Both developed and developing economies have to contend with each phase of the cycle with distinct characteristics.
The boom period is characterised by high gross domestic product (GDP) growth, increased investments and consumption, while negative growth, low savings and investment, with high unemployment are features of a burst cycle.
Recession is a major feature of the bust cycle. Technically speaking, an economy is in a recession when the GDP growth is negative for two consecutive quarters.
During a recession, there is a substantial slowdown in consumer spending with a concomitant decline in business activity.
As a result, business entities are forced to retrench workers, leading to a reduction in new investment spending. Overall, there is a huge decline in industrial production, real incomes and trade, with a resultant rise in the level of unemployment.
Already, the International Monetary Fund (IMF), had announced that the nation’s economy would witness a deeper contraction of 5.4 per cent and not the 3.4 per cent earlier projected in April 2020.
With the Coronavirus (COVID-19) pandemic wrecking so much havoc within the first six months of the year already, the IMF said the global economy is poised for the worst recession in almost a century.
Its latest report released in June indicated that the 2020 outlook for sub-Saharan Africa is considerably worse than was anticipated in April, and subject to much uncertainty.
“Economic activity this year is now projected to contract by some 3.4 per cent, reflecting a weaker external environment and measures to contain the COVID-19 outbreak.”
Analysts have argued that while Nigeria has experienced paltry but stable growth of recent, some sectors of the economy are yet to fully recover from the recession of 2016.
According to them, if another recession of recent happen in 2020, it could be worse than what was experienced in 2016, and urged the government to ensure that the interventions are well-targeted to mitigate negative impact of COVID-19 on the economy.
Tackling the negative effects of COVID-19, and cushioning the rate of recession on the economy will require unconventional monetary policy.
The Central Bank of Nigeria (CBN), is expected to rise to the challenge by churning out various stimulus packages across specific critical sectors of the economy.
Some key direct policy measures were aimed at bringing the economy back to normalcy are in the works already.
One of the key policies is the provision of extended moratorium on loans by an additional one-year beginning from March 2020. This is to ease pressure on loan repayments.
The bank also reduced interest rates from nine to five per cent on its existing intervention programmes over the next one year.
It created a N50-billion fund to support households and Small and Medium Enterprises (SMES) affected by COVID-19; introduced credit support for the healthcare sector; introduced regulatory forbearance to consider temporary and time-limited restructuring of loan terms and tenors to households and businesses affected by COVID-19, and strengthened the loan-to-deposit ratio (LDR) policy.
The bank also announced an intervention fund of N1.1 trillion to cushion the adverse effects of the Coronavirus outbreak on the economy.
The sum of N1 trillion from this amount will be used to support local manufacturing to boost import substitution. The balance of N100 billion will be used to support the health services sector and products through the provision of loans to the pharmaceutical companies, hospitals and other health practitioners to build new hospitals and health facilities or expand existing ones to first class health centres.
This is in addition to the N1.5 trillion private sector-driven, Infraco Project fund, designed to target the construction of critical infrastructure across the country. In addition, pharmaceutical companies would be assisted through loan interventions to re-establish drug manufacturing firms in Nigeria, and curtail the spread of the coronavirus.
A Professor of Economics, Babcock University, Segun Ajibola, said the provision of N3.5 trillion intervention funds by the government through the CBN to stimulate the manufacturing, creative, health, MSMEs, is a move in the right direction.
According to him, this is because it is at a single digit interest rate, compared to commercial loans from orthodox banks and other financial institutions, while the conditions of the loans are relatively more relaxed when compared to the previous ones.
However, Ajibola argued that other impediments to business operations in Nigeria outside funding needed to be addressed simultaneously, to enable the sectors to derive the benefits of such funding with multiplier effects on the economy.
‘’For the various businesses to make good use of the fund and derive benefits for themselves with multiplier effects on the economy, many other issues that militate against business operations in Nigeria, outside funding, need to be simultaneously addressed.
“These include infrastructural deficits, ease of doing business – insecurity, hostile regulations, multiple taxes and charges, character deficit on the part of borrowers, among others.
“Most times, businesses run into dilemma for reasons beyond funding, and such non-financial hiccups need to be addressed for the intervention funds in the various sectors to generate good results, pay back the loans, and contribute meaningfully to the Nigerian economy.
“CBN is releasing cheap funds to strategic sectors of the economy to hopefully restart the economy, and possibly save the nation from looming recession, reclaim the economic frontiers already lost to the COVID- 19 pandemics,” he said.
Corroborating, the Vice President of Highcap Securities, David Adonri, said the impact of the fiscal intervention funds might not be visible without basic infrastructure to support the ventures.
He said there is a need for the government to urgently tackle underlying defects that have continued to cripple returns on investment in Nigeria over the years.
According to him, this would help to sustain productive momentum of enterprises, reduce job losses, and create wealth for the nation.
“Without basic infrastructure, with hindrances to movement of goods due to extortions by government officials, smuggling and pervasive insecurity, these businesses may not become competitive.
“Most of the time, the basic requirements that will put the funds at work have to be imported because the economy cannot provide them. If all the constraints associated with import dependence are not addressed, they may cripple the ventures.”
Also commenting, the President, Association of Bureau de Change Operators in Nigeria (ABCON), Aminu Gwadabe, said the intervention funds and stimulus packages are timely, and a good step in the right direction.
However, he described the implementation as grossly inadequate, noting that the conditions for bank guarantees in accessing most of the loans are denying potential and targeted beneficiaries the opportunity to benefit from the loans.
Therefore, he called for the establishment of a National Funds Palliatives Agency, for the implementation and harmonisation of the various idle funds to enhance effectiveness and transparency
“Secondly, the ones implemented so far are not being enjoyed by targeted farmers but other parties. Therefore, there is a need for a total overhaul of the implementation of the palliatives to achieve its desired objectives of cushioning the impending recession.
“I therefore recommend the establishment of National Funds Palliatives Agency, to be responsible for the implementation and harmonisation of the various idle funds for effectiveness and transparency.”
The Director, Corporate Communications, CBN, Isaac Okoroafor, in his response to why the banks’ regulator is confident despite the gloomy economic forecast, “At the CBN we have looked at it, and we felt that everyone must work hard to ensure that the economy does not slip back into recession.
“We are working as a monetary authority, as a public institution to ensure that those Nigerians, families and small businesses whose businesses were negatively impacted by this pandemic are given the opportunity to walk themselves out of that kind of recession, and to be able to maintain even their businesses going forward.”
“We believe that Nigerians have the power, the energy and creativity to ensure that this economy doesn’t go into recession,” he added.