Resetting the Nigerian Economy
Recent developments in the economy once more bring to the fore, the need to take actions that would wean the economy from excessive reliance crude oil earnings for survival. Therefore, there is need to strengthen efforts to stimulate growth and create job
The Nigerian economy has come under pressure in the past few days due to external vulnerabilities.The situation was heightened last Monday following the sharp drop in the prices of crude oil, the country’s major source of revenue.That trading session now termed,‘Black Monday,’ which saw the price of Brent crude, the international oil benchmark, drop by 30 per cent in few hours, to about $30 per barrel from $45 per barrel, has continued to cause unease among policymakers in the country. Since then, the crude oil price has remained soft, trading around $36 per barrel.
Beside the slump in crude oil prices, the effects of the raging coronavirus across the globe have also continued to threaten macroeconomic stability, even as analysts are foreseeing a global economic recession.
Indeed, the slump in crude oil price was triggered by a price war between Saudi Arabia and Russia. Saudi Arabia, the world’s top exporter, had launched a price war over the weekend.The move followed the implosion of an alliance between the OPEC cartel, led by Saudi Arabia, and Russia.
Owing to these, the knock-on effect of these development is already being felt in the foreign exchange market, where the naira has come under pressure, declining to a new low of $375 to US$1 during the week.
However, policymakers and private sector operators that participated at the ‘Going for Growth 2.0’Roundtable that held in Abuja, last week, stressed the need for urgent measures to diversify the economy and insulate it from external vulnerabilities.
Already, in response to the developments in the global economy, the federal government last Monday raised a committee to cut the size of the N10.59 trillion 2020 budget, which is under threat of underfunding.
The committee, which was constituted by President Muhammadu Buhari, has as members the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed; the Minister of State for Petroleum Resources, ChiefTimipre Sylva; the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, and the Group Managing Director of the Nigeria National Petroleum Corporation (NNPC), Malam Mele Kyari.
Aside the task of reducing the size of the budget, the committee is also saddled with the responsibility of reducing the oil benchmark from the approved $57 per barrel to reflect the current realities.
Ahmed said the committee was expected to submit its report to the president on its eventual decision latest Wednesday.
She explained that the committee would determine a new oil price benchmark, the size of a new budget and subsequently make such new decisions public.
She said:“We just met with the president to discuss the matter of the impact of the coronavirus on our economy and Mr. President has formed us into a committee, with the Minister of State, Petroleum Resources, the Central Bank Governor, the GMD NNPC and I as members.
“Our mandate is to make a quick assessment of the impact of this coronavirus on the economy, especially as it affects the crude oil price.We will be writing a report and brief Mr. President tomorrow or Wednesday morning and after that, we’ll also have more substantial information for the press.
“But it is very clear that we will have to revisit the crude oil benchmark price that we have of $57 per barrel; we have to revisit it and lower the price. Where it will be lowered is the subject of the work of this committee.
“What the impact will be on that is that there will be reduced revenue to fund the budget and it will mean cutting the size of the budget. The quantum of the cut is what we are supposed to assess as a committee.
“This is just an initial update to inform you on the directives that we have and subsequently we will be sending a report to the president, after which we will be briefing the press on the actions that government will be taking.”
Going for Growth
But speaking at the ‘Going for Growth 2.0,’ Ahmed allayed fears of an economic crisis in view of the effects of the crash in global oil prices and the Coronavirus epidemic on the nation’s economy.
She called on Nigerians not to panic as the drastic fall in global oil price threatens the country’s 2020 budget as well as its macroeconomic stability.
According to Ahmed, Nigerians must adjust to life beyond oil, following the bleak outlook on the global economy occasioned by the Coronavirus outbreak.
She said there was no doubt that the combination of crude oil price crash and Coronavirus epidemic would put severe strain on revenue, foreign exchange and other sectors of the economy.
The minister said the current economic challenges arising from the dramatic drop in oil price came as a huge surprise to the government.
She called on stakeholders to work together and seize the opportunities provided by the crisis to reset the economy.
The minister said the government would need to resort to measures which were hitherto delayed, adding that this is the right time to act.
She explained:“For us it was a shock and unexpected; we didn’t think the price of oil would go as low as $30 per barrel. So, it came to us as a great surprise.These are very strong headwinds and these headwinds reinforce a wake-up call for us as a country to look towards a life without oil and the time to do that is now.
“But for all of us in this room, we have a responsibility to ensure that we do not spread panic and that we don’t allow speculation, which will not be in favour of our country. We need to put our hands together to weather this storm.
“This is not something that the government can do alone nor is it something that the private sector can do alone; it has to be a partnership- a very strong one. We need to work together to take the opportunities that this same crisis has provided for us.
“For us in government,there are some measures that we need to take, which we have not taken and this is the right time to take those measures.
“We are working as a government to strengthen our macroeconomic fundamentals, which some sectors of the economy were already dished before the crisis and so the crisis is only exacerbating the situation and we knew about that.
“There is no doubt that the combination of crude oil price crash and Coronavirus will put severe strain on our budget revenue, forex and many sectors, we are drastically reviewing the budget as well as redoubling our efforts to raise revenue and plug the leakages and intensify engagement and support of sub-national entities and the private sector in our economic recovery and growth programmes.”
Monetary Policy Measures
Also, the Central Bank of Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, said the CBN had already embarked on measures to significantly reduce lending rates, which have resulted in total banking credit rising to over N17.4 trillion as of January. He reiterated the need to adopt measures that would diversify the economy given the external headwinds that the Nigerian economy faces, which have emerged as a major threat to global growth in 2020.
He added that the impact of the Coronavirus across over 100 countries has affected global supply chains, as well as demand for goods and services.
“The CBN fortunately had already embarked on similar measures,which have resulted in significant