Downside Risks, Security Concerns and Nigeria's Economic Outlook - Essay Sample

Introduction

The downside risks are set to affect the profile of the portfolio and afterward affect the development support in Nigeria. Moreover, due to the downside risks posed by the pandemic, the risk rating agencies, including the World Bank's headroom, S&P among others, could also reduce the lending rate to the country.

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Growing Security Concerns

The Covid-19 pandemic further increases the security risks in Nigeria and is expected to result in an economic downfall with time. Moreover, there is also an anticipated difficulty in establishing new projects and, as a result, reduce the possibilities of creating relevance in Nigeria as well as the diversification of the portfolio.

Informal Sector and Private Sector Development

Due to the uncertainty related to the pandemic along with the negative profit outlook, most of the informal and private sectors will cut down their investments and developments. Moreover, according to Gerard et al. (2020) provides most of the organizations in these sectors will be forced to hold off on long-term investment decisions.

Highlights of Funding Support in the Form of Loans and Grants

In the period Jan-April 2020, among the organizations that supported the Nigerian economy includes the IMF, US, EU, AFD, and AfDB (Fouda, 2020).

Impact on Overall Portfolio Management

Highlights of Funding Support in the Form of Loans and Grants

The funding sources to Nigeria have had significant impacts on the economy and, more importantly, towards the fight against the pandemic. The support received from the IMF, AFD, US, EU and IfDB between January and April has since helped the Nigerian government in terms of medical supplies for health facilities, testing kits, particularly public works program, upgrading of healthcare facilities and expansion of isolation centers (FSDH Merchant Bank, 2020).

For better management of the support funds and resources, the Nigerian government set up a budget to enable coverage of activities to combat the pandemic. Among the most significant spending avenue of the support was directed toward the required equipment during the current pandemic. These include respirators and the necessary medications as well as the public works programs. As FSDH Merchant Bank (2020) presents, the economic impact of Covid-19 will be severe to Nigeria, among other countries in the world, evinced by the already increased downside risks. Even before the pandemic, Nigeria's economy faced various vulnerabilities and, more importantly, the falling levels of capita GDP. Furthermore, the epidemic, along with the excessive fall of oil prices, has since increased the vulnerabilities in the Nigerian economy (Egan, 2020). As a result, this has led to a decline in economic growth as well as increased financial needs. Among other funding sources, the IMF remains closely associated with the Nigerian economy. Therefore, apart from supporting the country with funds, several organizations also provide further support to help the country fight against the existing pandemic (Adesina, 2020). Through the loans and grants from the IMF, AFD, US, EU, and IfDB, Nigeria will be able to limit the declining rate of international services and as such provide the country with increased support to the increased spending avenues as a result of the COVID-19 pandemic (Engel, 2020).

Analysis Based on Data on the Excel

As provided in the excel file, among the sectors in the ongoing portfolio that benefited from international support include agriculture, health, finance, housing, and water supply. The total number of projects in these sectors in the ongoing portfolio is 45, all of which require a total amount of loans and grants of $1084 from international support. However, as of now, the total amount of disbursed to the country id $812. Furthermore, as a result of the COVID-19 outbreak, the planned projects in the mentioned five sectors have since been extended to 10 due to an additional project in the health sector. Accordingly, the adjusted lending has also been increased to 475 from 203. As evinced in annex 3, the overall portfolio performance rating based on indicators shows that in overall, the number of projects that were satisfied by the support stands at 55% as at April, while the ones that need a close watch and the ones that are in danger are 8% and 36% consecutively. Furthermore, a comparison between the number of projects planned for supervision versus the ones that were achieved between January and April is 9 and 4 in that order. Additionally, a total of 9 project contracts from the various sectors were processed for disbursements, where the award to the Nigerian firms totaled to 525 million dollars while award to the international firms totaled to 287 million dollars, making a total of 812 million dollars.

Survey Analysis

Analysis of the Survey Outcomes

The survey established that 91% of the respondents were likely driven by high levels of motivation towards achieving a quarterly plan hindered by the COVID-19 spread. Further, 58.6% of the population that responded to the survey agree to the fact that the COVID-19 pandemic has affected the implementation process of the various projects in Nigeria since most projects have had to be suspended. Members of the PIU are advised to stay home to prevent the spread of the virus and thus reduces the activities in the various projects. There is, therefore, a considerable relation of the results from the survey showing that the pandemic has affected the Nigerian economy immensely, and this effect will continue for a long time.

Highlight of the Significant Findings from the Survey Result

The survey shows evidence from the public through their response that the management of various contracts, including physical inspection as well as the onsite supervision of infrastructure works, have since been affected immensely. And apart from the effect of the pandemic to the various projects, other sectors in public are also immensely affected, including the market prices, hindrance of the procurement process, and delays in borrowing, among others. Among the significant mitigation measures that most individuals agree with include allowance of extension for loan effectiveness date, and follow up to be completed through phone calls and emails.

Conclusion and Way Forward

The World Bank could be the preferred MDBs in Nigeria in comparison to the IMF among other development banks in the country because unlike the IMF; World Bank aims to offer assistance to the low-income countries through various support efforts, while the IMF only oversees the world's monetary system's stability (ADB Briefs, 2020). Hence the World Bank is perfect in helping Nigeria combat the COVID-19 pandemic. To strengthen the portfolio management in the country, there should be a useful definition of the KPIs and a portfolio dashboard to get an overview of all the projects and therefore establish ways of reacting quickly by anticipating budget overruns, delays as well as risks posed by the current COVID-19 pandemic. Moreover, following the existing pandemic, a viable approach should be established to enhance lending to Nigeria, as well as consolidating a relationship with the government among other donor partners.

References

Adesina, A. (2020). Opinion: The pandemic is no time for fiscal distancing. Retrieved 6 May 2020, from https://www.afdb.org/en/news-and-events/opinion-pandemic-no-time-fiscal-distancing-35086

ADB Briefs (2020). The Economic Impact of the COVID-19 Outbreak on Developing Asia. Retrieved 5 May 2020, from https://www.adb.org/sites/default/files/publication/571536/adb-brief-128-economic-impact-covid19-developing-asia.pdf

Egan, M. (2020). Oil crashes by most since 1991 as Saudi Arabia launches price war. Retrieved 6 May 2020, from https://edition.cnn.com/2020/03/08/investing/oil-prices-crash-opec-russia-saudi-arabia/index.html

Engel, U. Public health policies beyond the state: A socio-spatial analysis of early responses to Covid-19 in Africa, 2020.

Fouda, U. (2020). IMF Executive Board Approves US$ 3.4 Billion in Emergency Support to Nigeria to address the COVID-19 Pandemic. Retrieved 6 May 2020, from https://www.imf.org/en/News/Articles/2020/04/28/pr20191-nigeria-imf-executive-board-approves-emergency-support-to-address-covid-19

FSDH Merchant Bank. (2020). Microeconomic review for 2020Q1L; Steering a fragile economy in the face of uncertainties. Retrieved 6 May 2020, from https://fsdhgroup.com/fsdhapi//documents/research/15852932115e7da79bde3ca.pdf

Gerard, F., Imbert, C., & Orkin, K. (2020). Policy Brief: Social Protection Response to the COVID-19 Crisis: Options for Developing Countries.

International Monetary Fund. (2020). IMF Country Report No. 20/142 Nigeria requests for purchase under the rapid financing instrument-Press Release; Staff Report; and statement by the executive director for Nigeria.