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Covid-19: Prepare for worst recession this year, IMF warns


…Projects economy drop of 3.4% in 2020

…Says Nigerian economy to bounce back by 2.4% in 2021

As a result of the COVID-19 pandemic, the International Monetary Fund (IMF), on Tuesday, said that Nigeria could be heading for its worst recession in three decades, even as it projected an economic drop of 3.4 per cent in 2020.

The economic downturn is one of the effects of the Coronavirus pandemic predicted by experts around the world.

The international organisation made the projection in its April 2020 World Economic Outlook report released on Tuesday in Washington, United States.

IMF Chief Economist and Director of Research Department, Gita Gopinath, said: “For the first time since the Great Depression, both the advanced economies and emerging and developing economies are in a recession.

“For 2020, growth in advanced economies is projected at -6 per cent. Emerging markets and developing economies which typically have normal growth levels well above advanced economies are also projected to have negative growth of -1 per cent and -2.2 per cent if you exclude China.”

The Nigerian economy is, however, projected to bounce back by 2.4 per cent in 2021.

The IMF, also, projected that Sub-Saharan Africa’s gross domestic product is expected to contract 1.6 per cent this year, compared with 3.1 per cent growth in 2019, as the coronavirus pandemic wrecks the region’s economies.

According to the international organization, various African governments have imposed lockdowns and curfews to curb the spread of the coronavirus, however, the restrictions are putting pressure on most economies, some of which were already in recession.

For instance, IMF projected a sharp fall in South Africa GDP, despite being the continent’s most advanced economy.

The country’s GDP is projected to contract 5.8 per cent in 2020 from the growth of 0.2 per cent in 2019.

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South Africa entered a recession in the final quarter of 2019 as power cuts by state utility Eskom took a toll on the economy, while public finances were strained by bailouts to struggling state firms.

The country imposed some of the toughest restrictions on the continent to contain the coronavirus, including a five-week lockdown to the end of April.

With production and spending curtailed, the economic outlook was set to remain grim.

Also, Angola’s economy is expected to remain in recession, contracting 1.4 per cent in 2020.

Meanwhile, the IMF and the World Bank are racing to provide emergency funds to African countries and others to combat the coronavirus and mitigate the impact of sweeping shutdowns aiming at curbing its spread.

On Monday, the agency announced it had granted debt relief to about 18 African countries, as Africa’s largest oil-producing country was excluded from the list.

However, Nigeria may earn about $10.61bn from crude oil sales between May and December this year following latest decision by members and non-members of the Organisation of Petroleum Exporting Countries to cut production.

Also, the country will earn about $22.74bn from crude oil between January 2021 and April 2022 going by the volume of crude oil curtailment to be implemented by Nigeria during the 16-month period, as agreed by OPEC+.

These earnings are based on the $30/barrel average price of Brent, the crude against which Nigeria’s oil is priced.

Crude oil price in Nigeria’s 2020 budget was recently rebased from $57 to $30 following the crash in global oil prices occasioned by the impact of COVID-19.

In the OPEC+ agreement, Nigeria will join the group to cut supply by 9.7 million barrels per day between May and June 2020, eight million barrels per day between July and December 2020 and six million barrels per day from January 2021 to April 2022.

Timipre Sylva, Minister of state for petroleum resources, explained that based on reference production of Nigeria for October 2018 of 1.829 million barrels per day of dry crude oil, Nigeria would now be producing 1.412 million barrels per day, 1.495 million barrels per day and 1.579 million barrels per day respectively for the corresponding periods in the agreement.

At a production of 1.412 million barrels per day for 30 days in May 2020, going by Sylva’s explanation, Nigeria will be producing about 42.36 million barrels for the month.

It will also produce the same volume in June, bringing the total volume for both months to 84.72 million barrels.

With an average cost of $30 per barrel, Nigeria will, therefore, earn $2.54 billion from crude in May and June 2020.

The country is to produce 1.495 million barrel per day from July to December 2020, which is a little above 180 days for the six-month period, hence total crude production during the period will be 269.1 million barrels, valued at $8.1bn.

It therefore implies that from May to December 2020, the country will earn $10.61bn.

Sylva, in his breakdown on Nigeria’s production cut in relation to the agreement by OPEC+, stated that from January 2021 to April 2022, Nigeria would be producing 1.579 million barrels daily.

This means that the country will produce 757.92 million barrels during the 16-month period and if the $30 average benchmark price for Brent persists, the country will earn $22.74 billion.

Oil prices, however, had been fluctuating and operators believe that the commodity will increase beyond the $30 per barrel price once OPEC+ and other G20 countries start implementation.

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Ihesiulo Grace

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