ABUJA, June 25, 2020 ¨C With the uncertainty of the long-term economic impact of the global COVID-19 (coronavirus) pandemic, a new economic analysis says the speed, quality and sustainability of Nigeria¡¯s economic recovery will be determined by the effectiveness of its government¡¯s response.
The Nigeria Development Update, says the global spread of the pandemic and the subsequent collapse of international oil prices are destabilizing Nigeria¡¯s macroeconomic balances. Before COVID-19, the number of Nigerians living in poverty was expected to increase by about two million, largely due to population growth. Without bold reforms, strong fiscal and monetary policy actions, the report warns that the macroeconomic implications of COVID-19 in 2020 and 2021 will be severe¡ªincluding the loss of life, and the possibility of five million more Nigerians being pushed into poverty¡ªeven if Nigeria manages to contain the spread of the virus.
¡°The unprecedented crisis will require an unprecedented response from the entire Nigerian public sector, in collaboration with the private sector, to contain the outbreak, save lives, and protect livelihoods of the poor and vulnerable,¡± said Marco Hernandez, World Bank Lead Economist for Nigeria, and co-author of the report.
The report discusses policy options in five critical areas that can help Nigeria recover from the impact COVID-19 pandemic:
- Containing the outbreak and preparing for a more severe outbreak
- Enhancing macroeconomic management to boost investor confidence
- Safeguarding and mobilizing revenues
- Reprioritizing public spending to protect critical development expenditures and stimulate economic activity
- Protecting poor and vulnerable communities
Beyond assessing the economic and social impacts of COVID-19, the report also recognizes the need for vital policy reforms to support economic growth and job creation over the medium-term. Selected reform areas discussed in the report include a focus on addressing smuggling as part of a broader agenda around facilitating trade, improving security and preventing counterterrorism, as well as investing in labor-intense agriculture infrastructure to provide for short-term jobs. Reforms also include increasing the processing capacity of agricultural produce by farmers and producer organizations, encourage the return of skilled emigrants and improve channels for safe, regular and orderly emigration for Nigeria¡¯s development.
With reforms in these and other areas, such as within the energy sector, the report notes that Nigeria would be able to mitigate the negative effects of the pandemic, while generating more jobs and improved employment.
Recent Economic Developments
Before COVID-19, Nigeria¡¯s economy was gradually recovering from the 2016 recession, although per capita incomes were still falling because economic growth lagged population growth. Nigeria¡¯s GDP growth rate improved slightly in 2019, reflecting rising service output.
On the supply side, growth was mainly driven by the services sector, which represents about 50% of the country¡¯s gross domestic product (GDP). The principal performers here were telecommunications and financial services, which expanded in part because of policies aimed at increasing credit to the private sector. Agriculture and the oil industry also contributed to growth positively, despite the introduction of an OPEC cap on oil production.
On the demand side, growth was driven by strengthening investment and growing net exports, which more than compensated for still declining domestic consumption. As the GDP growth rate (2.2%) remained below the population growth rate (estimated at 2.6% per year), per capita GDP declined in 2019.
In 2020, in a baseline scenario, the economy is forecast to contract by 3.2%. This assumes an annual average oil price of $30 a barrel. It also assumes that the spread of COVID-19 will be contained in Nigeria by the third quarter of 2020. This revised growth projection is more than five percentage points below the pre-COVID-19 forecast of moderate 2.1%. This will make the predicted 2020 recession at least twice as deep as that of 2015-2016 and the deepest since the 1980s.