…says pandemic’ll push 5m Nigerians into poverty in 2020
Nigeria’s banking system is at risk of being destabilised as the coronavirus (COVID- 19) pandemic triggers what might be the worst recession since the 1980s for Africa’s largest economy, the World Bank has said. In its latest Nigeria Development Update (NDU) report released yesterday, the World Bank said that if the spread of the virus eases and oil prices remain stable, the economy could contract 3.2 per cent this year and face a slow recovery afterward, adding that the worst-case scenario could see the economy shrinking 7.4 per cent and the recession extending well into 2021. The Bretton Woods institution said the downturn will likely increase Non-Performing Loans
(NPLs), especially in credit extended to the oil industry, while dollar-denominated exposures will exert further pressure on Nigeria’s local banks. According to the World Bank, “The macroeconomic impact of the COVID-19 pandemic will likely be significant, even if Nigeria manages to contain the spread of the virus. Oil represents more than 80 per cent of Nigeria’s exports, 30 per cent of its banking sector credit, and 50 per cent of the overall government revenue. “With the drop in oil prices, government revenues are expected to fall from an already low eight per cent of GDP in 2019 to a projected five per cent in 2020. This comes at a time when fiscal resources are urgently needed to contain the COVID-19 outbreak and stimulate the economy. “Meanwhile, the pandemic has also led to a fall in private investment due to greater uncertainty and is expected to reduce remittances to Nigerian households, which in recent years have been larger than the combined amount of foreign direct investment and overseas development assistance.” The statement quoted World Bank Country Director for Nigeria, Shubham Chaudhuri, as saying: “While the long-term economic impact of the global pandemic is uncertain, the effectiveness of the government’s response is important to determine the speed, quality, and sustainability of Nigeria’s economic recovery. “Besides immediate efforts to contain the spread of COVID-19 and stimulate the economy, it will be even more urgent to address bottlenecks that hinder the productivity of the economy and job creation.” The bank noted that the report showed that the human cost of COVID-19 could be high; adding that beyond the loss of lives, the COVID-19 shock alone was projected to push about five million more Nigerians into poverty in 2020. It stated that before the pandemic, the number of poor Nigerians was expected to increase by about two million largely due to population growth, the number would now increase by seven million – with a poverty rate projected to rise from 40.1 per cent in 2019 to 42.5 per cent in 2020. The World Bank further noted in the report that the pandemic is likely to disproportionately affect the poorest and most vulnerable, in particular, women. “School closures have reduced the food intake of almost seven million children who are enrolled in the national school feeding programme. Economic activities have been disrupted and women’s livelihoods have been particularly impacted. “Over 40 per cent of Nigerians employed in non-farm enterprises reported a loss of income in April-May 2020. In addition, the fall in remittances is likely to affect household consumption because half of Nigerians live in remittance-receiving households, of which about a third are poor. “The unprecedented crisis requires an equally unprecedented policy response from the entire Nigerian public sector, in collaboration with the private sector, to save lives, protect livelihoods and lay the foundations for a strong economic recovery,” said Marco Hernandez, World Bank Lead Economist for Nigeria and co-author of the report.
The Bank noted that the Nigerian government had already taken important health, fiscal and monetary measures to contain the virus outbreak, moderate the recessionary pressures and start mitigating the effects of the economic shock. The report discusses policy options in five critical areas that can help Nigeria recover from the COVID- 19 crisis, containing the outbreak and preparing for a more severe outbreak, enhancing macroeconomic management to boost investor confidence. Others are safeguarding and mobilizing revenues, reprioritizing public spending to protect critical development expenditures and stimulate economic activity; and protecting poor and vulnerable communities. “Besides the assessment of the economic situation, this edition of the Nigeria Development Update discusses the impacts of the 2019 land border closure; the opportunity to promote agribusiness for food security and job creation; and options to leverage emigration, remittances, and the diaspora for development,” the Bank stated.