THE African Development Bank (AfDB) has projected that Nigeria’s Gross Domestic Product (GDP), would contract between -4.4 per cent and -7.2 per cent in 2020, depending on the gravity and duration of the coronavirus pandemic.
The monetary Body In its African Economic Outlook, 2020 supplement launched on Tuesday, stated that Nigeria is facing rapidly weakening macroeconomic conditions, triggered by the sharp decline in price of oil to below $30 a barrel in March 2020, from more than $60 at the start of the year.
The pandemic has also had cascading impact through reversed investment flows, volatile financial markets, and disruptions in travel and tourism.
“Real GDP is projected to contract by between 4.4 per cent and 7.2 per cent depending on the gravity and duration of the pandemic, wiping out gains from the three consecutive years of growth since the 2016 recession.”
The report noted that crude oil and gas account for an estimated 90 per cent of the country’s total export earnings and more than 50 per cent of her fiscal revenues.
The report added, “the government projects oil revenues to decline by 90 per cent in 2020 due to the decline in oil price triggered by low demand. Coupled with growing expenditure pressures to mitigate the COVID–19 health and socioeconomic impacts, the budget deficit is projected to widen to 6.7 per cent in the baseline scenario, with potential to deteriorate to 7.8 per cent if the pandemic persists beyond the second half of 2020.
“Lower oil exports will deepen the current account deficit to between 4 per cent of GDP in the baseline scenario and five per cent in a worst-case scenario, wiping out the pre-COVID–19 projected marginal surplus.
“Despite the likely improvement in farm produce as wet season starts, subdued consumer demand and lower than expected growth in bank credit, inflation is forecast to increase to 14 per cent in 2020 from the 11.1 per cent projected before the crisis.
“The COVID–19 pandemic has morphed into a socio-economic crisis with far reaching implications on jobs and poverty.
Meanwhile, Director of the Macroeconomic Policy, Forecasting and Research Department, African Development Bank, Hanan Morsy noted in the presentation of the economic outlook that, “under the baseline scenario, real GDP in Africa is projected to contract by 1.7 percent in 2020. In the worst scenario, GDP could fall by -3.4 percent in 2020.”
Similarly, the Central Bank of Nigeria in a bid to migrate to a single exchange-rate system for the local currency has devalued the naira by 5.5 per cent against the US dollar.
The official rate to the greenback was pegged at N381 from N360, according to data on the website of FMDQ OTC Securities Exchange, the Lagos-based platform that oversees foreign-exchange trading.
The devaluation of the naira follows the CBN Governor Godwin Emefiele’s earlier position to unify its multiple exchange rates for improved transparency in its currency-management system.
It follows a devaluation of the naira in March, when the Central Bank adjusted the official rate against the dollar to 360 naira from 307. At the time, Emefiele said the move was “an adjustment of price and not a devaluation of the currency.” On the central bank’s website, the quoted rate is still 360 naira to the dollar as Tuesday.
In the window where the Central Bank sells foreign exchange to investors and exporters, also known as the Nafex or I&E, the naira traded at 388.52 to the dollar as at morning yesterday in Lagos.
The Nafex, which also acts as a spot-rate for the naira, was introduced in 2017 as a way of wooing back foreign investors spooked by an economic crisis, without formally devaluing the currency but investors have complained of lack of liquidity in that market in recent time.
According to economic analyst at Chapel Hill Denham Securities Ltd. Omotola Abimbola, the devaluation of the official rate is a positive step forward, which reflects the recommendation of multilateral agencies and economists.
He believes the absence of a single rate creates confusion and deters foreign investment, which he says is the position of the International Monetary Fund.
“This only addresses one of the concerns of investors. The other one, which is even more important, is increased flexibility in the I&E window and the resumption of foreign-exchange supply by the central bank in the window.” Abimbola said.