By International Monetary Fund (IMF)’s estimation, Nigeria’s economy is expected to shrink by 3.4 percent this year and the nation of 200 million people could face a recession lasting until 2021.
“Nigeria’s economy is being threatened by the twin shocks of the COVID-19 pandemic and the associated sharp fall in international oil prices,” Kristalina Georgieva, Managing Director of the IMF, said in a statement.
Imminent recession, Nigeria seeks help
As the country faces an imminent recession, it is now seeking more than $7 billion in emergency funds from international lenders including the IMF, World Bank, the African Development Bank, and the Islamic Development Bank even as Fitch and S&P have downgraded Nigeria’s credit rating in recent weeks on the oil slump.
McKinsey recently reported that a “contained outbreak” would lead to a 2.5% contraction in an economy struggling to rally since the 2015 recession, while an “uncontained” outbreak could see Nigeria’s economy shrinking 8.8%.
President Muhammadu Buhari’s administration has taken measures to contain the spread of the virus and its impact by releasing contingency funds to Nigeria’s Center for Disease Control and providing an economic stimulus package to alleviate the impact for households and businesses hit by the downturn. But these measures are not enough to prevent Nigeria from going into a recession that could last until 2021, if COVID-19 continues for six more months, according to the country’s finance minister Zainab Ahmed.
“We are hopeful that this pandemic will be limited in time. If it is an average of three months, we should be able to close the year with positive growth. But if it goes longer than that – six months, one year – we will go into recession,” said the finance minister.
Tumbling oil prices
Nigeria has already reduced its projection of 2.1 million barrels a day of oil production to 1.7 million and has cut a record $35bn budget for 2020 based on an oil price of $57 a barrel, down by about 15%.
As the financial woes increase in oil-rich Nigeria, the country’s main crude export, Bonny Light, fell below $13 per barrel last week and millions of barrels remain unsold, while Brent stood at about $28 per barrel on Friday.
Crude export remains Nigeria’s largest source of revenue, energy and foreign exchange for the past three decades, contributing to more than 90% of aggregate foreign exchange earnings for the country and 80% of federal government revenue, according to government records.
“Nigeria has been talking about diversifying away from oil but it has been slow to effect this pivot. It is once again vulnerable,” said analysts at Rennaissance Capital (Rencap).
“Oil may only account for 9% of GDP, but petrodollars are to the non-oil economy what diesel is to Nigeria’s multitude of generators. It is an important facilitator of economic activity. A sharp decrease in oil revenue implies a significant deceleration of GDP growth. Given how fragile the economy is, we expect it to fall back into recession in 2020.
“The consumer was still in recession – as indicated by its proxy, wholesale and retail trade – which has contracted in the last three quarters. It is in part due to the fragility of the economy coupled with the double hit from the lower oil price and COVID-19, that we are significantly cutting our growth forecast for Nigeria to -0.4% and 1% in 2020 and 2021, respectively, from 2.3% in 2020 and 2021 previously,” said the analysts.