SOME experts say it may take some years before the nation’s economy recovers from the impact of the coronavirus pandemic. To what extent would you say the public health crisis has impacted the nation’s economy?
The outbreak of the coronavirus a few months ago has had profound implications for the Nigerian economy. It poses a major threat to the nation’s macroeconomic fundamentals, the impact of which may be systemic and far-reaching. The looming price war triggered by Saudi Arabia, the largest crude oil exporter, portends even more ominous signs for the Nigerian economy. This is coming on the heels of the collapse of the OPEC – Russia alliance. Saudi Arabia is offering significant discounts to its customers and also increasing output.
This sharp drop in oil price has caused significant dislocations in the 2020 budget and in the economy, especially for a country already grappling with challenges of weak revenue performance and a complete erosion of fiscal buffers. There is the revenue effect of the coronavirus which is related to the drop in oil price. Oil revenue currently accounts for about 50 per cent of government revenue and about 85 per cent of foreign exchange earnings. With the current scenario of tumbling oil price, a drastic reduction in the revenue of government is inevitable in the near time. Expectedly, this would have implications for the level of fiscal deficit in the budget; budget implementation will be constrained; infrastructure financing will be affected; borrowing may increase, and the capacity to fund capital project will be severely constricted. Besides, the global supply chain has been deeply disrupted since China, the second largest economy in the world, is a major supplier of inputs for manufacturing companies around the world, Nigeria inclusive. Many manufacturers and service providers in the country are already experiencing acute shortage of raw materials and intermediate inputs. This has implications for capacity utilisation, employment generation, and retention, and adequacy of products’ supply to the domestic market. There is also an implication for inflation, and the pressures are already mounting. So the implications are quite significant.
I think urgent steps should be taken through appropriate policy choices to attract domestic and foreign non-debt private sector capital for infrastructure financing. However, for this to happen, the policy and regulatory environment must inspire the confidence of investors. Idle non-revenue yielding assets of government should be sold to generate liquidity. Foreign exchange market should be liberalised as much as possible to attract foreign exchange inflows into the economy.
Public Private Partnership should be bolstered to attract private capital into the critical sectors of the economy. Urgent steps should also be taken to reduce the production costs for oil producing companies to make the sector more competitive. I also think Public Private Dialogue should be deepened to harness quality ideas on how to navigate through the current shocks in the economy, among others.