IMPACT OF COVID-19 ON ECONOMIC GROWTH IN NIGERIA
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IMPACT OF COVID-19 ON ECONOMIC GROWTH IN NIGERIA
1.1 Background of the study
The Nigerian government had been dealing with a slow recovery from the oil price shock in 2014 before the pandemic, with GDP growth declining about 2.3 per cent in 2019. Owing to relatively low oil prices and limited fiscal space, the IMF revised the 2020 GDP growth rate from 2.5 per cent to 2 per cent in February. Relatedly, the debt profile of the country has been a source of concern for policymakers and development practitioners as the most recent estimate puts the debt-to-revenue ratio at 60 per cent, which is likely to worsen in the face of the steep decline in revenue associated with falling oil prices. These constraining factors would worsen the economic effects of the COVID-19 outbreak and make weathering the crisis more difficult for the government (Ezeaku & Asongu, 2020).
In Nigeria, attempts were already being made to raise aggregate demand by rising government spending and lowering corporate taxes. The public budget rose from Naira 8.83 trillion ($24.53 billion ) in 2019 to Naira 10.59 trillion ($29.42 billion) in 2020; constitutes 11% of the national GDP, while small companies are excluded from corporate income tax and the medium-sized enterprise tax rate has been revised downwards from 30 to 20%. Unfortunately, the COVID-19 crisis is causing all of the aggregate demand components to fall, except for government purchases (Asongu, 2020). Moreover, the pandemic corona virus reflects both public health and economic crisis. While the public health crisis concerns disease control initiatives, vaccine prevention and development; economic crises are expressed in supply and demand shocks as well as oil price shock, as a result of global lockout disturbances in economic activities, while the corona virus outbreak has disrupted global macroeconomic policies globally (Barro, Ursua & Weng, 2020).
Much like most resource-dependent developing countries, Nigeria has faced the crude oil price fluctuations that account for about 70% of its gross domestic product (GDP) and 65% of total government revenue. The rise in government spending driven by Covid-19’s need to fight the effect had increased the country’s fiscal deficit and its susceptibility to high vulnerabilities in public debt. In addition, the depressing global capital flows that put severe pressure on Nigeria’s foreign exchange reserve and exchange rates (KPMG, 2020), have also affected the country’s conduct of sundry monetary policies. This situation is expected to have macroeconomic repercussions on results such as economic growth, inflation, unemployment and exchange rates. Therefore, the preponderance of macroeconomic variables vulnerabilities due to the effects of infectious diseases on the economy demands a clear understanding of Covid-19’s macroeconomic impacts in Nigeria. For some reasons, this line of research becomes crucial (Adenomon & Maijamaa, 2020).
First, even before the outbreak of the Covid-19 pandemic, a number of early reviews have been made of its impact from both a political and an empirical perspective. The trend is to analyze the effects of the pandemic from various viewpoints to consider the country-specific characteristics given its novel existence. But many’s attention has been to understandably concentrate on Covid-19’s short-run effect on a variety of economic variables. With the virus’ second wave coming due to the simplicity of shutdown measures in most countries around the world, thinking on how to execute macroeconomic policy in the wake of the pandemic would be preferable. In the post Covid-19 age in Nigeria, such decisions will permeate both public health and economic policies (Ohia, Bakarey & Ahmad, 2020).
Second, an optimistic projection of the future trajectory of the effect of the pandemic on the global economy is that it would result into a relatively mild and short-lived global recession, followed by a V-shaped recovery (Wren-Lewis, 2020). It is therefore important for emerging markets to understand the best approach to cushion the effect on their economies. This becomes imperative to position the economy to attract the necessary investment needed to undertake meaningful developmental policies. Essentially, a developing country like Nigeria already battling with poor performance of basic development indices is likely to aggravate her challenges with the permanent changes that the pandemic has brought to the world. Given the heterogeneous households and firms characteristics, it is important to understand the country-specific characteristics as the nation continues the gradual relaxation of the nationwide lockdown in order to protect livelihoods and save the economy from collapse (Olapegba, Ayandele, Kolawole and Oguntayo, 2020).
1.2 Statement of the problem
COVID-19 situation in Nigeria, its effect on the economy and the structural causes worsen the coronavirus (COVID-19) crisis. Howevr, the economic downturn in Nigeria was triggered by a combination of declining oil price and spillovers from the COVID-19 outbreak, which not only led to a fall in the demand for oil products but also stopped economic activities from taking place when social distancing policies were enforced. Policies were initiated after Nigeria recorded the first case of Covid-19 on the 27th February, 2020. As at 20th June, the total confirmed cases in Nigeria stood at 19,606 with 6,718 discharged and 506 deaths, representing about 35 percent recovery rate and 2.6 percent fatality rate, respectively. What is evident in the trend of the Covid-19 pandemic in Nigeria is that there has been an increase in community transmission. Since the gradual relax of the lockdown in the country, cases of Covid-19 pandemic have increased by about 60 percent and the corresponding deaths recorded have also increased by about 33 percent; implying that the country entered a second wave of infection based on community transmission and made the country to experience a downturn. For Nigeria, the country is still sluggishly grappling with recovery from the 2016 economic recession which was a fall out of global oil price crash and insufficient foreign exchange earnings to meet imports. It is against the background that this study intends to examine the impact of COVID-19 on basic macroeconomic variables in Nigeria.
1.3 Objective of the study
The general objective of this study is to examine the impact of COVID-19 on economic growth in Nigeria, with the following specific objectives of the study:
- To determine the impact of COVID-19 on GDP growth in Nigeria
- To examine the impact of COVID-19 on Exchange Rate in Nigeria
- To assess the impact of COVID-19 on Inflation in Nigeria
- To examine the impact of COVID-19 on Unemployment in Nigeria
1.4 Research questions
- What is the impact of COVID-19 on GDP growth in Nigeria?
- What is the impact of COVID-19 on Exchange Rate in Nigeria?
- What is the impact of COVID-19 on Inflation rate in Nigeria?
- What is the impact of COVID-19 on Unemployment rate in Nigeria?
1.5 Significance of the study
This study will be of benefit to the COVID-19 taskforce committee on the survival strategies for reviving Nigeria Economy with more attention on the basic macroeconomic variables in Nigeria such as inflation, employment, exchange rate, GDP growth, among others. The study will also expose the government to the proper post-Covid-19 recovery system and the method of improving the Economic Sustainable Plan will be exposed in this study. The study would fill the research gap in knowledge by adding to established literature and education, and the researchers will use this study as a reference material to develop and improve their work.
The study is based on the basic macroeconomic variables in Nigeria such as inflation, employment, exchange rate and GDP growth. However, the study will cover Nigeria, where economy was affected.