Key players in the nation’s economy including the Manufacturers Association of Nigeria and the Lagos Chamber of Commerce and Industry on Monday said the government may not able to service rising debts and fund budgets as the economy shrunk by 6.1 percent.
The National Bureau of Statistics on Monday disclosed that Nigeria’s Gross Domestic Product contracted by –6.10 percent (year-on-year) in real terms in the second quarter of 2020, ending the three-year trend of low but positive real growth rates recorded since the 2016/17 recession.
The NBS disclosed this in its GDP report for the second quarter of 2020.
The decline was attributed to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19 pandemic.
The domestic efforts ranged from initial restrictions of human and vehicular movement implemented in only a few states to a nationwide curfew, ban on domestic and international travel, closure of schools, and markets among others, affecting both local and international trade.
When compared with Q2 2019, which recorded a growth of 2.12 percent, the Q2 2020 growth rate indicated a drop of 8.22 percent points, and a fall of 7.97 percent points when compared to the first quarter of 2020 (1.87 percent).
Consequently, for the first half of 2020, real GDP declined by 2.18 percent year on year, compared with 2.11 percent recorded in the first half of 2019.
Quarter on quarter, real GDP declined by 5.04 percent.
Furthermore, only 13 activities recorded positive real growth compared to 30 in the preceding quarter.
In the quarter under review, aggregate GDP stood at N34.02tn in nominal terms, or -2.8 percent lower than the second quarter of 2019 which recorded an aggregate of N35.001tn.
Overall, the nominal growth rate was –16.81 percent lower than what was recorded in the second quarter of 2019, and –14.81 percent points lower than what was recorded in the first quarter of 2020.
The acting Director-General, MAN, Mr Ambrose Oruche, the contraction posed a challenge to debt servicing and funding of both recurrent and the capital expenditures.
Oruche said, “The effect is that government will not be able to generate much revenue for the debt servicing we are doing, to take care of the current expenditure, and maybe capital expenditure will not be there.
“Although, the government is saying they need to borrow more so that they can finance themselves out of recession, we already have a debt hang over because we don’t have much revenue to pay for the ones we already borrowed and we have to be cautious on borrowing.”
For an average consumer, he said, “Inflation is also going up; unemployment is going up. So, it is a big challenge for the economy and I don’t know how we are going to cope at this period because the economy is in a very bad shape.”
He said government should implement policies that would find a way of generating revenue for the government, but not over-taxing those who are already paying tax.
The Director-General, LCCI, Dr Muda Yusuf, noted with concern the decline in national output.
He said the 6.1 percent contraction was not a surprise as the number reflected the profound impact of the COVID-19 pandemic on the Nigerian economy.
Yusuf said, “The Nigerian economy is currently in dire straits.
“Apart from the urgent need for policymakers to reflate the economy, it is critically important for policymakers to also tackle the twin challenge of rising inflation and unemployment rates.
“With inflation and unemployment at record high of 12.82 percent and 27.1 per cent respectively.”
Yusuf said, “It is imperative to ensure effective synchronisation of fiscal and monetary policies and proper implementation of the sustainability plan among other measures.
“The structural bottlenecks to productivity in the economy needs to be urgently removed through a mix of fiscal, monetary and regulatory measures.”
He said it was imperative to reduce policy uncertainties in order to inspire the confidence of investors, both domestic and foreign.
The Nigeria Employers’ Consultative Association, on the other hand, called for concerted efforts by all stakeholders to pull the economy from the downward slide.
The Director-General, NECA, Dr Timothy Olawale, in a statement on Monday, said the contraction was not only alarming but also worrisome.
He said although it was expected that the COVID-19 pandemic would create economic shock and disrupt business activities, the data had shown that the level of shock and disruption was highly underestimated.
The NECA boss said it was highly worrisome that the economy was facing unusual times similar to pre-2016 recession.
Olawale described it as a period of increasing inflation, unprecedented high youth unemployment and underemployment rate, dwindling value of naira occasioned by limited access to foreign exchange and a negative growth rate.
He said, “This season calls for a re-appraisal of monetary and fiscal policies to stabilise the economy in order to reduce the social economic consequences of a major recession.”
Proposing a way out, Olawale urged the government to take bold steps by refocusing monetary and fiscal policies to support economic sectors that had the potential for large scale production and employment as a means to kick-start the economy.
He asked government to channel foreign exchange to productive sectors to increase capacity utilisation and pull other sectors in the value chain along with it.
Olawale called for total deregulation of the downstream oil sector and a more deliberate effort at curbing wastages and leakages in government.
The Chief Investment Officer, Sigma Pensions, Pabina Yinkere, said, “We had expected to see a sharp decline in Q2 2020 GDP growth resulting from the COVID-19 induced lockdown, steep decline in oil prices and associated low economic activity for much of the quarter.
“This comes as no surprise as other world economies have faced similar sharp contraction in output because of the global pandemic.
“We expect that Q3 2020 GDP numbers will show an improvement from the 6.1 percent contraction in Q2 as world and domestic economies lift lockdown restrictions.”
The Chief Executive Officer, Economic Associates, Dr Ayo Teriba, said growth figure or GDP figure was not a predicator of employment or poverty or other things in the economy.
Liquidity, he said, was the leading indicator of stability and growth in the economy.
“The more liquid an economy is, the higher the likelihood an economy will be stable and grow, and the higher the likelihood that poverty will reduce,” he said.
He said in other parts of the world, money was made available to those who did not have, to curb poverty.
“If there is liquidity, you will have employment; if credit is available to small and medium enterprises, there will be growth and employment,” he said.
According to him, liquidity also affected forex and indicated if the reserves would decline.
Professor of capital market at Nasarawa State University, Prof. Uche Uwaleke, said, “I think this is going to be the worst this year. A negative real GDP growth is also most likely to be recorded in Q3 2020 but the size will be smaller as the economy gets restarted and crude oil price gradually picks up.
“To ensure, the impact of these economic headwinds are moderated, it is important to increase the size of the various interventions by the government and the CBN and ensure they are well targeted and implemented.”
Uwaleke said the negative growth was in line with global expectations as similar trends had been seen in countries such as the United Kingdom and Japan.