“Hard times are here!” Osinbajo Committee says Nigeria faces its most serious economic trouble ever
On Thursday, Nigeria’s Sustainability Committee, led by Vice President Yemi Osinbajo, submitted its report to President Muhammadu Buhari, saying Nigeria is facing its most serious economic trouble ever.
President Buhari had on March 30 established the nine-member committee to develop a clear Economic Sustainability Plan in response to the health and economic challenges posed by the COVID-19 Pandemic and identify fiscal measures for enhancing distributable oil and gas revenue, increasing non-oil revenues and reducing non- essential spending, towards securing sufficient resources to fund the plan.
Mr Buhari also charged the committee to propose monetary policy measures in support of the Plan; provide a Fiscal/Monetary Stimulus Package, including support to private businesses (with emphasis on strategic sectors most affected by the pandemic) and vulnerable segments of the population; articulate specific measures to support the States and FCT; propose a clear-cut strategy to keep existing jobs and create opportunities for new ones; and identify measures that may require legislative support to deliver the Plan.
But in its 76-page report seen by PREMIUM TIMES, the committee, after an extensive assessment of the Nigerian economy, delivered a damning verdict – saying Africa’s most populous nation and largest economy is facing “perhaps the most challenging economic downturn in its history”.
The committee wrote as follows in its report;
Nigeria is currently faced with perhaps the most challenging economic downturn in its history just as the global economy is also confronting its sharpest reversal in a generation. With every country dealing with varying degrees of the same problem, there are few places to turn for help.
For Nigeria, this is a multilayered quandary: a health crisis, a near-total shutdown of economic activities, capital flow reversals and a fast increasing unemployment rate, fuelled by layoffs in almost all sectors of the economy.
Nigeria’s status as an oil-dependent developing economy also puts us in a particularly difficult place. Government revenues have declined significantly, first, on account of the fall in crude oil prices to as low as $12 per barrel in April 2020, and then our inability at times to sell oil, despite its being priced below production cost, because of the shutdown in virtually every area of
manufacturing, services and commerce all over the world. Where this happens, it means that we get virtually no revenues from our oil.
There is also a glut in the global gas market, on account of which we are sometimes unable to sell our stock of Liquefied Natural Gas, potentially wiping out much of the dividends expected from NLNG.
In effect, our major sources of foreign exchange are gravely threatened and our external reserves get little or nothing by way of augmentation. Rather, they are being depleted for external payments and importation.
Non-oil revenue, largely made up of taxes, has also practically dried up. This is because, like several economies around the world, Nigeria is faced with paralysis of economic activities due to lockdown measures in the Federal Capital Territory and the key commercial and industrial centres of Lagos, Ogun and Kano States. In addition, several other State Governments took similar steps to slow the spread of COVID-19 in their respective territories. These have cumulatively resulted in supply chain disruptions, suspension of commercial activities and large-scale job losses.
The depletion of our dollar earnings have also depreciated the Naira, and pushed up prices, especially of imported goods. This is a cause for concern, coming at a time when the average household purchasing power is falling sharply on account of loss of income.
Businesses that depend on importation for raw materials or other inputs for manufacturing are hampered by the sharp drop, by as much as 90%, in foreign exchange earnings and shutdowns in exporting countries. So, rather than expect taxes (CIT, PAYE or VAT),
we should be prepared, at best, for companies reporting losses or seeking tax payment deferment, while government finds a way of shoring up businesses.
“In the face of these emerging challenges, the onslaught of COVID-19 has also meant radically increased demand for resources in the health sector, to provide for mounting personnel costs, hazard pay, emergency equipment, such as personal protective equipment, ventilators, oxygen tanks, testing facilities, isolation centres and drugs. This means, for the appropriate level of response, we would have to significantly increase our health- care expenditure.