The odds seem to be camping around efforts by the federal government to stop Nigeria’s economy from plunging into recession for the second time in five years. The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said that the worst will happen if coronavirus doesn’t end in six months.
During her appearance on Channels Television’s Politics Today, Mrs. Ahmed warned that the coronavirus pandemic has come with an economic storm that may hit Nigeria hard if it continues.
“We are hopeful that this pandemic will be limited in time. If it is an average of three months, we should be able to close the year with positive growth. But if it goes longer than that – six months, one year – we will go into recession,” she said.
Nigeria is not the only country to feel the negative economic impact emanating from the scourge of COVID-19 pandemic, every country in the world has a stake to save, and many are taking drastic measures to prevent the worst from happening.
On Friday, president Trump signed an unprecedented $2.2 trillion economic package into law; the bill was swiftly passed by both chambers of the congress in a show of commitment that defied partisanship. The $2.2 trillion was meant to alleviate the economic chaos that coronavirus will unleash on the American economy, and the people at large.
“This bill is not only a rescue package, it’s a commitment – a commitment that your government, and the people whom you elected to serve you, will do everything we can to limit the harm and hardship you face, both now and in the foreseeable future,” said Minority Leader Kevin McCarthy, of the Republican Party.
The collective rapid passage of the bill on Wednesday, signals a state of emergency in the economy and healthcare sector.
“Today we’ve all acknowledged our nation faces an economic and health emergency of historic proportions. Americans deserve a full-on government response to address these threats to their lives and their livelihood and they need it now,” said House Speaker Nancy Pelosi.
While Nigeria cannot be compared with the United States in terms of economic power, other small nations with relative economic capacity are taking drastic measures to limit the harsh impact of the pandemic on their respective economies.
Early last week, Ghana cut the key rate to 8-year low of 14.5% from 16%, becoming the first sub-Saharan African country to cut rates in response to COVID-19 pandemic, reducing its benchmark to 8-year low. Ghana’s economy was beginning to leap through tourism-based diversification at the end of 2019, but was totally brought to zero as travels and tours got canceled upon the spread of coronavirus.
The country is however making projections based on the anticipation of 5% to 2.5% decline in gross domestic product.
On March 25, the leadership of the national assembly invited the Minister of Finance, CBN Governor and the Nigerian National Petroleum Commission (NNPC)’s GMD to deliberate on the impact of COVID-19 on Nigeria’s economy and to proffer solutions.
Part of the result of the meeting is the federal government doling out N10 billion to the Lagos State government, coronavirus most affected state in the country, and N5 billion to the Nigerian Center for Disease Control (NCDC).
Other measures taken by the federal government to tame the harsh realities of the pandemic include the creation of a N50 billion targeted credit facility through the NIRSAL Microfinance Bank, for households and SMEs. And the interest rate cuts on all applicable CBN facilities from 9% to 5%, N20 reduction of petrol pump price and a one year moratorium on loan servicing.
While these measures appear proactive, experts believe they are far from being the succor to the inevitable bleak economic realities wildling through the stimulation of coronavirus.
Though there have been some other measures proposed by the Crisis Management Committee inaugurated by president Buhari, which are believed will bring relief if implemented alongside other measures taken so far.
The Committee proposed an Integrated Policy Framework that will redesign the already existing economic infrastructure plan for the year 2020. The new framework will review the 2020 budget with a new oil benchmark of $30 per barrel, the aim is to stimulate cost saving measures that will reduce the midterm expenditures. The proposal is streamlined to touch many areas of the economy and will require legislative consent. It is highlighted as follows.
Increase revenue by reducing NNPC’s expenditures associated with oil – this will require cutting PMS under-recovery payment from 457.5 billion to zero. Reducing other federally funded upstream projects such that aggregate NNPC deductible expenditures are cut by 53%. Revising the 2020 budget using a $30 per barrel benchmark to prepare for the worst case scenario, though oil production volume will stay at 2.18mb/per day. Acceleration of marginal field late and other licensing rounds.
Ramping up oil production on shit down wells, reducing budgeted customs revenues from N1.5 trillion to N943 billion. Cutting privatization proceeds by 50%, reducing MDAs Administrative Capex by 20%. The reduction of Administrative Capex and overheads for top 10 GOEs in the 2020 budget by 25%.
Applying similar cutting measures to all other GOEs and thereby increasing revenue generation by N67 billion, controlling the fast growing personnel cost by efficiency measures such as non-essential recruitment, restructuring Social Intervention Programme. Design and launch other policy measures to be agreed with strategic MDAs.
Provide fiscal relief for Taxpayers and key economic sectors, incentivize employers to retain and recruit staff during the economic crunch. Review non-essential tax waivers to optimize revenues, complement monetary and trade interventions to respond to the crisis.
To implement this framework, incentives are required to reduce the weight of the dwindling economy on many corporations. So the federal government is proposing granting job creation tax rebates for employers, accelerating the construction of over 70 km roads and bridges under the Road Infrastructure Tax Credit Scheme and review of sectors eligible for pioneer tax holidays.
Apart from that, negotiation of a break on debt servicing with multilateral and financial institutions is included. Import duty waiver for essential input for pharmaceutical firms, tax waiver on new health equipment, deferment of tax to increase production. There is also proposed implementation of tax holidays and import duty waivers in the agric sector, aimed at enhancing production and creating more jobs, which part of it means accelerating the ease of doing business by reducing rigid protocols through new packages that will be introduced soon.
While there is hope that these measures, if implemented, will assuage the anticipated pain, there is also doubt that it will not help the majority of poor Nigerians.
Former vice president Atiku Abubakar had recommended the distribution of N10,000 to 30 million households as food stuff supplements, reduction of pump price and total removal of stamp duty. Atiku also called on the federal government to provide 100 million mobile subscribers in the country with N1,500 airtime each, in order to prepare them for emergency situations. He believes it is one way government’s austerity measures could be felt by the people.
Mrs. Ahmed said that the Finance Ministry is considering the Atiku’s recommendation but checking to see if there will be consequences if it is implemented.
Much of the concerns about the measures that the government is proposing stem from the oil benchmark which is still wobbling around $22. The budget review will mean cutting the original benchmark of $57 to $30, in anticipation of a miracle that will up oil price soon. With no hope that coronavirus will end soon, that dream is far from reality. Experts believe that the possibility of generating revenue from other sectors to make up for the deficit is thin, therefore, the chances of Nigeria falling into another recession is wide open.