The Economics of Covid-19: An Unprecedented Threat To Nigerians Development

The Economics of Covid-19: An Unprecedented Threat To Nigerians Development

Gideon Dunioh Publisher and Editor-In-Chief At Econs Media and Economics Correspondent At TrueNewsNG

As it stands now no one in the world is safe because of the COVID-19, it is a virus that we have never seen before there have been other coronaviruses but this one particularly seems to be different as very little is known about it and it spreads rapidly. 

We are dealing with fear and uncertainty, a menace we cannot see, in this circumstances it means that the entire world should be interested in making sure that economies do not suffer economically as the economic impact is already being felt.

In Nigeria the COVID-19 has presented an unprecedented threat to national development as well as presenting a huge opportunity.

This paper seeks to highlight what is perhaps known as the most profound, global and domestic challenge especially in health and economy in the whole of human history. 

In Nigeria alone there are over 182 number coronavirus related deaths and the figures are predicted to rise (as at Sunday, 17th May 2020).

From an economist point of view, managing the COVID-19 crisis will not be easy ‘’Coronavirus pandemic economic fallout ‘way worse than the global financial crisis,’ IMF chief says the Coronavirus pandemic has created an economic crisis “like no other,” the top IMF official said. “It is way worse than the global financial crisis “ of 2008 – 09, Gergieva said during a World Health Organization news conference’’

Nigeria will go into recession if COVID-19 continues beyond six months – Finance Minister

“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.”

Hence the need to identify the opportunities herein, by answering the following questions of the unseen COVID-19 danger

Some Questions Of The Unseen COVID-19 Danger In Nigeria 

  • How long will the covid-19 crisis last in order for us to envisage the impact ?
  • What sector in the economy needs critical attention ?
  • How does the Covid-19 affect our most pressing business needs in terms of laying off staff and salary cuts ?
  • How does the government influence your decision on savings, investment and consumption ?
  • How can the private sector compliment the government in the covid fight?

Until these questions can be answered and a better coordination of govt policy responses and measure put in place to curb the effect of the covid crisis then can we begin to tap into the opportunities 

Here Are Some Of Nigerians Fiscal And Monetary Policy Responses 

FISCAL POLICY RESPONSE  MONETARY  POLICY RESPONSE 
COVID-19 CRISIS INTERVENTION FUND

  • Establishment of a N500 billion COVID-19 Crisis Intervention Fund • 
  • To upgrade healthcare facilities • Fund Special Public Works Programme to generate employment 
  • • Adequate framework will be put in place for the collection, management and reporting of donations into the Fund
  •  • COVID-19 Donor Accounts to be opened with Zenith Bank, Access Bank, Guaranty Trust Bank, UBA and First Bank
  •  • To form part of the existing TSA arrangement
Reduction of interest rates on all applicable CBN interventions from 9% to 5%
SUB-NATIONAL SUPPORT

  • Draw down on World Bank facility (US$82m) and additional financing from the REDISSE (US$100m) project to meet COVID-19 emergency needs by States/FCT.
  •  • FG’s N102.5b in resources to be available for direct interventions in the healthcare sector. Already disbursed N6.5b to NCDC and N10b to Lagos state
  •  • US$150m to be withdrawn from the NSIA Stabilization Fund to support the June 2020 FAAC disbursement
  •  • Debt and interest moratorium for States on FG and CBN-funded loans to create fiscal space
Liquidity injection of ?3.6 trillion (stimulus package in the form of loans) into the banking system
BUDGET REVISION AND FUNDING

Benchmark oil price revised to US$30/b from $57/b and production to 1.7mbpd from 2.18mbpd.

 • Concessional funding from WB, ADB, IDB and IMF’s COVID-19 Rapid Credit Facility

 • No intention to negotiate or enter into a formal programme with the IMF 

• Downwards adjustment of non-oil revenue projections, customs receipts and proceeds of privatisation exercises 

• Budget Office to revise 2020-2022 MTEF / FSP 

• Amended Appropriation Act will provide for COVID-19 Crisis Intervention Fund

Provision of ?100 billion to support the health sector, ?2 trillion to the manufacturing sector, and ?1.5 trillion to impacted industries in the real sector
TAX RELIEFS AND ALLOWANCES

2019 Finance Act already grants tax exemptions to small businesses while the tax rate for medium-sized companies has been reduced from 30% to 20% 

• VAT exemption for expanded list of basic food items plus medical and pharmaceutical products

 • Ministerial Orders for charitable donations to fight COVID-19 to be tax deductible

 • Release and (where necessary) enhance the hazard allowances of federal health sector workers 

• Affected States are enjoined to take similar measures.

Creation of ?50 billion targeted credit facility through NIRSAL Microfinance Bank for households and MSMEs
The CBN granted all DMBs leave to consider temporary restructuring of loan terms for businesses/ households affected by COVID
Strengthening of the CBN Loan to Deposit ratio (LDR) policy.
Suspension of the sale of foreign currency to members of the Association of Bureau De Change Operators of Nigeria (ABCON).

Nigerians should expect some more unprecedented economic shock even though a comprehensive structural policy reforms can reduce the impact 

Further impact of the Covid-19 in Nigeria

Massive spike in employment

  • Massive number of people in informal sector not earning daily wage between lockdown and recession
  • Huge food security challenge 
  • Fiscal crisis at both Federal (FG) and State level
  • Depletion of external reserves

Note that : Nigeria entered the crisis with pre-existing vulnerabilities such as  low growth, low private investment and severely constrained fiscal policy which was  only compounded by the Covid-19 pandemic which are 

Very low tax to GDP ratio (less than 6%)

  • High debt service to revenue ratio 
  • Low level of tax compliance 
  • Significant fiscal risks due to COVID-19 economic disruption
  • Exposure to the risks of a sustained decline in oil prices 
  • Dated Brent oil prices as low as US$18.49/barrel as at Friday 1 May 2020
  • Compared to 2020 Budget benchmark of US$57/barrel 
  • Oil production in 2020 year-to-date is 2.0mbpd vs Budget projection of 2.18mbpd.
  • Little fiscal buffers compared to 2008/2009 or 2015/2016

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