The Impact of COVID-19 on the Nigerian Economy
Addressing the matter of crucial importance, the Coronavirus pandemic which emerged from Wuhan,China as the year 2019 was coming to a close is no unpopular subject. Within the space of five months, it has become a global menace with Nigeria being one of the affected countries. Unfortunately, the virus brings with its entrance, an inevitable toll on the economy. It is not oblivious from the emergence of COVID-19 that there are implications on the economy from both the demand and supply angles. Demand has reduced vastly due to the importance of social distancing. The virus spreads through human contact, requiring everyone to stay at home. Little or no earning, in addition to this necessary precaution has resulted in declining consumption. The second half, supply, is in no better shape as factories are shutting down or cutting down on production because most staffs have to work from home. Earlier this year, the government attempted to boost aggregate demand with the introduction of reduced interest rates and costs of borrowing and also tax cuts for businesses. Small businesses exempted while medium scale tax rate was dropped from 30 to 20 percent. Contrary to plan, the crisis is causing all component of aggregate demand, except government purchases, to fall. The government has had to expand fiscal policy and increase in health care expenditure.
Nigeria is yet to achieve stability in terms of recovery from the 2016 economic recession which was a fall out in global oil price crash and insufficient foreign exchange earning to meet imports. The economy was fragile and COVID-19 has dealt yet another backlash amidst this struggle as Nigerian Stock Exchange records its worst performance since the 2008 financial crisis. This has eroded the wealth of investors due to the diminution in stock prices. In contrast with the previous year, the federal budget for 2020 had been prepared with a significant increment from 8.83 trillion to 10.59 trillion naira, thus, revenue expectation was high as revenue collections were projected to be an increase of about 20 percent from 2019 figure. However, it is now apparent that the epidemic has called for drastic review and changes in fiscal projections. The economic uncertainties and disruptions that have resulted come at a grave cost. Owing to poor structures and failure to reserve sufficient funds for trying periods such as these, there have been an inevitable downward revision of the proposed budget. On March 18th, the minister of finance, Mrs Zainab Ahmed, announced a 1.5 trillion naira cut in non-essential capital spending. The government runs an economy that is commodity dependent so the fall in global demand for commodities will increase fiscal deficits. The country’s debts raises a source of concern as do the falling gross domestic product growth rate around 2% as a result of relatively low oil prices and limited fiscal space. Decline in the demand for oil and falling oil prices will adversely affect the volume and value of net exports. Awareness has been made of the drop in oil price from the initial $57. Net exports has declined due to border closure and restricted market. Furthermore, the pandemic contributes to economic contraction from the standpoint of investments. Personal foresight and institutional assessment of the future profitability of undertaking such venture has revealed that it is a risk and many are unwilling to take such risk considering the dull outlook in economic value. COVID-19 has made it impossible for Nigerian citizens to rely on foreign health care services. It is an eye-opener to the government to address structural issues in other sectors of the economy. Prior investments in proper health care facilities would have softened the blow dealt by the virus on the economy. The pandemic has undoubtedly emphasized the fact that the single-mindedness and monolithic reliance on oil is failing. Diversification priorities on the country’s revenue base, away from the focus on oil exports to alternative sectors, should be further intensified. On a note of finality, the government can mitigate these unfavourable events and eventually restore balance to the economy if conventional steps are employed. One of which is the revision of the decision taken by the Central Bank to increase Cash Reserve Ratio from 22.5 percent to 27.5 percent. Presently, this will only further inundate the economy. It should be revisited to enable provision of liquidity for banks so that banks can, in turn, create credit to the private sector. There should also be a complete waiver on personal and corporate income tax for the second quarter of 2020 as the pandemic has rocked businesses and affected expected profits. The Federal Inland Revenue Service and its state counterpart should delay tax collection from the worst hit sectors to enable recovery. Prime examples are the aviation and tourism sectors. Incitation of demand is key and can be achieved using a fiscal stimulus package from the Central Bank. It is a dire necessity that imbursed funds should be effectively distributed to reach the people really affected by the epidemic. This will enhance demand and thereafter, income circulation. Care should also be taken to maintain exchange rate stability by deploying external reserves in order to avoid investors selling off naira denominated assets. Action could also be taken as was done in 2018. A swap facility with the U.S Federal Reserve and the People’s Bank of China to provide dollar and yen liquidity to financial institutions, investors and exporters. This would ease up forex shortage in the financial market and economy. Nigeria will definitely record significant fiscal improvement in years to come.
Contrary to plan, the crisis is causing all component of aggregate demand, except government purchases, to fall. The government has had to expand fiscal policy and increase in health care expenditure. There should also be a complete waiver on personal and corporate income tax for the second quarter of 2020 as the pandemic has rocked businesses and affected expected profits
My name is Egwu Sharon. I am seventeen years old. I am a 200 level student of the University of Lagos. My educational aspirations consist of acquiring a bachelor’s degree in Law. On the other hand, I will major in the scene of international relations. I read quite a lot and also hope to bag a measure of academic qualification in the study of foreign languages.