COVID-19: Nigeria’s GDP May Shrink By 7.2- AfDB Economic Outlook

Says Accounts Mainly For Africa’s Recession

The African Development Bank (AfDB), on Tuesday, released its revised African Economic Outlook showing that the continent’s real GDP could contract by 1.7% and as much as 3.4% in 2020, should the impact of the Coronavirus pandemic linger beyond the first half of 2020. The initial Economic Outlook, which was released on January 30 had forecast 3.9% for the continent in 2020 and 4.1% next year.

This is a significant drop from the 7.3 percentage points growth projected before the outbreak of COVID–19, with the continent’s five largest economies- Nigeria, South Africa, Algeria, Egypt, and Morocco, together accounting for a large portion of the recession in the continent. Specifically, it said “the projected recessions in Nigeria and South Africa alone account for more than half of the contraction in 2020. The overall contraction would have been deeper if not for the counteracting effect of Egypt, which is projected to maintain a growth of 2.2% in the baseline scenario.

Although, the report calls for a more coordinated, targeted and rapid manner response by governments and development partners to effectively limit the impact of the pandemic, without which Nigeria’s economy could contract by between 4.4% and 7.2%. This would depend on the gravity and duration of the global health crisis, wiping out gains from three consecutive years of growth since the 2016 recession.

The projection, the report believes, may not come as a shock to the country’s government, which depend 90% on crude oil and gas for total export revenue and over 50% of cumulative revenues, at a time it “projects oil revenues to decline by 90% in 2020 due to the decline in oil price triggered by low demand.

Nigeria’s budget deficit, the report continued, is projected to jump to 6.7% in the baseline scenario, “with potential to deteriorate to 7.8% if the pandemic persists beyond the second half of 2020.”

With the falling crude oil prices and a cut in production output as agreed by members of the OPEC cartel, lower exports could bloat the current account deficit to between 4% of GDP in the baseline scenario and 5% in a worst-case scenario, wiping out the pre-COVID–19 projected marginal surplus.

As if these were not enough bad news already, the AfDB outlook says the COVID–19 pandemic is now a socio-economic crisis with far-reaching implications on jobs and poverty, even as Nigeria’s inflation rate could touch the 14% mark this year, from the 11.1% projected before the crisis.

The AEO, noted the cocktail of fiscal and monetary policy stimulus measures taken to mitigate the economic impact of the pandemic, including the government’s N500bn ($1.4 billion) credit facility to support health-care facilities, tax reliefs, and incentivizing employers to retain and recruit staff during the downturn, among others. 

On its own part, the AfDB acknowledged the Central Bank of Nigeria (CBN) packages such as N50bn ($139m) targeted credit facility and liquidity injection of N3.6tr (2.4% of GDP) into the banking system. This was in addition to reducing interest rates from 9% to 5% on all its applicable interventions and introduced a one-year moratorium on its intervention facilities.

The report, however, expressed belief that “the pandemic presents an opportunity to strengthen the health system’s resilience and stimulate economic growth, which will require additional resources and targeted investment.” 

It called for prudent deployment of financing from development partners “to improve the quality of the health sector as well as undertake structural reforms to build economic resilience against future shocks.

Failure to adopt a coordinated approach to tackling the pandemic among stakeholders in the African economy, the report warns, could push 49m more Africans into extreme poverty in the aftermath of the pandemic. Worst hit, it noted, could be West and Central Africa, especially Nigeria and Democratic Republic of Congo, two of continent’s most populous countries. Both countries could account for as much as “8.5m and 2.7m respectively in the baseline scenario in 2020, and 11.5m and 3.4m in the worst-case scenario.”

The  outlook  for  Africa’s  recovery  in  the  short  and  medium term, the AEO said, remains uncertain and susceptible to the immediate and long-term consequences of the COVID–19  pandemic, even as Africa’s  growth  is  projected  to  rebound  by 3% in  2021  in  the  baseline  scenario and 2.4% in the worst-case scenario.

“This V-shaped recovery would only be partial since sectors such as tourism, transportation, and entertainment may take longer to fully recover as people gradually readjust to the new normal in social interactions.

The projected recovery in 2021 may not make up for an estimated cumulative loss to Africa’s GDP of between $173.1–$236.7bn for 2020 and 2021 due to the pandemic

Africa’s economic growth could rebound in 2021, provided that governments manage the COVID-19 infection rate well, according to.

A statement by the bank quoted Charles Leyeka Lufumpa, Acting Chief Economist and Vice President for Economic Governance and Knowledge Management, at the AfDB as saying that to reopen economies, policymakers must “follow a phased and incremental approach that carefully evaluates the trade-offs between restarting economic activity too quickly and safeguarding the health of the population.

“Economic activities can be restarted incrementally on the basis of the transmission risks of different sectors,” Lufumpa said.

Executive Director of the African Economic Research Consortium and Former Governor of the Central Bank of Kenya, Njuguna Ndung’u described the African Economic Outlook 2020 supplement as “a very important and useful policy tool for African countries who actually need it at this time.

“It will be useful now and in the future. It gives us important short, medium- and long-term strategies,” he added, stressing crises like COVID-19 present a good opportunity for innovative reforms in countries.

Hanan Morsy, Director of the Macroeconomic Policy, Forecasting and Research Department at the AfDB, said the outlook “shows that for the first time in the last half-century, Africa would be facing an economic recession as a fallout of the COVID-19 pandemic. This would affect the gains achieved in poverty reduction as an estimated 49 million Africans could be pushed into poverty, with about 30m jobs on the verge of disappearing.  Policymakers need to act fast to alleviate the impact of the crisis on vulnerable groups through well-targeted social safety net measures.”

The report called for urgent policy interventions to mitigate the impact of the pandemic: “Across Africa, the response must be well-sequenced and multipronged, involving a public health response to contain the spread of the virus and minimise fatalities, a monetary policy response to ease liquidity constraints and solvency risks, and a fiscal response to cushion the economic impacts of the pandemic on livelihoods and to assist businesses.”