The Realities of Today’s Nigeria
It is true that Nigeria is Sub-Saharan Africa’s largest economy. But it is also true that the country has struggled with slow growth and persistent economic imbalances for years. Undoubtedly, our economic growth is positive, but it is also fragile and vulnerable to even small & routine economic shocks
For instance, the country is yet to fully recover from the severe shock posed by the 2016 and 2019/2020 economic downturn triggered by both a crash in the global price of crude oil and the covid-19 pandemic.
The question on the lips of most of us is: what does the future hold for Nigeria’s already fragile economy? How do we navigate out of the macroeconomic crisis we find ourselves in today?
Specifically, we all want to know why the Nigerian economy is prone to crisis; what the country’s fiscal position and debt are like today, and why; and how the country’s policymakers are responding or have responded to these challenges.
In the recently released Q2 2021 GDP report by the National Bureau of Statistics (NBS), the country’s economy is said to have grown by 4.49% from 0.51% in Q1 2021. This means the country’s economic conditions improved between Q1 and Q2.
For those who have read the report, you will agree with me that the impact of the coronavirus or lockdown measures on citizens’ consumer behavior as well as an increase in the global prices of crude oil were duly recognized and factored into the report.
Of course, while it is true that Nigeria’s recent macroeconomic crisis was triggered by the Covid-19 pandemic and a decline in crude oil prices, the reality is that the Nigerian economy has been very weak (and in decline) for half a decade due to stagnating oil output, falling prices, and counterproductive policymaking. Covid-19 only moved us into a crisis of real GDP.
What we are experiencing today is a SLOW MOTION FISCAL DISASTER. The country’s federal government (and indeed some states) are already spending more of their budget on debt servicing than any other sort of expenditure.
The country’s narrow revenue base of 6% of GDP leaves the government with a very limited ability to service its debts, while repayment costs are already consuming well over half of all the government’s revenue. So, while we look relatively solid on the traditional debt metric, the situation is much more delicate.
It is therefore not surprising that the Naira has continued to lose her value against major trading currencies. In fact, some analysts are of the view that such decline is a result of pressure on our foreign reserves (which is gradually building up due to the rise in global crude oil prices) and bearish sentiments towards emerging markets currencies.
In September 2020, fitch projected that Naira was likely to weaken to between 450 and 480/USD by December, and 500 to 510/USD by early 2021 except if global oil prices rise and over an average period of not less than 6 months and we are able to increase our previous year’s IGR at least 70%. The depreciation, I argued back then, will come in series of steps (has already begun) as in recent years, though the country’s monetary authority is very unlikely to fully liberalize the FX regime.
The implication is that Nigerians have had to endure the outcomes of the painfully slow recovery of the economy due to low private consumption spending, tighter fiscal policy, and a high level of inflation among several other factors. As such, even with improvements in economic activities, the output may not return to the level seen in 2019 until 2023.
Therefore, aside from very slow recovery, Nigeria’s structural weakness and poor policymaking that dragged on growth in recent years will continue except if radical economic measures are taken.