To show how badly the Nigerian economy has been hit by the coronavirus pandemic and falling oil prices, Africa’s largest oil producer this week warned of an impending recession, asked 7 billion dollars in emergency funding and abandoned an expensive oil subsidy program.
Although the country of 200 million people recorded a relatively modest 254 cases of coronavirus on Wednesday, with only six deaths, Finance Minister Zainab Ahmed warned that Nigeria would fall into its second recession in five years if drastic measures were not taken to cushion the economic blow.
Ahmed estimated this week that the economy could contract by up to 3.4% this year without a massive stimulus package including billions of dollars from the central bank, the federal government and international support.
The warning came as the IMF began examining Nigeria’s emergency request for $ 3.4 billion in funding, and the World Bank, from which the country sought up to $ 2.5 billion. , has released $ 82 million to strengthen the country’s health care infrastructure.
“We have to do very radical, very daring and very different and maybe even unusual things to avoid sinking into a recession,” said Ahmed to AriseTV. “Our economy is in crisis.”
The N1tn ($ 2.6 billion) stimulus package from the Central Bank of Nigeria represents only 0.7% of 2019 gross domestic product, and the $ 3.4 billion requested from the IMF represents only 0.8 % of GDP, noted Yvonne Mhango, economist for sub-Saharan Africa. Africa at Renaissance Capital. In contrast, many Western economies have announced stimulus packages of 10% of GDP or more.
“As a percentage of GDP, the amounts are small. . . Nigeria, like most [of sub-Saharan Africa], does not have the capacity to come up with a major stimulus package, ”said Mhango, who reduced her GDP forecast for 2020 from 1% growth to 0.4% contraction.
“It was already behind before the crisis with an extraordinarily low income / GDP ratio of 6%,” she said. “So yes, the loans will help. But only to fill the funding gaps. . . not enough to revive the economy. “
Global consulting firm McKinsey estimated this week that an optimistic “contained outbreak” scenario would produce a 2.5% contraction. An “uncontrolled” situation could see Nigeria’s economy shrink by 8.8%.
It is unclear to what extent the cuts in oil production agreed this week to counter the effect of the largest collapse in demand in history will help Nigeria, which has been hit hard by falling prices.
Ahmed has already reduced the government projection from 2.1 million barrels per day of oil production to 1.7 million and is working to cut Nigeria’s record budget of $ 35 billion by 2020, adopted in December and based on a oil prices of $ 57 a barrel, about 15 percent. Oil is currently trading at around $ 30.
Nigeria depends on gross revenue for more than half of government revenue and almost all of its currencies. Fitch and S&P have both downgraded Nigeria’s credit rating in recent weeks due to the oil crisis. Fitch also said that the 10 Nigerian banks were exposed to “serious risk” due to their exposure to the oil sector.
The last time oil prices fell, in 2015, the country entered a recession from which it only recently recovered. Economists have said that the slowdown is both exacerbated and prolonged by policy mistakes, including the resistance of central banks to what was an inevitable devaluation of the naira.
President Muhammadu Buhari has been a staunch opponent of a weak currency, in part because of its perceived impact on inflation, which disproportionately affects the 87 million Nigerians living in extreme poverty.
But, last month, the central bank collapsed under pressure and devalued the official naira rate at N360 for one dollar against N305. The more widely used black market rate, which had hovered around N360 for about three years due to central bank support, reached around N415. In his downgrade note this week, Fitch described the currency movement as too little, too late.
The fall in the price of oil ultimately pushed the government to end the gasoline subsidy, which had set fuel at 145 NL and absorbed billions of dollars in spending. Economists have long argued for the end of the expensive subsidy scheme, and on Wednesday Mele Kyari, head of Nigerian state-owned National Petroleum Corporation, admitted on local television that the subsidy has mainly benefited several elite car owners .
“The end of the subsidy. . . will ensure that funds are made available so that the government can finance critical infrastructure projects such as education, health, roads and many others for the benefit of the common man, “he said. he declares.
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