The Nigerian economy has remained very weak and since exiting recession in 2017. The growth rate has only been around 2%. In the same vein, the country’s external reserves have declined from about $45 billion in August 2019 to about $34.5 billion as of April 7, 2020, due to the crash in crude oil prices.
Nigeria’s over-dependence on oil for its revenue and foreign exchange earnings continues to weaken the fiscal capacity, just as the high rate of unemployment, infrastructure deficit, poor power supply, among problems have increased vulnerability to external shock.
The outbreak of the Coronavirus pandemic has led to disruptions to the global economy and people’s lives, with adverse effects in the oil market, tourism, investments, supply chains, capital markets, funding of the 2020 budget and so on. These highlighted conditions and others negatively affect Nigeria’s macroeconomic stability and resilience to external shock.
In order to develop some strong resilience against these external shocks, the country needs to develop some short term reforms and actions to reduce the impacts of the Coronavirus pandemic on the Nigerian economy. In a report published by the Nigerian Economic Summit Group (NESG), as seen by Nairametrics, some of the needed short-term reforms were highlighted. See below:
- Restructuring Nigeria’s debt basket to allow for more domestic borrowing: Here, the government needs to increase the domestic debt limit because this is key to the country’s ability to secure external debts. This will ensure that there is enough funding to stimulate economic activities and growth through stimulus spending by the government.
- Review of 2020 budget to reflect current realities in terms of revenue and implement broader budget reforms: This calls for the urgent need to review the 2020 budget to reflect current realities. All non-productive spending should be dropped for projects with high impact on productive sectors and economy. In addition, the procurement process needs to be reformed so as to allow for timely execution of capital projects and judicious use of public funds. Note that the government has already taken steps in this regard, as earlier reported by Nairametrics.
- The Government should stop the determination of fuel price: The Government should reconsider its role in the petroleum downstream sector, especially with price regulation. The best option now is to stop fuel price determination/control and let market forces dictate the price. This will ensure the limited available resources are judiciously used for infrastructural development rather than supporting consumption through subsidy.
- Monetary Policy Consolidation: The government needs to make some critical monetary reforms such as moving away from multiple exchange rates, among others. Also, there is the need to create an instrument for maturing Open Market Operation (OMO) securities in order to get into the buy-in by investors. This will help mop-up liquidity in the system and reduce inflationary pressure. Most importantly, the government must work on strengthening the Central Bank of Nigeria (CBN)’s balance sheet, which will provide some support to the financial system and ensure its stability.
- Work on attracting FDI: The Government should also work on consolidating all policies that affect trade, economic activities, and investments. The current business and investment environments are hostile to both foreign and local investors. The provisions of the Finance Act 2020 show examples of the kind of activities required. For example, there was about $58.4 billion worth of foreign direct investments (FDI) that were delayed in 2019 due to unclear regulations in the country. In the same view, there is an urgent need to stop total reliance on the government for infrastructural funding. A more private sector-driven approach should be considered. A framework for Public-Private Partnership should also be strengthened.
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- Stop ad-hoc policymaking and engage stakeholders: The policymaking approach must be properly coordinated and consistent with existing plans. Engagement with relevant stakeholders before critical decisions are made should be practised across board. Also, relevant government Ministries, Departments, and Agencies(MDA) must conduct a cost-benefit analysis in the process. Not only does this send the proper signal to investors, but it also provides concrete evidence to support or challenge a course of action.
- Urgently revisit the closure of the land borders: The NESG urged the government to work with regional neighbours towards resolving the issues concerning the reopening of land borders as the adverse effects of border closure on trade and employment are increasing.