The coronavirus disease (COVID-19) has become a unique global pandemic which has created a lot of fear in governments and business owners, as there is limited knowledge of the spread, prevention, treatment, containment and the long term effect of the virus.
This has led to an unprecedented lockdown with its crippling effects on the global economy. The lockdown and movement restrictions in major economies have led to low demand, crash in crude oil prices, amongst other downturns. The low crude oil prices have seen Nigeria’s foreign exchange earnings drop drastically with the depleting external reserve.
A Pan-African credit rating agency, in its report titled, ‘COVID-19 in Nigeria: Economic Perspectives and Mitigating the Risks’, has predicted that diaspora remittances for this year are going to witness a 20% decline from last year’s figure.
In absolute terms, the rating agency said that diaspora remittances would drop from the $25 billion that was achieved last year to $20 billion this year.
The report said, “Our prognosis also indicates that with an economic crisis in several western nations, Nigeria could see a slowdown for the first time in over a decade in workers’ remittances.
‘’We are forecasting a 20% drop in the diaspora remittances to $20 billion from $25 billion in the prior year further placing the naira under strain.”
The expected drop in diaspora remittances can be attributed to lockdowns and disruptions in economic activities globally with its adverse effect on the income of businesses and households. This will, for the first time in over a decade, have a negative effect on workers’ remittances to the country.
The decrease or slowdown in diaspora remittances will put further pressure on the country’s external reserve and the Naira.
Recall that the Central Bank of Nigeria (CBN), in reaction to low foreign exchange inflow and declining external reserve, devalued the official exchange rate from N305 per dollar to N360 per dollar and then merge the rates for the Bureau De Change operators, Investor and Exporters (I & E) window and CBN rate.
The Augusto and Company report pointed out that although the country’s import will drop due to travel restrictions and lockdowns in local and global economies, it does not believe that this will provide sufficient support for the naira.
With government of some of the world’s major economies enforcing lockdown and restrictions on both international and local travels, the consumption of energy has shrunk materially which has led to a supply glut in the crude oil market. This is further exacerbated by the trade war going on between Saudi Arabia and the Russians.