Written by Lillian Akhigbe:
Even a layperson who is neither an economist nor a finance expert, but who has been on a lockdown with his family for a period of time within the last two months, must have observed that the coronavirus – induced lockdown slowed down economic activities in parts of Nigeria. From the school teacher in Abuja who decides to remove the battery of his car and keep it inside his house like a treasure box, mindful that the vehicle will not be on the road during the total lockdown, to the airline companies with offices in Lagos who had to place over 80% of their staff on a mandatory Leave without pay, pending the lifting of the ban on inter-State and inter-country air travel; it was evident that there has been a drop in the purchase of petrol, aviation fuel and other petroleum-based fuels.All across the world, the demand for refined and unrefined oil drastically reduced within the last three months. Many people just did not need that much petroleum-based fuel while at home on a lockdown. The global oil market has been majorly impacted by the coronavirus pandemic and the Nigerian economy in particular, which is majorly dependent on the oil market, was one of the worst-hit.Nigeria had a pile up of unsold crude oil in vessels offshore and the challenge of a drastic drop in oil prices stared the country hard in the face.
It therefore did not come as a surprise to many citizens of Africa’s largest oil exporter, when its Finance Minister, Zainab Ahmed, stated recently at the National Economic Summit in Abuja, that, “the Nigeria Bureau of Statistics (NBS) has made an assessment. It is the NBS assessment that Nigeria will go into a recession”. This projection of the NBS, which was announced by the Minister, was also re-echoed on the global stage by a Professor of Harvard Kennedy School, recently-appointed as Vice President and Chief Economist of the World Bank Group, Carmen Reinhart, who in a media interview with Bloomberg last week, reckoned that, “the hit to emerging markets is just very broad. Nigeria is in terrible shape…. It’s going to be enormously costly”.
The Nigerian government in its response to the recent economic challenges, has reviewed its national budget and slightly reduced the total budget cost. In the new proposed budget, Capital Expenditure was cut by 20% to ₦312 Billion. In addition, the oil benchmark was reduced from $57 per barrel to $20 per barrel. Oil production volume was reduced from 2.17 million barrels per day to 1.70 million barrels per day. Expected revenue from oil and gas was cut down from ₦7.6 Trillion to ₦1.4 Trillion, while non-oil revenue was slashed from ₦6.4 Trillion to ₦5.8 Trillion. Also, the Finance Minister recently expressed the government’s belief that the stimulus packages soon to be introduced by the Economic Accessibility Committee will reduce the impact of the recession. These steps though commendable, cannot make up for the projected loss in expected revenue. Nigeria’s current economic problem is not one to be treated with kid gloves. Neither a slight reduction of the budget as was effected, nor an offer of stimulus packages, is consequential for a country that has an unsustainable Debt Service to Public Revenue Ratio. Nigeria has a debt burden which would make a greater portion of its revenue to be channelled towards debt servicing, unless Nigeria succeeds in securing a debt waiver or a rescheduled payment plan that will ease the repayment burden significantly.
In these very difficult times, no developing nation will ever be able to emerge from the woods without its leadership adopting a disruptive mindset and aggressive actions. There has to be a radical deviation from the old approach to our economic problems. Beyond budget cuts and stimulus packages, there has to be actual revenue generation of a massive scale. The government has to focus on ways through which it can raise funds to lift as many people out of the COVID-19 quagmire of induced poverty, deprivation and destitution which many Nigerians have sunk into within the last two months. Expectedly, the budget should be reviewed, reduced and readjusted to focus on easing the economic stress on the people as they struggle to beat the odds posed by the pandemic. However, the effects of the pandemic on health and economy, two critical sectors of our lives, could last for a long and indeterminate period. The government needs to consult widely and initiate a new economic policy response that is robust enough to cause a massive and positive turn-around, so much so that an interested layperson at the grassroots who is neither an economist nor a financial advisor, and who knows nothing about economic policies, will see and appreciate the positive outcomes: workers’ jobs are preserved, no loss of livelihoods, no wage cuts and no abuse of human rights as a way of surmounting economic challenges.
Financial Times/ https://www.ft.com/content/3f14aa7c-298d-4fab-b876-b10ea1ee0faa