If the spread of the virus eases and oil prices remain stable, the economy could contract 3.2% this year and face a slow recovery afterwards, the lender said in a report on Nigeria released Thursday. The worst-case scenario could see the economy shrinking 7.4% and the recession extending well into 2021.
Though Nigeria normally relies on crude exports for about 50% of government revenue and 90% of foreign receipts, the government expects oil revenue to fall by 80% this year due to the plunge in demand as much of the world shuttered to contain the virus. The central bank had responded by devaluing the naira by 15% to ease the strain on the exchange rate.
“Pressures in the external sector and the stress COVID-19 caused in global financial markets could destabilize Nigeria’s financial sector,” the World Bank said. “The gradual lifting of restrictions may reveal a need for further market adjustment.”
Nigerian banks have already applied to the country’s central bank for permission to restructure one-third of their loan book as the pandemic hurt their businesses.
The World Bank expects annual inflation to climb to 13.8% by year-end 2020 from 11.4% last year.
Higher inflation will hit the poor particularly hard, adding another 5 million to the rank of the poor in Nigeria, where already over 40% of its population live below the poverty line, the World Bank said.