On Thursday, Nigeria’s finance minister said the economy could shrink as much as 8.9% in 2020.
Ahmed told Nigeria’s highest economic advisory body, the National Economic Council, that the contraction could reach 4.4% in a best-case scenario, without any fiscal measures.
But with the stimulus, the contraction could be kept to just 0.59%, she said.
The collapse in oil prices linked to the coronavirus crisis has seen Nigeria’s revenues from crude dry up and left an Africa’s largest economy more threatened than ever by its dependence on black gold.
“We will go into recession – but what we are trying to do is to make sure that it is shallow so that we will quickly come out of it, come 2021,” Ahmed told the council in a virtual meeting.
She said 40% of Nigerians were poor and the crisis would increase poverty.
Ahmed said Nigeria had over 6,000 confirmed cases of the novel coronavirus, but that this could rise to almost 300,000 by the end of August. So far 200 people are confirmed to have died with the virus.
Ahmed said the proposal was worth $1.5 billion and intended for Nigeria’s states to provide relief at sub-national level. She said it could be disbursed by September.
Nigeria’s first quarter revenue from crude sales was 940.9 billion naira ($2.6 bln), missing its target by 31% due to the oil price crash, she said.
Ahmed said Nigeria has $72.04 million in its oil savings account as of May 21, compared to $325 million in November.
Nigeria’s central bank is playing a delicate balancing act- Expert
Nigeria wants banks to perform a difficult two-step keep more of their cash for emergencies and aggressively expand lending into a shrinking economy.
Lenders must hold 27.5% of deposits as reserves more than 10 times that of South African banks and six times their Kenyan counterparts as the central bank battles to contain inflation. At the same time, they’re being forced to extend 65% of these deposits as loans to spur growth. Analysts say the measures don’t add up.
“Policy signalling from the Central Bank of Nigeria has been extremely contradictory,” said Ronak Gadhia, a banking analyst at EFG Hermes Research in London. “It is hard to manage the two policy objectives concurrently, especially in the current environment,” so banks are instead topping up cash reserves rather than accelerating lending, even if it means being penalized, he said.
World Bank fiscal relief package for Nigeria
The World Bank expects to make a decision in late July on a $1.5 billion loan to support Nigeria as it fights the novel coronavirus, the Bank’s country director said in an interview on Friday.
The World Bank is working on packages that could provide more than $3 billion to Africa’s largest economy, which is facing what the lender says may be its greatest fiscal crisis in 40 years, set off by the coronavirus pandemic and the resulting oil price crash.
“We were hoping to present to our board by late July or latest early August, because the government will need the finance,” Shubham Chaudhuri, its Nigeria country director, told Reuters.
“The immediate challenge is a fiscal one: How does the government marshal the fiscal resources to keep basic government functions going?” Chaudhuri said.
Government preparedness, economy re-opening amid coronavirus
The Minister of Finance of Nigeria said: This is a very difficult time because the challenges we have now are double. There is health challenge, there is an economic challenge. Even as we are addressing the current health challenge, we still have to look at how we can support the economy so that the economy does not fall into a depression.
“We have to feed the people and you can only feed the people if people go out and farm. We are a very large population, we don’t want to take the risk and we don’t have enough funds to cushion the effect,” she said.
“But with the work that the Economic Accessibility Committee is doing bringing stimulus packages, we believe that we can reduce the impact of that recession.
“And if we applied all that have been proposed and we are able to implement it, we may end up with a recession that is -0.4 per cent. In any case, we will go into recession, but what we are trying to do is to make sure that it is shallow, so that we will quickly come out of it come 2021,” Mrs Ahmed concludes.