Buhari offsetting economic sustainability plan

Sir: Recently, the World Bank published the Nigeria development update. The report is part of a series assessing economic and social developments in Nigeria.

The report provides an in-depth examination of economic policy and analysis of Nigeria’s medium-term development and sustainability plan. The contents of the report are valuable information for policymakers, businessmen and members of the Presidential Council of Economic Advisers.

Some of the report’s forecasts are that the current recession will be twice as deep as the economic recession of 2016. Its projection is that the Nigerian economy would contract by 3.2 per cent this year. It assumes a yearly average oil price of $30 per barrel. It also assumes COVID-19 would have started easing out by the second quarter of 2020. This revised growth projection is over five percentage points below the pre-COVID-19 forecast of 2.1 per cent. The forecast makes the 2020 recession the deepest since 1980. It shows Nigeria’s sustainability outlook highly uncertain.  Moreover, a more severe domestic outbreak of the pandemic and a protracted decline in oil price relative to World Bank’s projections would deepen Nigeria’s recession.

However, the World Bank sees bold reforms as the only way out of the woods. Thus, in the near future, a coordinated fiscal and monetary policy initiatives will be necessary to ease the human and economic costs of the pandemic. Indeed, bold reforms represent the panacea for a robust and sustainable recovery from the recession. But Buhari’s penchant for borrowing money from whoever would lend him is compounding and offsetting the economic sustainability plan. While dealing with the disruption caused by the pandemic a post-COVID-19 reform package should be in the works to overcome Nigeria’s persistent economic challenges particularly her low level of productivity. Meanwhile, in the context of this pervasive policy and regulatory uncertainty, weakening demand and rising economic headwinds, net Foreign Direct Investment (FDI) inflows fell in 2019 by eight per cent from their already low level $2 billion or 0.5 per cent of Nigeria’s GDP. Sadly, Nigeria’s shift from FDI to foreign loans to finance national development exacerbates our vulnerability and is offsetting Nigeria’s sustainability plan.
Bayo Ogunmupe wrote from Lagos.
   
Our net external reserves fell from US$42.1 billion in 2018 to US$37.8 billion by the end of 2019. That is equivalent to 4.6 months of imports and intensified pressure on naira exchange rate. These variables are markedly worse than on the eve of the 2016 recession. Government revenue as a percentage of our GDP to fall by 5 per cent, this is expected due to the slump in the global oil price. The sudden fall in revenue comes just when our resources are needed to contain the COVID-19 outbreak, creating a financial gap that threatens to destabilize the economy. Lower government revenues are offsetting sustainability plan for the implementation of N2.3 trillion stimuli lined up to soften COVID-19 wrecking of the economy.

As a response to the pandemic, the Federal Government has an opportunity to collaborate with Nigerians in the Diasporas. In short-term policy reforms, the government could encourage skilled emigrants to return and perhaps attract foreign workers with valuable knowledge and advanced skills. But on its own part, the International Monetary Fund (IMF) released its own report of the future of the Nigerian economy. In its report titled: A Crisis like No Other, it envisaged a further plunge in Nigeria’s growth from -3.4 per cent to -5.4 per cent in 2020. It posits that Covid-19 would wreak a more negative impact than anticipated. In 2021, global growth is projected to be 5.4 per cent.

The Federal Government launched the Economic Sustainability Plan with the objective of stimulating the economy by preventing business collapse, ensuring liquidity and using labour-intensive methods to boost agriculture, facility maintenance and housing. However, the Central Bank of Nigeria is mitigating the holocaust by pumping money into the economy to contain the negative impact of the pandemic. By the same token, much of the external loans are already secured for either balance of payment support or for infrastructure have moratoriums effectively postponed for repayment obligations. More graciously, the oil price is beginning to climb following compliance with production agreements coupled with the fact the economy is gradually being reopened.

Moreover, the World Bank just approved Nigeria’s long-standing request for a loan by releasing its first tranche of $750 million to support Nigeria’s electricity sector. This fresh injection of credit will contribute to fixing CBN’s beleaguered balance sheet. The fund which could rise to $3 billion was approved for the CBN as part of World Bank’s support programme to ameliorate incessant lending to the government. The CBN has been giving unbudgeted credit to fund the power sector since 2014. The CBN last bailout in August 2019 was worth N600 billion. Government has spent more than N1.5 trillion since 2014.

Bayo Ogunmupe wrote from Lagos.