ABUJA, 15 JUNE 2021 Nigeria’s economy contracted by 1.8 percent in 2020, the most since 1983. The economic recession was triggered by the COVID-19 crisis; the external environment was characterized by capital withdrawals, increased risk aversion, low oil prices, and falling foreign remittances.
Nigeria’s Current Situation According to Resilience through Reforms, the Nigerian government’s reforms were crucial and timely in reducing the impact of the recession on the economy and creating additional fiscal headroom. Slippages in reform would jeopardize the recovery’s speed and hinder the government’s ability to solve human and physical capital shortages.
The paper addresses policy alternatives for lowering inflation, protecting the poor and vulnerable, and assisting the revival of the economy. To achieve these objectives, major efforts in exchange rate management, monetary policy, trade policy, fiscal policy, and social protection would be required. The following are some specific measures that should be taken:
- To decrease distortions in allocations in the private and public sectors, and to ensure that agents can access foreign exchange in a timely and orderly manner, at an agreed rate, exchange rate management rules should be made more transparent and predictable.
- Priorities and objectives for monetary policy that are well defined, with price stability as the primary goal. Resumption of naira-denominated open-market operations (OMOs) on a clear issuance schedule, as well as a signal to markets that OMOs will use short-maturity securities to maintain price stability.
- Reopening land borders to trade completely and effectively, as well as enhancing regional cooperation to combat smuggling.
- Imports of staple foods and pharmaceuticals will be made easier by eliminating them from the list of foreign exchange (FX) limitations and replacing them with tariffs that are aligned with the ECOWAS Common External Tariff.
- Creating tools to track and report the federal government’s stock of Central Bank overdrafts in order to keep the money supply under control.
- Full elimination of the gasoline subsidy; and the design of a series of reforms to raise non-oil revenue in a way that does not jeopardize the economy’s recovery, such as raising excise taxes on harmful consumer goods, rationalizing tax expenditures, closing tax loopholes, and improving tax compliance by strengthening revenue administration.
- Using the National Social Safety Nets Program (NASSP) to give more household payments and temporarily enhance transfers to current beneficiaries.
Nigeria’s GDP is predicted to increase by 1.8 percent in 2021, yet the prognosis is quite uncertain. The rebound would be fueled by an increase in oil exports as well as increased local consumption. Nigeria’s recovery, on the other hand, is predicted to lag behind that of other oil producers, and an unexpected drop in oil prices could jeopardize the moderate growth forecast. Furthermore, macroeconomic risks are exacerbated by rising inflation and unemployment, and tertiary sector activity will not fully stabilize unless COVID-19 is contained. Nigeria’s GDP is expected to approach 2010 levels by the end of 2021, reversing a decade of economic progress. Because the economy is expected to grow more slowly than the population, GDP per capita is expected to continue to decline.
2021: Is Nigeria still in recession?
In 2020, the Nigerian economy entered a new recession, reversing three years of progress following the 2016 recession.
Containment measures against COVID-19, which harmed aviation, tourism, hospitality, restaurants, manufacturing, and trade, and so disrupted the global economy, triggered the 2020 recession. The GDP shrank by 3.6 percent in the third quarter after contracting by 6.1 percent in the previous quarter.
The country had left recession once more by the end of the year. The Nigerian economy in 2021 was shaped by the confirmation of the end of the recession, as well as other significant happenings.
Is Nigeria currently experiencing a downturn?
According to the World Bank, the economy of Sub-Saharan Africa will contract by 2.1 percent in 2020, and by 5.1 percent in 2025. Nigeria’s economy, meanwhile, has officially entered a recession for the second time in the previous five years.
Is Nigeria’s economy in trouble?
George, like millions of other small and medium-sized business owners in Nigeria and throughout the world has had to persevere and adapt to the COVID-19 pandemic’s slings and arrows.
According to the International Monetary Fund, Nigeria’s GDP contracted by 1.8 percent in 2020, the biggest drop since 1983, and is predicted to increase only 2.5 percent this year.
Rising prices are a stumbling block to growth. As countries have lifted viral limitations, raw material supplies have not kept up with demand, forcing food, gasoline, and other raw materials costs to skyrocket.
According to the United Nations, global food prices reached a decade high last month.
Local factors in Nigeria are exacerbating the effects of global price pressures.
“Noneconomic factors like as insecurity have impacted the economy and contributed to inflation, because farmers, for example, are afraid to go to their farms,” said Sheriffdeen Tella, an economics professor at Olabisi Onabanjo University.
“The exchange rate is one of the economic factors. The Central Bank first depreciated the currency, resulting in a significant rate of inflation. And most items are exchange rate sensitive because they rely on imports,” he added.
All of this makes it particularly difficult for Nigeria’s small and medium-sized businesses, which account for 96 percent of all businesses and 84 percent of all jobs.
Furthermore, passing on greater raw material costs to clients has risks because it may force customers to either go elsewhere or do without.
“The issue is that if it’s items that people can live without, it’ll be difficult to pass on the costs to customers,” Tella explained.
He got a contract to supply monthly notebooks for a school at a predetermined price in June, when a ream of paper cost 5,100 naira ($12.4). The price of a ream of paper had risen to 7,000 naira ($17) by October, wiping out his profit.
Kareem explained that the school was sympathetic to his position and decided to suspend his contract until further notice. But that isn’t the only business he hasn’t been able to recover.
“I’ve squandered a lot of possibilities,” he admitted. “Did you notice me doing anything when you came in?” I was dozing off. “The folks for whom I labor are not prepared.”
What will the Nigerian economy look like in 2021?
Nigeria’s GDP grew at its quickest annual rate in eight years in 2021, owing to a shift away from oil.
The National Bureau of Statistics reported Thursday that the Gross Domestic Product increased by 3.40 percent last year, the greatest since 2014, when it increased by 6.22 percent.
The economy grew faster than the administration had predicted. While the Ministry of Finance forecasted a growth rate of 2.5 percent for the year, the Central Bank of Nigeria forecasted a rate of 3.1 percent.
When compared to the two preceding quarters, growth in the final quarter of the year was the smallest. Between October and December of 2020, GDP grew 3.98 percent, somewhat slower than the 4.03 percent growth rate recorded in the third quarter and the 5.01 percent growth rate recorded in the second quarter.
While weaker, the fourth quarter increase was the nation’s sixth consecutive quarter of positive growth since the Covid-triggered recession in 2020, which followed economic contractions of -6.10 percent and -3.62 percent in the second and third quarters of that year.
What is Nigeria’s economic future?
Nigeria went into its biggest recession in four decades in 2020, but growth rebounded in the fourth quarter when pandemic restrictions were removed, oil prices recovered, and the government launched plans to counteract the economic impact. As a result, the Nigerian economy contracted less (-1.8 percent) in 2020 than had been predicted when the pandemic began (-3.2 percent). As part of its response, the administration implemented a number of long-awaited policy measures, frequently in the face of strong opposition. Specifically, the government (1) began harmonizing exchange rates; (2) began eliminating gasoline subsidies; (3) began adjusting electricity tariffs to more cost-reflective levels; (4) reduced non-essential spending and redirected resources to COVID-19 (coronavirus) responses at both the federal and state levels; and (5) improved debt management and increased public-sector transparency, particularly for oil and gas operations. These actions were crucial in preserving the economy from a far deeper recession and establishing the groundwork for an early recovery by creating greater fiscal flexibility and maximizing the impact of the government’s limited resources. However, numerous crucial changes remain unfinished, endangering Nigeria’s fragile recovery. Nigeria’s GDP is predicted to rise by 1.8 percent in 2021 under the baseline scenario. Despite the current favorable external environment, which includes rising oil prices and growth in advanced nations, reform snafus would stymie Nigeria’s economic expansion and thwart progress toward its development goals. The pace of economic recovery would slow in a risk scenario in which the government fails to maintain recent macroeconomic and structural reforms, and GDP growth in 2021 may be as low as 1.1 percent.
What is Nigeria’s current economic situation?
Due to a drop in crude oil prices due to falling global demand and containment efforts to combat the spread of COVID19, Nigeria’s economy entered a recession in 2020, reversing three years of progress. Aviation, tourism, hospitality, restaurants, manufacturing, and trade were all impacted by the containment measures. Demand-driven expansion in the financial and information and communications technology sectors was countered by contraction in these areas. The Bank estimates that overall real GDP shrank by 3% in 2020, while mitigating measures included in the Economic Sustainability Programme (ESP) kept the decline from being significantly worse. Higher food costs due to domestic supply limits and the pass-through effects of an exchange rate premium that increased to nearly 24 percent propelled inflation to 12.8 percent in 2020, up from 11.4 percent in 2019. Inflationary pressures were exacerbated by the elimination of fuel subsidies and a rise in power costs. Nigeria’s Central Bank lowered the policy rate by 100 basis points to 11.5 percent in order to boost the economy. Reflecting pandemic-related spending pressures and revenue deficits, the budget deficit expanded to 5.2 percent in 2020 from 4.3 percent in 2019, financed largely by domestic and foreign borrowing. On June 30, 2020, total governmental debt was $85.9 billion (25 percent of GDP), up 2.4 percent from the previous year. Domestic debt accounted for 63% of overall debt, while external debt accounted for 37%. Nigeria faces a huge fiscal risk due to high debt service payments, which are expected to be more than half of federally collected income. The current account deficit was forecast to stay at 3.7 percent of GDP, owing to a drop in oil receipts and sluggish external financial flows.
Based on a predicted recovery in crude oil prices and production, the economy is expected to increase by 1.5 percent in 2021 and 2.9 percent in 2022. Nonoil income could be boosted by the stimulus measures indicated in the ESP and the Finance Act of 2020. As global economic circumstances improve, increased revenues could reduce the budget deficit to 4.6 percent of GDP and the current account deficit to 2.3 percent of GDP in 2021. Reopening borders will improve access to inputs, reducing domestic pricing pressures and inflation, which is expected to reach 11.4 percent in 2021. Should oil prices remain low, there will be a reduction in budgetary space. Flooding and increased insecurity may also pose a threat to agricultural production. Further depletion of foreign reserves from their current level of $35 billion (7.6 months of import cover) could result in a significant depreciation of the currency and inflationary pressures. These risks could be exacerbated if COVID19 sufferers relapse. In Nigeria, high unemployment (27 percent), poverty (40 percent), and expanding inequality continue to be key issues.
Nigeria’s governmental debt, at 25% of GDP, is quite manageable. However, debt service obligations are substantial, and macroeconomic imbalances and policy uncertainties impair the country’s capacity to attract external private financial flows. Nigeria got $7.1 billion in foreign investment in the first half of 2020. This was half of what it had got in the previous year’s similar time. Nigeria’s financial needs necessitate a boost in domestic revenue collection. Non-oil revenue collections currently account for 4% of total GDP. Because of the slowing economy, the revenue yield from raising the value-added tax rate to 7.5 percent from 5 percent in 2020 was lower than expected. If structural measures to improve compliance are supported and illicit money flows are addressed, broadening the tax base could increase Nigeria’s fiscal buffers. Remittances and sharia-compliant sukuk bonds are also possible sources of funding. Remittances totaled $23.8 billion (5.3 percent of GDP) in 2019, although the impact of the COVID19 pandemic in important source markets could lower that figure. In June 2020, the third sale of 150 billion naira ($395 million) sukuk bonds generated 669.1 billion naira, with 162.5 billion naira going to 44 vital road projects. Lower oil receipts, the principal source of foreign exchange, limit the use of foreign reserves as a financing option in the medium term.
When did Nigeria emerge from its economic slump?
According to the World Bank, Nigeria emerged from recession earlier than expected in its October 2020 Sub-Saharan Africa estimate (SSA).
Despite a rise in oil prices, Nigeria’s oil sector suffered in the fourth quarter of 2020, according to the bank’s newest Africa Pulse Report for April 2021, titled ‘COVID-19 and the Future of Work in Africa: Emerging Trends in Digital Technology Adoption.’
Nigeria emerged from its second recession in five years with a 0.11 percent growth in February 2021, according to the National Bureau of Statistics (NBS).
When did Nigeria emerge from its economic slump?
Nigeria’s economy emerged from recession in the fourth quarter of 2020, achieving its first gain in three quarters as the country’s coronavirus-related lockdown was lifted, according to a report released Thursday by the National Bureau of Statistics.
According to the data, GDP increased 0.11 percent from a year ago in the three months between October and December.
The economy dropped by 3.6 percent in the third quarter of 2020, after contracting by 6.1 percent in the second quarter, resulting in Nigeria’s second recession in five years.
The GDP contracted 1.92 percent in 2020, which was better than the International Monetary Fund’s forecast.
Although the growth was small, the NBS said Thursday that it represents the gradual restoration of economic activity following the relaxation of restricted movements and limited local and international business activities in previous quarters.
“As a result, while the Q4 2020 growth rate was 2.44 percent points lower than the previous year, it was 3.74 percent points better than Q3 2020,” according to the NBS.
Real GDP growth was 9.68 percent quarter over quarter in 2020, marking the second consecutive positive quarter over quarter growth rate following two negative quarters.
However, the annual growth rate of real GDP in 2020 is expected to be 1.92 percent, a drop of 4.20 percentage points from the 2.27 percent achieved in 2019.
Is Nigeria a developing country?
SEATTLE, WA (AP) Nigeria, a third-world African country, is recognized as the world’s poverty capital. With the highest rate of people living in extreme poverty, the country has just surpassed India. In Nigeria, over 86.9 million people, or about half of the country’s population, live in extreme poverty.