Within days of each other, the Washington institutions – the International Monetary Fund and the World Bank – have both warned that our economy is heading towards a massive recession. Both agree that the novel coronavirus pandemic and the ensuing lockdown have had a heavy impact on macroeconomic growth, poverty and on our human and development prospects. The two international financial institutions are never known for any frivolity. Their warnings ought to be taken seriously by our economic managers.
The IMF announced that our economy would undergo a deeper contraction of 5.4% rather than the more optimistic contraction of 3.4% that was earlier projected in April. However, they are forecasting a rebound of 2.6% in the coming year of 2021. The Fund explains that their downward revision of their earlier forecast is informed by the larger than expected turbulence in global value chains occasioned by the novel coronavirus and its accompanying disruptive impact on international trade and the global aggregate demand for goods and services.
As if this is any comfort, the IMF projects the South African economy will fare worse than Nigeria’s, with a projected decline of a whopping -8.0% in 2020, although expected to do better in its rebound forecasted at 3.5% for 2021.
The Fund’s Chief Economist, Gita Gopinath, was quoted as saying, “Our projection for sub-Saharan Africa overall is a negative 3.2 % in 2020 with a recovery in 2021 of 3.4%.” The general position of the Fund is that the poorer developing countries will fare worse than their advanced industrial counterparts because of their lower level of diversification and their weaker capacity in terms of resilience: …for many countries that are staring out at lower per capita income levels when you have a growth hit of three percentage points, the distress that it causes in people’s lives is in a bigger magnitude than a similar decline for an advanced economy so these are very difficult times…With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting”.
On its part, the World Bank warns that the collapse in oil prices, together with the COVID-19 pandemic, will plunge the Nigerian economy into its worst economic recession since the 1980s. The World Bank, in its report, entitled, Nigeria In Times of COVID-19: Laying Foundations for a Strong Recovery, forecasts a likely contraction of 3.2% in 2020, which is only very marginally more optimistic than the IMF’s forecasted contraction of 3.4 per cent. The forecast assumes that the spread of the pandemic in Nigeria would be contained by the third quarter of 2020. However, if the spread of the novel pandemic gets worse, the economy is likely to contract even further.
Even before the outbreak of the pandemic, the Nigerian economy was forecasted to grow at a modest 2.1% in 2020, a figure that is way below the demographic average annual growth of 3.2 per cent.
Much appears to be hinged on what happens to oil, which still accounts for over 90 per cent of foreign earnings and at least 50 per cent of government revenues. Oil also accounts for 30 per cent of commercial banking credit. For much of this year, oil prices have plummeted to as low $12 per barrel before inching upwards to the current $40 per barrel today.
The World Bank also notes that the pandemic has led to a fall in FDI and portfolio investments, even as capital flight continues to dampen stock exchange activities. More pressures on the naira may further weaken the exchange rate, which in turn will inevitably spur inflationary pressures.
As an international development finance institution, the World Bank pays particular attention to the human costs of world economic conditions. The bank predicts that, beyond the loss of lives, the novel coronavirus shock alone is forecasted to push some five million more Nigerians into poverty this year. Before the pandemic, the number of the poor was ordinarily expected to increase by about two million as a consequence of normal population growth which continues to outstrip the current macroeconomic growth trajectory.
This would mean that the additional five million in addition to the normal expected two million will mean an additional seven million that will fall into the conditions of poverty as internationally defined. From my own calculations of 96 million poor in 2019, there will be a staggering 103 million poor people in Nigeria in 2020. Inevitably, the worst affected will be the most vulnerable segments of society – women, children, the elderly and the infirm.covid
There is also the worsening for employment. The World Bank reported that more than 40% of Nigerians employed in non-farm enterprises reported a loss of income during April-May of this year. There is also the inevitable fall in remittances which is likely to translate into lower levels of household consumption in those sections of society that depend on remittances from family and relations living abroad. Massive losses in manufacturing and services and the impact of the lockdown during this rainy season could also mean lower agrarian productivity and falling incomes for rural dwellers.
Linked to this is a fact that both the IMF and World Bank have shied away from mentioning. During the lockdown in Nigeria, rural bandits and shadowy herdsmen militias have moved into the rural parts of the Middle Belt, which is the bread basket of the country. They have wreaked havoc in terms of a scorched earth policy of killing, raping and land grabbing. Many farmers are finding it difficult to return to their farms during this crucial planting season. Also increasingly affected are states such as Katsina and Sokoto, where killings have increased in recent times. If care is not taken what we may face is not only a massive recession but also creeping famine and widespread food insecurity.