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IMF expects Nigeria’s GDP to shrink by 5.4% in 2020

IMF warns that the reductions in GDP due to COVID-19 will widen inequality.

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Kristalina Georgieva, IMF boss hints at 'synchronized slowdown' in global growth , IMF: 40% of African countries can't pay back their debts , Nigeria worse off, posts grows lower than LIDC benchmark - IMF, Measures introduced by Nigeria to ensure transparent use of the $3.4b IMF loan

The International Monetary Fund (IMF) has announced that the Nigerian economy would witness a deeper contraction of 5.4% and not the 3.4% it projected in April 2020. But the global lender expects Nigeria’s economy to rebound by 2.6% in 2021. 

IMF says the forecast is influenced by the larger than expected storms to global value chains due to the coronavirus, affecting global demand for goods and services. 

The IMF expects poorer nations dealing with the disease to have longer economic recoveries as lockdowns continue in the worst-hit to global GDP since the Great Depression. 

Gita Gopinath, IMF Chief Economist said: “our projection for sub-Saharan Africa overall is a negative 3.2 % in 2020 with a recovery in 2021 of 3.4%.” 

READ MORE: IMF list unpopular policies CBN must reverse

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South Africa’s economy is expected to decline by 8% in 2020 and a 3.5% rebound forecasted for 2021. 

IMF says the higher than expected GDP decline is a sign that poorer economies are being hit harder because,  “for many countries that are staring out at lower per capita income levels when you have a growth hit of 3 percentage points, the distress that it causes in peoples lives is in a bigger magnitude than a similar decline for an advanced economy so these are very difficult times.” 

“With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting,” IMF said in its revised World Economic Outlook. 

The rebound of equity markets globally “appears disconnected from shifts in underlying economic prospects”. The fund expects reduced consumption due to larger than expected disruptions to domestic appetite for goods and services due to social distancing measures for COVID-19. 

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Chief Economist, Gita Gopinath said last month that the global outlooks are worse than previously expected and the fund may downgrade its April forecasts based on data its computing. 

Fiscal Monetary Policies seem to have eased in first world nations and emerging economies. 

Globally, Central Banks have announced stimulus plans up to $11 trillion, which is $3 trillion higher than April estimates. These plans are expected to soften the effects on the declining economic activity and limited the rising borrowing costs, also emerging markets portfolios have seen a recovery from earlier withdrawals. 

The fund says the reduced global GDP could “tip some economies into debt crises and slow activity further”. 

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The US GDP is set to take an 8% hit in 2020, compared to 5.9% earlier predicted,  2021 growth forecast is pegged at 4.5%. The Euro Area is expected to shrink by 10.2% in 2020 and grow 6% in 2021. 

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Emerging Markets are expected to shrink by 3% while advanced economies by 8%, compared to 6.1% previously predicted. 

China will see a little growth as it’s expected to grow by just 1%. Brazil is expected to shrink 9.1%, Mexico by 10.5% and India by 4.5%. 

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IMF warns that the reductions in GDP due to COVID-19 will widen inequality, with over 90% of emerging market economies expected to have per capita income declines. 

Global trade for goods and services will also shrink by 11.9% this year. 

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The group expects 2 possible scenarios, first a possible second virus outbreak next year which will disrupt economic activity to about half the value expected for this year, emerging economies are expected to feel the heat more and global outlook will be 4.9% lower than 2021 forecasts. 

The other scenario predicts a faster than expected economic rebound with global forecasts 3% higher than 2021 expectations. 

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Economy & Politics

Nigerian government spends equivalent of 83% of revenue to service debt in 2020

The Federal Government of Nigeria achieved a debt service to revenue ratio of 83% in 2020.

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The Federal Government of Nigeria achieved a debt service to revenue ratio of 83% in 2020. This is according to the information contained in the budget implementation report of the government for the year ended December 2020.

According to the data seen by Nairametrics, total revenue earned in 2020 was N3.93 trillion representing a 27% drop from the target revenues of N5.365 trillion. However, debt service for the year was a sum of N3.26 trillion or 82.9% of revenue.

READ: FG posts 27% revenue shortfall in 2020 as budget deficit hit N6.1 trillion

Nigeria’s debt service cost of N3.26 trillion has now dwarfed the N1.7 trillion spent on capital expenditure of N1.7 trillion incurred in 2020. This is also the highest debt service paid by the Federal Government since we started tracking this data in 2009.

The total public debt (External and Domestic) balance carried by Nigeria as of September 2020 stood at N32.22 trillion ($84.57 billion). Included in the total debt is a domestic debt of about N15.8 trillion.

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READ: Nigeria’s high recurrent costs, low revenue and escalating debt numbers

READ: Customs revenue rises by N200 billion to hit N1.5 trillion in 2020

What this means: Nigeria’s debt to GDP ratio is estimated at about 22%, one of the lowest in the world and much below what is obtainable in most emerging markets.

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  • However, the challenge has always been the debt service to revenue ratio, a metric that reveals whether the government is generating enough revenues to pay down its debts as they mature.
  • Since the first recession experienced in 2016, Nigeria has struggled with a higher debt service to revenue ratio as revenues slid in direct correlation with the fall in oil prices.
  • Nigeria’s government spent about N2.45 trillion in debt service in 2019 out of total revenue of N4.1 trillion or 59.6% debt service to revenue ratio.
  • At 83%, 2020 ranks as the highest debt service to revenue ratio we have incurred. Before now it was 2017 with 61.6%.

READ: PayVIS: New Lagos State platform to use traffic cameras to fine traffic offenders

Breakdown of what debts were serviced

The following amount was spent on debt service during the year

  • To service domestic debt, the government spent N1.755 trillion in 2020 as against a budget of N1.87 trillion.
  • For foreign debts, a sum of N553 billion was spent against a target budget of N805.47 billion. The drop here is likely a result of lower interest rates on foreign borrowing as well as very limited borrowing from the foreign debt market during the year.
  • The government only contributed N4.58 billion into its sinking fund instead of the budgeted N272.9 billion.
  • The sinking fund is required to set aside funds that will be used to pay down on other loans such as bonds when they mature in the future.
  • Finally, a sum of N912.57 trillion was spent on servicing CBN’s loans, granted via its Ways and Means provisions.
  • Nairametrics reported last week that a total sum of N2.8 trillion was extended by the CBN to the FG as Ways and Means.

READ: World Bank hopes to cut down debts of poor countries rather than delay payments

What happens next: In 2021, the government projects a debt service of N3.1 trillion against revenue of N6.6 trillion or debt service to revenue ratio of 46.9%.

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  • The government plans to spend N4.3 trillion on capital expenditure during the year.

 

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Economy & Politics

FG receives N144 billion in dividends from NLNG in 2020

NLNG, paid the Federal Government a dividend of N188 billion in the fiscal year ended December 2020.

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Nigeria Liquified Natural Gas Company, NLNG, paid the Federal Government a dividend of N144 billion in the fiscal year ended December 2020.

This is according to the information contained in the Ministry of Finance Budget implementation report for the period of January 2020 to December 2020 and presented by the Minister for Finance Dr. Zainab Ahmed.

During the year, the Federal Government budgeted a sum of N80.3 billion as its share of dividends from NLNG, however, the actual sum received as its share was N144 billion, N63.2 billion more or 79% higher than projected.

The year 2020 was a difficult year for the government as the fall in crude oil prices and the economic shutdown that was triggered by the Covid-19 Pandemic dented projections and ravaged revenues.

READ:  NLNG says Train 7 project will surge production capacity to 30 million MPTA 

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NLNG Dividend Bliss

The dividend received from NLNG was a major bright spot in the government’s revenue performance for the year.

  • During the year, the government projected revenue of N5.36 trillion but only received N3.9 trillion in revenues representing a shortfall of N1.4 trillion or 27% for the year.
  • The huge dividend windfall received in 2020 is a stark contrast from 2017 when Nigeria just exited a recession triggered by falling oil prices and a sharp exchange rate devaluation.
  • In that year, the Federal Government’s share of dividends from Nigeria Liquefied Natural Gas (NLNG) dropped by as much as $687 million, from $1.04 billion in 2015 to $365 million in 2016, a 65% drop.
  • The N144 billion received in 2020 topped the amount received from signature bonuses only N78.2 billion and complimented the N192 billion received by VAT.
  • It is the most effective form of revenue generation for the government.

READ: NLNG signs 10 year sales deal with Eni

NLNG Controversies

Back in July Nairametrics reported that the House of Representatives planned to investigate the alleged illegal withdrawal of $1.05 billion from the NLNG account by NNPC without its knowledge and appropriation.

  • They had accused the NNPC of illegally tampering with the funds at the NLNG dividends account to the tune of 1.05 billion dollars thereby violating the nation’s appropriation law.
  • NLNG is a company jointly owned by Nigerian owned NNPC(49%), Shell (25.6%), Total (15%), and ENI (10.4%).
  • The company is located in Bonny Island and has six trains with a total capacity to process 22 million tonnes of LNG a year and as much as 5 million tonnes of natural gas liquids.
  • NLNG currently accounts for about 7% of the total LNG supply in the world. Nigeria is ranked as the 4th exporter of Natural Gas in the world.

READ: NLNG signs supply agreement with Galp Trading SA

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Upshots: The FG is targeting a revenue of N208 billion from NLNG as dividends in 2021. If this materializes, it will be a significant payout in dividend (in naira terms) competing with the N238.4 billion expected from VAT.

  • Important to note that the recent devaluation of the naira will increase the naira value of dividends and other government revenue, as it did in 2020.
  • The government also targets N6.6 trillion in revenue for the period under review.

Updated: An earlier version of this article captured the dividend as N188 billion instead of N144 billion. It has now been corrected. 

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Economy & Politics

Uganda Elections: Museveni re-elected for 6th term with 58.6% of the votes

Uganda’s President Museveni has won a 6th term in office as the opposition alleges wide-scale rigging.

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The President of Uganda, Yoweri Museveni, has been re-elected as President, gathering 5.85 million votes compared to 3.48 million votes by main opposition leader, Robert Kyagulanyi, a.k.a Bobi Wine.

According to Reuters, this victory represents 58.6% of the vote cast while Bobi Wine got 34.8%

Bobi Wine announced that the election results show this is the most fraudulent election in the history of Uganda and urged his followers to reject the result.

What you should know

  • Yoweri Museveni, aged 76, has been President of the East African nation since 1986.
  • Bobi Wine claimed via his official Twitter handle that military men jumped over his fence and took control of his home yesterday.

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