The Federal Government said on Thursday that unless the country achieves a strong third quarter economic performance in 2020, the country stands the of going into a second recession with significant adverse consequences.
The government also warns that Nigeria faces signiﬁcant medium-term ﬁscal challenges, especially with respect to its revenues, which if not immediately addressed could snowball into a debt sustainability crisis.
Minister of state for Finance, Budget and National Planning, Clement Agba disclosed this while speaking at an interactive session with the House of Representatives joint committees on Finance, Appropriation, Budget and Economic Development as well as Loans, Debt Management.
Agba who represented the Minister for Finance, Budget and National Planning, Zainab Ahmed at the event said Nigeria is currently exposed to spikes in risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market.
Agba admitted that the Nigerian economy faced serious challenges in the first half of 2020 with the microeconomic environment signiﬁcantly disrupted by the COVID-19 pandemic.
According to him, crude all prices declined sharply in the “mild market with Bonny Light crude oil price dropping from a peak of US$72 pb on January 7, 2020 to below US$20 in April, 2020 as a result of which the US$57 crude oil price benchmark on which the 2020 budget was based became unsustainable.
He said further that massive output cut by OPEC and its allies to stabilize the world oil market was another key development in the international crude oil market with Nigeria contributing about 300,000 bpd of production cuts.
The Minister explained that the impact of these developments is about 65% decline in projected net 2020 government revenues from the oil and gas sector, with adverse consequences for foreign exchange inﬂows into the economy.
He said further that Nigeria is currently exposed to spikes in risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market.
He stressed that as a result of the decline in revenue, Nigeria‘s Q2 GDP growth is in all likelihood negative, and unless we achieve a very strong Q3 2020 economic performance, the Nigerian economy is likely to lapse into a second recession in four year, with signiﬁcant adverse consequences.
He stressed that in response to the developments affecting the supply of foreign exchange to the economy, the Central Bank of Nigeria (CBN) adjusted the ofﬁcial exchange rate to N360/USD1, and more recently to N379/USD.
He maintained that the disruptions in global trade and logistics would negatively affect custom duty collections in 2020, while the COVID-19 containment measures have inhibited domestic economic activities, with consequential negative impact on taxation and other government revenues.