The Coronavirus Pandemic COVID 19, has undoubtedly impacted negativity on global economies, national economic infrastructures, as well as the local financial markets.
Indications are most likely that the world will slide into recession, as a direct impact of the Coronavirus Pandemic. Analyst’s say the world’s $80 trillion economy will decline by $1to $2 trillion or $3 trillion contraction.
Nigeria, like most countries, will be hit on two fronts. Directly as a result of cases in the country, and indirectly, due to our closeness with badly hit China, our number one infrastructure influencer and trading partner as well as our reliance on global oil prices.
It is difficult to take in the entire Impact, but looking at the uncertainties, such as how long the outbreak will last, the effectiveness of the current policy measures. And how people and businesses are responding to these measures.
Currently the price of oil is at its lowest level in 17years. Sliding from $59 to $28 per barrel. This is largely as a result of lower demand and a lack of coordination between OPEC and Russia to reduce supply.
In Nigeria, the 2020 budget is pecked at 31% bench mark on oil production revenue. The resultant effect of the sharp fall in global oil price index, will lead to cut in governmental spending and exports, the two critical components of economic output.
The minister of finance has already announced cuts to non-critical expenditure. In a failure of the oil prices stabilizing, critical areas in government funding will be adversely affected. On the part of the private sector, of course, there will be fewer foreign exchange available for importation of goods and services.
The situation will negativity Impact on the economy generally considering the lack of enough foreign reserves to service the system. The dollar reserves at the Central Bank of Nigeria (CBN) has dropped drastically from $45 billion to $35 billion naira.
The CBN has devalued the naira from the official rate of N307 to N306 per dollar as a result of the reduction in foreign exchange earnings. For foreign investors the exchange rate has also changed from N360 to N380 per dollar.
This financial realignment as referred to by CBN, will afford Nigeria the opportunity to earn more naira from oil sales. The government will now earn N10.8 billion at rate of N30 dollars per barrel, this amounts to an increase of N9.2 billion at N306 exchange rate.
Consequently, with the naira losing value to the dollar, foreign investors may develope a cold feet to holding assets in naira denomination and would rather tend to sell off assets.
The stock market is equally negatively impacted by the global pandemic. The Nigerian Stock Exchange (NSE) is already in the deficit of about N2.3 trillion. The shock is likely to be felt in the financial markets. As investors lose capital, spending by both individuals and firms decreases.
Again the restriction of movements around the globe, will negatively impact on the economy. The shutdown of offices and non-formal businesses will reduce productive effort and output. Generally, the Nigerian business atmosphere will slow down and economic value chains will be grinding at a very slow pace if not come to a stop.
Inadvertently, with the stay at home measures adopted by government, and the uncertainties that comes with the pandemic, will cause non-essential commodities to be less sought after. People will naturally go for very essential commodities.
Indeed, all of this unfavorable economic indices will definitely Impact negatively on the global economy and of course the Nigerian economy.