The lines of cushion have been drawn by both the Fiscal and monetary authorities worldwide to address the negative economic implications of the COVID-19 pandemic. Government in advanced and emerging countries have all swept into actions, rolling out various fiscal stimulus that will complement those coming from the monetary side, to assist businesses in boosting output as well as household demand, as the global economy tottering on the path of sliding into a recession. The US, Canada, Poland, South Africa etc have deployed a number of policies to relief their citizens. In Nigeria, Federal and state governments, as well as the Central Bank of Nigeria (CBN), are largely short of firepower, except the latter, in their battle to ward off any impending economic turmoil arising from this worldwide challenges.
For Africa’s largest economy, the Government revenue is largely coming from Crude oil proceeds. Statistics has shown that over 70 per cent of the our revenue is accountable to that proceed while contributing 85 per cent of the country’s dollar earnings. Regrettably, this collection has continued to suffer greatly as the Pandemic outbreak spreads across countries of the world. The Brent crude which is the international benchmark for oil tumbled to $25.42 per barrel this week, its lowest level in 18 years and less than half the $57 in which Nigeria pegged its 2020 budget. The record-high 2020 budget of N10.59trn was cut down by N1.5trn with critical revenue benchmark, crude oil price was lowered to $30bp from $57bp.
The Federal government has also announced a cut in the price of petrol from N145 to N125 and has restricted flights coming in from about 13 high-risk countries. The Federal Executive Council has directed that all Government-Owned Enterprises will be required to cut their 2020 capital expenditure and overhead budget by a quarter even if their spending plans have already been approved. The FG has also lowered overhead provisions across the board by 16.7% although Security Agencies, Armed Forces and Healthcare institutions have been exempted.
The devastating strings in most of the states is actually their people’s cost, and with the increase in minimum wage to N30, 000, it becomes a serious challenge as they would not be unable to fund it. As at last quarter of 2019, 14 states owed more than N100bn each, according to Debt Management Office data which showed sub-national debt at N4trn (compared to their estimated IGR+FAAC of N5.73trn in 2019). Using annualized revenue, very few Anambra, Bayelsa, Delta, Ebonyi, Gombe, Jigawa, Sokoto and Yobe States have their total debt- revenue ratios less than 100 per cent. A debt-revenue ratio of less than 100 per cent means that a state can conveniently offset its debts from its current income stream.
These are still not enough injections to cause the needed boost of output for businesses, with the CBN’s taking up the duty of using monetary tools to do the heavy lifting. The moratorium of one year on all principal repayments on CBN intervention loans, effective March 1, 2020, as well as interest rate reduction on all applicable CBN intervention facilities from nine per cent to five per cent per annum for one year effective March 1, 2020 as well as a whopping N50 billion credit to affected households and SMEs as auditory stimuli. The bank also announced the N1.5 trillion InfraCo Project for building critical infrastructure, N1 trillion in loans to boost manufacturing and production and a N100 billion intervention in health care. In a swift reaction, the banking industry had resolved to forgo making profit as a primary motive within the period of the coronavirus crisis in the country and to commit itself to preserving confidence and financial stability.
The CBN has moved FX on the Import and Export Window for Foreign Portfolio Investors to N380.2/$ from N366.7/$ in a move that suggests a technical devaluation (adjustment?) of the naira. At part of efforts to improve FX supply, the CBN on has also directed that all oil companies (International and domestic) and all related companies (oil Service) to now sell FX to CBN and no longer NNPC. The official FX rate denotes the rate at which the CBN buys FX from oil companies. It is also the rate that Nigeria uses to calculate oil revenue in the budget. The CBN has also concluded plan to set up a Financial Markets Situation Room to monitor global markets and advise the bank on adequate response.
As the pandemic continues to show its ugly growth, so is apt policy reviews expected by both the Fiscal and Monetary Authorities. With the Monetary Policy Committee of the CBN making its second sitting in the year next week, Analysts look forward to a very robust conclusion. On the other hand, Nigerians and the world look further to palliatives from the Fiscal Authority to cushion the devastating economic effects of the COVID-19.