The Federal Government has said the likelihood of Nigeria sliding into another recession in the Third Quarter of 2020, making it the second time within four years.
The Minister of State for Finance, Budget and National Planning, Clement Agba, said this in Abuja on Thursday at the beginning of a five-day interactive session on the 2021-2023 Medium Term Expenditure Framework and Fiscal Strategy Paper.
The event was organised by the House of Representativesā Joint Committee on Finance; Appropriation; National Planning and Economic Development; and Aids, Loans and Debt Management.
The World Bank had in July warned that the collapse in oil prices resulting from COVID-19 pandemic was expected to plunge the Nigerian economy into a severe economic recession, the worst since the 1980s.
The global bank had stated this in its latest Nigeria Development Update.
Agba had read out a written presentation by the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, titled āDraft 2021-2023 MTEF/FSP: Presentation to the House Finance Committee.ā
The minister said the Nigerian economy faced serious challenges in the first half of 2020 with the microeconomic environment signiļ¬cantly disrupted by the pandemic.
The document partly read, āThe 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 inļ¬ows into the economy.
āNigeria 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
āNigeriaās 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 signiļ¬cant adverse consequences.
āIn response to the developments affecting the supply of foreign exchange to the economy, the Central Bank of Nigeria adjusted the ofļ¬cial exchange rate to N360/USD1, and more recently to N379/USD.
āThe disruptions in global trade and logistics would negatively affect Customs duty collections in 2020.
āThe COVID-19 containment measures, though necessary, have inhibited domestic economic activities, with consequential negative impact on taxation and other government revenues.
āConsequently, the projections for Customs duty, stamp duty, Value Added Tax, and Company Income Tax revenues were recently reviewed downwards in the revised 2020 budget.
āCustoms revenue has generally performed close to target over the last few years, exceeding target in 2019.ā
While noting that there had been some improvement in Company Income Tax and VAT remittances, the minister said the Federal Government expected signiļ¬cant improvements in VAT collections with the new VAT rate of 7.5 per cent.
The minister said, āOver the past five years, actual revenue performance averaged 61.4 per cent.
āSome 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.ā
Speaking on the key assumptions of the MTEF/FSP, the minister, among other, said, āInflation, 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.ā
On management of the fiscal crisis, the minister noted that fiscal measures were being instituted to improve government revenue and entrench a regime of prudence, with emphasis on achieving value for money.
āThe goal of ļ¬scal 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.,ā the minister stated.
The minister noted that the draft 2021-2023 MTEF/FSP was prepared against the backdrop of a global recession and heightened global economic uncertainty.
The document further read, āThe medium-term outlook for Nigeria suggests that ļ¬scal risks are somewhat elevated, largely due to COVID-19 related disruptions, which have exacerbated structural weaknesses in the economy.
āNigeria faces signiļ¬cant medium-term ļ¬scal challenges, especially with respect to its revenues, which, if not addressed, could snowball into a debt sustainability crisis.ā
Already, Nigerians are becoming agitated by the rising debt profile of the country, with the National Assembly raising concerns over external loan agreements between Nigeria and global bodies, especially the China Export Import Bank.
