Views on Nigeria and economic impact of COVID-19

David Cowan, Citibank’s chief economist for Africa t’s important to stress that there are some similarities and differences between the oil price crashes that we have seen.

When Nigeria went into the last oil price crash that started in late 2014, the country had been like an economy on steroids. The $100 oil price in the prior four years meant that Nigeria was like a Mercedes-benz rolling down the Lekki-epe express way at 100 kilometres per hour. This time, Nigeria limped into the oil price shock. GDP growth managed to get to 2.5 percent in the last quarter of 2019. The economy wasn’t on this super FX fuelled boom, but even though the impact is also not good, it’s not the same sort of abrupt collapse we saw in 2015-16.

IJesmin Rahman, IMF mission chief to Nigeria igeria entered this crisis in a weak position. If we look at average real GDP growth in the last three years prior to the crisis, it was at 2%, roughly half the growth in peer countries and firmly below population growth.

Inflation at 12% was roughly three times the average in peer countries. Let’s look at a couple of key macro balances; I have here consolidated fiscal deficit and current account deficit. When we compare these levels to how they were in 2014 which was the last time before Nigeria experienced a commodity shock, these balances were much worse last year. And what is more worrisome is how these deficits were financed. For example fiscal deficit was to a great degree financed through monitization or central bank borrowing, while current account deficit was financed was significantly finances through short term portfolio flows.

In other words, Nigeria entered this crisis with low policy space as well as risky financing structure. So not surprisingly Nigeria has been hit-hard.

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