Second Recession Looms, says Federal Government


The Federal Government has said that there is a high possibility of Nigeria sliding into another recession in the Third Quarter of 2020, making it the second time within four years because the COVID-19 pandemic resulted in crash of global oil prices among other economic factors and these have adversely affected the nation’s economy, with the Gross Domestic Product growth for Q2 most likely to be negative.


This was said on Thursday by the Minister of State for Finance, Budget and National Planning, Clement Agba, in Abuja at the beginning of a five-day interactive session on the 2021-2023 Medium Term Expenditure Framework and Fiscal Strategy Paper.


Recall that in July, the World Bank warned that the collapse in oil prices as a result of the COVID-19 pandemic was expected to plunge the Nigerian economy into a severe economic recession, the worst since the 1980s.


During the session, Agba read out a written presentation by the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, titled ‘Draft 2021-2023 MTEF/FSP: Presentation to the House Finance Committee.’


The document in part read, “The impact of these developments is about 65 per cent decline in projected net 2020 government revenues from the oil and gas sector, with adverse consequences for foreign exchange inflows into the economy.


“Nigeria is 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.


“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 years, with significant adverse consequences.


“In response to the developments affecting the supply of foreign exchange to the economy, the Central Bank of Nigeria adjusted the official exchange rate to N360/USD1, and more recently to N379/USD.


“The disruptions in global trade and logistics would negatively affect Customs duty collections in 2020.


“The COVID-19 containment measures, though necessary, have inhibited domestic economic activities, with consequential negative impact on taxation and other government revenues.


“Consequently, the projections for Customs duty, stamp duty, Value Added Tax, and Company Income Tax revenues were recently reviewed downwards in the revised 2020 budget.


“Customs revenue has generally performed close to target over the last few years, exceeding target in 2019.”


According to the Minister, there had been some improvement in Company Income Tax and VAT remittances, however the Federal Government expected significant improvements in VAT collections with the new VAT rate of 7.5 per cent.


The minister said, “Over the past five years, actual revenue performance averaged 61.4 per cent.


“Some of our reforms are yielding positive results, with significant improvements between 2018 and 2019. We believe we can do more to improve revenues, especially remittances from GOEs, possibly up to N1tn per annum.”


“Inflation, however, is expected to remain above single digit over the medium term, given the structural issues impacting on cost of doing business, including high cost of distribution.”


While speaking on management of the fiscal crisis, the minister stated that fiscal measures were being put in place to improve government revenue and entrench a regime of prudence, with emphasis on achieving value for money.


“The goal of fiscal interventions will be to keep the economy active through carefully calibrated regulatory/policy measures designed to boost domestic value addition, de-risk the enterprise environment, attract external investment and sources of funding, etc.,” the minister stated.

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