Views on Nige­ria and eco­nomic im­pact of COVID-19

Business Day (Nigeria) - - NEWS -

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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