NIGERIA’S federal government has suffered a 40% drop in revenue this year due to economic impact of the coronavirus pandemic according to vice president Professor Yemi Osinbajo who warned that the nation now faces grim times.
Between 1999 and 2015, Nigeria’s economy grew by about 6% annually but after then it went into recession as a result of investors pulling out and a collapse in global crude oil prices. Over the last two years, the economy has recovered a bit, growing by between 1% and 2% annually but with the Covid-19 crisis, this has been derailed.
With the spread of the pandemic, there has been a global economic shutdown and crude oil has suffered from a collapse in both prices and demand. Being a mono-economy in which over 90% of government revenue comes from the sale of petroleum, Nigeria has been hit hard by the lockdown as not only has demand for crude oil collapsed but so too have prices.
Nigeria’s 2020 budget of $28.8bn was predicated on the country selling 2m barrels of oil a day at $57 a barrel but with both demand and prices collapsing, Nigeria will be lucky to generate $15bn this year. As a result, the government has resulted to borrowing a total of about $10bn from the World Bank and International Monetary Fund to finance the 2020 budget.
In a statement titled How we are converting Covid-19 pandemic to opportunity to reset the economy, Professor Osinbajo pointed out that the country needed to diversify its economy to overcome the problem. Speaking in Abuja at a webinar organised by the Commonwealth Enterprise and Investment Council with focus on Nigeria, the vice president said the government’s main objectives were to retain and create jobs, to assist vulnerable people, support businesses and undertake infrastructural investments.
Professor Osinbajo said: “It seemed the sun was beginning to shine quite brightly after the years of recession and its immediate aftermath. Then came Covid-19, possibly the worst economic crisis the world has seen.
“For us in Nigeria, it was a perfect storm for oil prices, Russia and Saudi Arabia choosing that very moment for a price war. Then the inevitable lockdowns resulting in closure of businesses and our huge informal economy all but crashed and government revenues fell too by over 40%.”
He added that taking into account the country’s economic size and fiscal limitations, the government had put together a stimulus package of N2.3tn ($3.8bn), which was just over 1.5% of national income. According to Professor Osinbajo, if other factors like the price of oil and length of the Covid-19 pandemic did not worsen further, these interventions would ameliorate the situation with a mild recession expected of minus 0.59%.
“We have taken the opportunity to remove petrol subsidies and to insist that power distribution companies must engage with customers to ensure that new tariffs are based only on improved power supply,” Professor Osinbajo said.