THE IMPACT OF COVID-19 PANDEMIC ON THE NIGERIAN ECONOMY
|With 2.98 million coronavirus cases and 206,342 deaths globally, the world is in a continuous battle with the COVID-19 pandemic. Before the occurrence, the prospect for the world economy — and especially developing countries like Nigeria — was frail, as global GDP growth was estimated to be only 2.5 percent in 2020. Initially, developing countries recorded fewer cases but the pallid capability of health care systems in these countries has exasperated the pandemic and its impact on their economies—Nigeria currently has 925 active cases and 35 deaths as of this writing—.|
Before now, the Nigerian government had been rassling with weak recuperation from the 2014 oil price blow, with GDP growth narrowing to 2.3 percent in 2019. In February, the IMF amended the 2020 GDP growth rate from 2.5 percent to 2 percent, as a result of comparatively low oil prices and narrow financial space. Correlatedly, estimate puts the debt service-to-revenue ratio at 50 percent, which would worsen considering the declension in revenue associated with dropping oil prices. These constrictive factors will exacerbate the economic impact of the coronavirus outbreak and make it difficult for the government to fight the crisis.
In Nigeria, attempts are already being made to reinforce mass demand through an increase in government spending and tax cuts. The public budget made a leap from 8.8 trillion naira in 2019 to 10.6 trillion in 2020, which is about 11 percent of the national GDP, although organizations have been either tax-exempted or have had their tax revised. Sadly, the crisis is causing a fall in all factors of aggregate demand, apart from government purchases.
The fall in household consumption in Nigeria has stemmed from
1) partial restrictions on movement in various states, hence pushing consumers to spend mainly on essentials;
2) little or no expectations of future earnings by workers; and
3) the decline of wealth or prospective wealth.
Firms investments have been obstructed due to dubiety that the crisis regarding its duration and policy measures effectiveness. Truly, this pandemic has led to a steep decline in stocks, as Nigeria records its worst operation since the 2008 financial crisis and the uncertainty associated with this pandemic as well as the negative prospect of profit on projects, firms are holding off on investment judgments.
The corona virus pandemic is an awakening to lawmakers as the uncommon nature that comes with it has made it almost impossible for citizens to bank on or even solicit support from foreign health centers for medical supplies and equipment
The government’s purchases on the other hand has increased as they intend to use fiscal input measures to contain the declining consumer spending. With oil representing 85 percent of Nigeria’s exports, the fall in demand for oil and its prices will negatively impact the amount and worth of net exports.
The restrictions on movement of people and border closures foreshadow a decline in exports. Although the exports of a country like Nigeria that devalues her currency due to the drop in commodity prices, will become more inexpensive.
Already, the Central Bank of Nigeria has organized a financial input package, which includes 50 billion naira credit program to households affected by the crisis, a 100 billion naira loan to the health sector, and a 1 trillion to the manufacturing sector.
Noting that oil is Nigeria’s major source of foreign exchange, amid the fall in oil prices, the official exchange rate has been revised to 360 naira from 306. In order to modify exchange rates across the investors and exporters window, rates have been revised from 360 to 380 naira. Additionally, the government has set import duty waivers for health companies.
Considering the size of the economic effect of the crisis, there is need to put in place other recovery schemes to induce demand. Hence, the following financial policy standards are recommended:
• Yes, there is a credit transfer policy in place, still the government should improve the effectiveness of the allocation mechanisms to extend to households worst-hit by the crisis.
• The Federal Inland Revenue Service should forgo payments on all income taxes for the second half of 2020, putting into consideration that the pandemic has affected income of families and businesses.
• State Inland Revenue Services should suspend tax collection for worse-hit sectors like the airline sector, hoteliers and tourism so as to allow them recover from the abrupt fall in demand.
• The Central Bank should consider instituting a swap facility with the U.S. Federal Reserve to render bonus liquidity in the forex market. This action would mitigate shortage of forex in the economy.
• Since naira has been revised due to forex shortage, it is essential that the CBN keeps the exchange rate stable by deploying external reserves so as to keep investors from putting up naira-denominated assets for sale.
The corona virus pandemic is an awakening to lawmakers as the uncommon nature that comes with it has made it almost impossible for citizens to bank on or even solicit support from foreign health centers for medical supplies and equipment. A more incorporated response that will cover several sectors is needed to target structural matters that make the country less flexible to shocks and restrains its scope of policy responses. Sooner or later, tougher resolutions will need to made, which might include broadening the country’s income fundamentals away from exportation of oil and considering investments in the health care sector in making sure that our economy has the ability to ameliorate faster from tough situations in the nearest future.
My name is Oluwaseyi Komolafe, a creative writer and web developer. I read a lot of tech and educational articles. I write contents for various websites and train people who want to pursue a niche in web development.