As headwinds from the coronavirus pandemic storm lambaste the world economy, the outlook for Nigeria appears more cloudy for the second half of the year.
The next few months are critical for the country’s fragile economic recovery and the main question is whether Nigeria will sink or swim in the coronavirus storm.
On the positive side, the federal government announced the second four-week phase of lockdown easing, hopefully leading to some breathing room for the economy. However, the infection rate is still growing at over 25,500 confirmed cases and over 580 deaths.
Damage from the storm
Opinions differ on just how much water Nigeria’s economy is taking on as the cracks appear in its hull. The IMF expects the economy to contract by minus 5.4 percent, while the finance minister sees the contraction at minus 8.9 percent. The World Bank is more positive, putting the damage at minus 3.2 percent this year.
Is patching the leaks enough?
The Central Bank of Nigeria (CBN) cut interest rates and the government unleashed fiscal measures, raising another question – will this be enough to fix the leaks?
External and domestic risks range from shaky oil prices, slowing global growth, US-China trade uncertainty and Nigeria’s heavy reliance on oil revenues. Headwinds in the oil industry may blow even harder given the recorded COVID-19 cases in some offshore sites.
The results so far bear out the volatile outlook. Total revenue from crude oil and natural gas declined by 31 percent in March, likely knocking onto GDP growth for the first half.
These developments put the country’s $5.9 billion economic stimulus plan in the hot seat. The priority is certainly to jumpstart growth against the current odds.
Monetary policy options are becoming thin on the ground, though, and it remains uncertain whether the CBN has enough room to cut interest rates from 12.5 percent given how inflation jumped for the ninth straight month to 12.4 percent in May.
The crux of the economy is consumption, which accounts for roughly 70 percent of GDP. It may be that the CBN will find other unconventional methods to boost consumption and steer Nigeria away from a recession.
At the time of writing, however, the difficulties are significant and risks to the economy remain high as the effects of the coronavirus pandemic prove to be immune to monetary policy. Whether we like it or not, COVID-19 will remain a major theme in the markets as Asia, Europe and the US report an increasing number of new cases.
Adding to the risks is the growing possibility of a new round of lockdowns as fears intensify over a second wave of coronavirus infections pressuring the world economy again. Another wave could have devastating consequences, putting quick recoveries beyond the capacity of central banks and governments and initiating years of slow progress.
If a second wave is avoided, the key question will be whether Nigeria has done enough to mitigate the impacts of COVID-19 and navigate around a rocky recession.
In my opinion, the situation remains unpredictable. A positive way forward could be through economic adaptation measures such as promoting local tourism, building up the technology sector, and tax incentives for consumers, retailers and similar sectors to encourage spending amid an already-loosened credit environment.
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