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COVID-19’s Long Shadow: Managing Budgets in Developing States

COVID-19’s Long Shadow: Managing Budgets in Developing States

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By now, nearly six months into the COVID-19 pandemic, the world is familiar with the economic effects the pandemic is having on all parts of the world. In the short run, many countries are now confronting the effects of having to institute lockdown/stay at home orders for weeks or months on end. However, the effects of COVID-19 could continue to be seen for years, largely through budget proposals. While many economies are expected to recover (relatively) quickly once “normal” activities resume, in some states – like Nigeria – the budgetary decisions made in the short-term could have long-term consequences for their states.

 

The Nigerian Budget in a COVID World

In December 2019 Nigerian President Muhammadu Buhari approved the state’s largest budget ever. However, given the effects of COVID-19 on the Nigerian economy, the country has had to reconsider its record $34.6 billion budget. One recent proposal from the federal government, which included a 42% cut to the primary health budget and a 54% cut to the universal basic education budget, was met by outrage and rejection by the opposition party.

The COVID-19 pandemic has impacted Nigeria’s budget immensely. When initially proposed, the record 2020 budget assumed crude oil production would be 2.18 million barrels per day with an oil price of $57 per barrel. However, the pandemic caused many states to implement stay at home orders and the demand for, and price of, oil tanked (at one point settling at -$37.63). States that are dependent on oil were now facing dramatic decreases to government revenue. Reflecting the impact of COVID-19 has had on the oil industry, an updated budget proposal by the Nigerian government set benchmarks of 1.8 million barrels of oil per day with an oil price of $28/barrel.

 

A Rock and a Hard Place

Nigeria is undoubtedly in a very, very difficult position. The state – according to an estimate for July 2020 – has the sixth largest population in world, just north of 214 million people. When it comes to re-creating a budget for that many people, the Nigerian government is stuck between a rock and hard place.

On one hand, Nigeria likely cannot afford to make major cuts to defense or security given the presence of Boko Haram and the Islamic State’s West African Province (ISWAP) in the northern part of the country. Both groups have been emboldened by/benefitted from the COVID-19 outbreak already, and in recent days violence has increased.

On the other hand, cutting education and healthcare could set Africa’s most populous state up for current and future pain. Currently, Nigeria is feeling the effects of COVID-19 as one of Africa’s “alarming hotspots,” yet a the updated budget proposal would still only allocate ~N26.45 billion for the Basic Healthcare Fund – a number that comes out to roughly N123.60 a person.

If cutting healthcare can lead to immediate pain, cutting education can lead to future pain. One doesn’t have to look too far back to see how poor education funding can negatively impact a Sub-Saharan African state for years. In the 1960s and 1970s, Sub-Saharan African states had poor levels of human capital needed to develop their newly independent states, largely because the population was not well educated. In 1960, according to a World Bank Report, only 36% of the population was enrolled in primary schooling, 3% was enrolled in secondary school, and “virtually zero” percent was enrolled at the university level.

Since the 1960s Africa has made extraordinary progress in improving education. However, the gains made should not be lost. As Africa is undergoing rapid demographic and economic changes, the need to invest in education is arguably more important than ever. Investment in developing human capital is especially important as some of the same issues (macroeconomic shocks that affect oil prices, ballooning debt levels, and local climate shocks) are beginning to develop again, just as they did before the crisis of the mid-1970s-1990s that set Africa back for years.

 

How Does this End?

The budget situation in Nigeria is playing out in real time so there is, unfortunately, no concrete way to see how it ends. One can hope a little more situational awareness is shown by the Nigerian government – which originally proposed allocating more money for a National Assembly complex renovation than it did for basic healthcare – and more investment can be made in healthcare and education. Regardless of how the politics playout in Abuja, Nigeria is an example of the possible long-term effects COVID could have on African states – especially those which must make difficult decisions on how to allocate dwindling government revenues.

 

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