The Board of Directors of the Nigerian Economic Summit Group (NESG) held its third meeting in 2020 on the 28th of July and reviewed the global and domestic economic, financial and social environments for the half year (January-June) 2020, as well as the outlook for the rest of the year.
Following its deliberations, the NESG’s Board of Directors commented as follows:
Nigeria continues to deal with the impact of covid19 pandemic. As at 28th July, there were 41,804 active cases, 868 deaths and 18,764 persons had recovered from the illness. As we commend the current efforts aimed at curtailing the pandemic, there is need to aggressively work to flatten the progression curve of this disease in Nigeria, thereby dampening its adverse impact on our national economy. To alleviate the burden imposed by this pandemic on Nigerians, all tiers of government must ensure that the various palliative measures announced are effectively implemented to reach the people for whom they are intended speedily and efficiently.
On the economy, the Board notes that economic growth slowed to 1.9% year-on-year in H1’2020 representing its weakest level since Q2’2018 as 29 percent of the economy contracted compared to 13 percent in the same period a year ago. A review of performance by the various economic sectors showed that the top contributors to economic growth in H1’2020 are: telecoms (52.5%), financial institutions (34.9%), crude petroleum & gas (24.9%) and crop production (24.4%).
The Board notes the expectation, based on the International Monetary Fund’s projection, that the Nigerian economy will shrink by 5.2% in 2020. The Board also notes the positive inference to be drawn from more recent data showing growth in Value Added Tax (VAT) collection and Federation Account (FAAC) receipts. While VAT collection increased by 8.5% (year-on-year) to N651.8 billon in H1 2020 from N601.0 billion in H1 2019; the gross statutory revenue of N524.525 billion available in June was higher than the N413.953 billion received in the previous month by N110.573 billion. Coupled with the upward trend of oil price, these suggest that the degree of contraction anticipated in 2020 may be much lower than some of the available projections.
The importance of dealing with the challenge of inadequate revenue is highlighted by the very high debt service-to-revenue ratio. While this ratio has improved to 72% in May 2020 from 99% recorded at the end of March 2020, it remains unsustainably high and undermines the ability of government to meet non-debt obligations such as provision of infrastructure, human capital development and protection for our nation’s large population of vulnerable people. Limited revenues also entrench the government’s dependence on borrowing from the Central Bank of Nigeria with adverse consequences for the economy. As it acknowledges the Federal Government’s drive to improve revenue performance at all levels of the Public sector, the Board advices that this drive should be done in such manner that the adverse effects of the COVID-19 pandemic on businesses (large and small, and households) isn’t worsened. Furthermore, attention must be paid to the efficiency and effectiveness of government spending.
There is also need to intensify efforts at providing an enabling environment and attracting investment (domestic and international) needed to stimulate output growth and ultimately revenue.
NESG commends the Federal Government for maintaining its commitment to the removal of fuel subsidy by allowing the fuel pump price to rise following the increase in the price of crude oil. As we look forward to a time when the government will not be involved in determining fuel prices, we encourage similar reform in the electricity supply industry. In the Board’s view, only reform in the electricity sector will incentivize the required private investment, improve efficiency, raise output significantly and stabilize the market.
The NESG’s Board also stresses the need to make the exchange rate management regime market-reflective and transparently determined. While elimination of multiple exchange rates will improve investor sentiments and enhance foreign inflows of capital, it will curb the problems of currency roundtripping, distorted price discovery and distortion in production cost.
Finally, The NESG commends the Federal Government on the commencement of work on new National Development Planning as the Economic Recovery Growth Plan (ERGP) and Vision 20:2020 elapse this year. The development of Medium-Term National Development Plan and National Development Agenda is a welcome development. The NESG is committed to providing the necessary technical support and needed private sector participation for the process. The NESG recommends that the National Plans should also have therein the imperatives for a clear role for sub-nationals in the Plan’s process, implementation, monitoring and evaluation.
