureau of Statistics, NBS, said in its Gross Domestic Product, GDP, report for the third quarter of this year that the country’s GDP fell by 3.62 percent in the three months up till September. And for the first time in more than three years, the Nigerian economy shrank in the second quarter as the GDP fell by 6.10 percent, compared with a growth of 1.87 percent in the first quarter.
With this report, the local media declared that the country’s economy has slipped into recession. They made this pronouncement, believing that two consecutive quarters of shrinking GDP could only result in recession. But before this second recession in four years, there were early warnings on the potential devastating impact of the coronavirus on global and regional economies and some of the regrettable measures like lockdown adopted by most African countries, including Nigeria, which further harmed their fragile economies.
For instance, the IMF boss, Kristalina Georgieva warned in April this year that the global coronavirus pandemic was causing an economic crisis unlike any in the past century and would require a massive response to ensure recovery. She said that “global growth will turn sharply negative in 2020,” with 170 of the International Monetary Fund’s 180 members experiencing a decline in per capita income.
“In fact, we anticipate the worst economic fallout since the Great Depression,” Georgieva said in a speech previewing the Spring Meetings of the IMF and World Bank, which was held virtually due to the restrictions imposed due to the COVID-19.
She noted that even in the best case the IMF expects only a “partial recovery” next year, assuming the virus fades later this year, allowing normal business to resume as the lockdowns imposed to contain its spread are lifted.
But she warned that “it could get worse,” and “there is tremendous uncertainty around the outlook” and duration the pandemic.
Countries already have taken steps worth a combined $8 trillion, but Georgieva urged governments to do more to provide “lifelines” for businesses and households to “avoid scarring of the economy that would make the recovery so much more difficult”.
On the regional level, the World Bank said that COVID-19 was taking Sub-Saharan Africa towards its first recession in 25 years. In a statement in April, the bank explained that growth in Sub-Saharan Africa had been significantly impacted by the COVID-19 outbreak, and was predicted to fall sharply from 2.4 percent in 2019 to -2.1 to -5.1 percent in 2020.
The World Bank explained that it based its forecast on the latest Africa’s Pulse, the bank’s twice-yearly economic update for the region.
“The COVID-19 pandemic is testing the limits of societies and economies across the world, and African countries are likely to be hit particularly hard.
“We are rallying all possible resources to help countries meet people’s immediate health and survival needs, while also safeguarding livelihoods and jobs in the longer term.
“This includes calling for a standstill on official bilateral debt service payments, which would free up funds for strengthening health systems to deal with COVID 19 and save lives.
“Social safety nets to save livelihoods and help workers who lose jobs, support to small and medium enterprises, and food security,” the statement quoted Hafez Ghanem, World Bank Vice President for Africa as saying.
According to Ghanem, the Pulse authors recommend that African policymakers should focus on saving lives and protecting livelihoods by strengthening the health systems and taking quick actions to minimise disruptions in food supply chains.
The bank noted that the authors also recommended implementing social protection programmes, including cash transfers, food distribution and fee waivers, to support citizens, especially those working in the informal sector.
The analysis shows that COVID-19 will cost the region between 37 billion dollars and 79 billion dollars in output losses for 2020 due to a combination of effects.
“While most countries in the region have been affected in different degrees by the pandemic, real gross domestic product growth is projected to fall sharply, particularly in the region’s three largest economies like Nigeria, Angola, and South Africa, as a result of persistently weak growth and investment.
“In general, oil exporting-countries will also be hard-hit; while growth is also expected to weaken substantially in the two fastest growing areas, the West African Economic and Monetary Union and the East African Community, due to weak external demand, disruptions to supply chains and domestic production,” the bank said.
In addition to the warning signals from the IMF and the World Bank, Nigerian experts also lent their voices to the precarious position of the Nigerian economy. In his analysis of the Nigerian economy, Pita Adori, an economist, said about a year ago, the economy appeared to be picking up gradually after the recession of 2016. And to support the growth, “we saw the government investing much in infrastructure development, foreign loans were taken to invest on infrastructures such as rail, roads, airports, etc, which was good and going on well until the Covid-19 incidence which has slowed down not just the Nigerian economy but the global economy”.
According to him, every aspect of the economy has been negatively impacted by Covid-19. “With the stoppage of movement, productivity was also halted in every sector of the economy. So the productive aspect of the economy was badly affected by Covid-19.
“For now, there is no magic to save the economy from recession. We can only mitigate the impact and work towards recovery from the recession, and the way to go about that is to increase public investment and fiscal discipline on the side of the government,” he said.
He noted that the private sector can only support the government, while favourable policies are expected from the government. “But the major bulk lies on the desk of the government. Let the government keep investing in infrastructures, ensure fiscal discipline, create jobs, and encourage the private sector with ease of doing business,” he added.
Speaking in the same vein, Bismarck Rewane, an economic analyst, believed that the economy would plunge into recession in the third quarter of this year and warned that this year’s recession might be more severe since it has virtually little or no buffer in terms of foreign reserves as against the 2016 recession, which had a reasonable buffer to support the economy. Rewane, who is also a member of the presidential advisory council of the government, predicted that the inflation rate would hover between 15 and 18 percent this year with food prices maintaining the upward swing until 2021, when the economy is expected to start its gradual recovery with inflation dropping to about 13 percent.
Speaking on Channels Television Democracy programme on Friday, June 12, Rewane said that the Gross Domestic Product might dip to -3.4 percent or more, while the exchange rate for the naira would continue its downward trend, but would remain convertible.
But the minister of finance, budget and national planning, Zainab Ahmed and the Governor of the Central Bank of Nigeria, Godwin Emefiele were concerned about the impending recession and listed measures to be taken to ameliorate the impact of the inevitable recession on the country’s economy.
In August, the finance minister warned that the Nigerian economy may slide into recession in this third quarter of this year, warning that country’s economy was already exhibiting “some symptoms of cold before the outbreak of the cold linked to the coronavirus”.
Ahmed told lawmakers recently in Abuja that prior to the outbreak of the virus which led to decline in crude oil prices, “the Nigerian economy was already fragile, vulnerable and deteriorating”. The minister explained that the global economic downturn had forced international oil prices to drop to as low as $22 per barrel and that international travels and trade had been severely disrupted, while demand for goods and services is deteriorating as a result of the lockdown and other restrictive measures.
In her first reaction after the declaration that the Nigerian economy has slipped into recession, Ahmed said on Monday, November 23, that the country would exit recession by the first quarter of 2021.
Speaking at the just concluded 26th Nigerian Economic Summit organised by the Nigerian Economic Summit Group and the Federal Ministry of Finance, Budget, and National Planning, Ahmed said the COVID-19-induced recession followed the pattern across the world where many countries had entered economic recession.
“Nigeria is not alone in this, but I will say that Nigeria has outperformed all of these economies in terms of the record of a negative growth,” she said. Economic Recession:
And for Emefiele, the CBN through its Monetary Policy Committee, MPC, has retained key lending rates at 11.5%. Speaking after MPC meeting in Abuja. He explained that the decision was part of efforts to boost the economy towards a sustainable recovery from the recession.
“Members voted in line with the most pressing need towards reversing the recession and achieving medium-term macro-economic stability.
“In view of the foregoing, the committee decided by a unanimous vote to retain all parameters,” Emefiele said.
“In summary, MPC voted 1, to retain MPR at 11.5%, (2), retain asymmetric corridor of +100 and -700 basis points around the MPR, (3) retain Cash Reserve Ratio at 27.5% and (4), retain liquidity ratio at 30%.”
Emefiele has also assured that the nation’s economy will grow by 2% in 2021. Delivering his keynote address at the 55th Annual Bankers Dinner of the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos on Friday, November 27, Emefiele said that he was optimistic that the various intervention of the apex bank would make Nigeria emerge out of recession in the first quarter of 2021.
Emefiele hinged his optimism on the fact that Nigeria’s external reserves currently at $35 billion could cover seven months of imports of goods and services.
In addition to the various fiscal and monetary measures being pursued to ameliorate the impact of Covid-19 on the country’s economy and rescue it from its worst recession, the finance minister believes that the new facility of $1.5 billion from the World Bank will make a difference in the quest to manage the current recession and ensure that the country exits from it early next year.
29, N0V 2020 @10:06 GMT