Many economies, including Nigeria, are billed to experience recession post-COVID-19. To shield the economy against recession, Nigerian government is deploying combination of monetary and fiscal stimulus packages to hold it firm, ABDULWAHAB ISA reports
Unless it achieved a strong growth by third quarter of 2020, there are apparent indications of Nigeria economy sliding into recession. Should it happen, the economy would have experienced recession twice in less than five years. Previously, recession as a topic was discussed in hush and guarded tones at cabinet level. In recent time, with a nosedive in the economy, conversation about imminent recession isn’t only loud but suggestions regarding options to be deployed to minimise its severity are canvassed in the open. Unlike the 2016 recession regarded by many as self-inflicted due to squandering of accrued resources by leaders, the looming recession is Covid-19-induced.
Global financial institutions, the World Bank and International Monetary Fund, in their risk assessment of Covid-19, projected that many countries, including Nigeria, won’t escape recession 2021. Not wanting to be caught foot flat, Nigerian government is employing series of measures, a combination of monetary and fiscal policies to protect and minimise the impact of recession on citizens.
COVID -19 has dealt devastating blows to the economy. The modest recovery between first quarter 2017 till December 2019 got wiped out in 2020 by COVID-19. Painting a gloomy picture of the economy last week, the Federal Government enumerated a number of challenges it faces in managing the economy. Minister of State for Finance, Budget and National Planning, Clement Agba, made the revelation when he spoke at an interactive session with the House of Representatives joint committees on Finance, Appropriation, Budget and Economic Development as well as Loans, Debt Management.
The advent of COVID-19 pandemic exposed government to unrestrained revenue challenges, which, if not immediately addressed, could snowball into a debt sustainability crisis. Agba said, currently, Nigeria is exposed to spikes in risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market. Nigeria faced serious challenges in the first half of 2020 with the microeconomic environment disrupted by the pandemic. Both crude oil prices and quantity supplied declined substantially. Production lines shut down, airliners shut services; financial service providers closed down while activities across MDAs got frozen for nearly four months. The impact of these developments is about 65 per cent decline in projected net 2020 government revenues from the oil and gas sector, with adverse consequences for foreign exchange inflow into the economy. According to Agba, Nigeria is current-ly exposed to spikes in risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market. He stressed that as a result of the decline in revenue, Nigeria‘s Q2 GDP growth is in all likelihood negative, and unless we achieve a very strong Q3’20 economic performance, the Nigerian economy is likely to lapse into a second recession in four year, with signicant adverse consequences. Projections for customs revenue, Stamp Duty, Value Added Tax, and Company Income Tax revenue had been reviewed downwards in the revised 2020 budget.
Wary of the consequence of COVID- 19 attacks on the economy, and to shield it against monumental losses, government deployed various fiscal policies as containment measures. The aim of the fiscal interventions, according to the Federal Government, would be to keep the economy active through policy measures designed to, among others, boost domestic valueaddition, derisk the enterprise environment, and attract external investment and sources of funding. One of the measures is the launch of Nigeria Economic Sustainability Plan (NESP) as recommended by the economic sustainability committee led by Vice President Yemi Osinbajo. NESP is a N2.3 trillion stimulus plan designed to calibrate economy post COVID-19. Announcing the package during one of the Federal Executive Council (FEC) meetings, Minister of Finance, Budget and National Planning, Zainab Ahmed, said the funds were amalgamation of several funds gathered by the government. “The total package that we presented today is in the sum of N2.3 trillion.
N500 billion of this is a stimulus package that is already provided for in the amended 2020 Appropriations Act. These are funds that we have sourced from special accounts. We also have N1.2 trillion of this funds to be sourced as structured low-cost loans which are interventionary from the Central Bank of Nigeria as well as other development partners and institutions.
“We have N344 billion that will be sourced from bilateral and external sources and also additional funds that we can source locally,” she said. The goals of the NESP are to create jobs, pump money into the economy and hopefully stop it slipping into recession, support small businesses and prioritise local content (Made-in-Nigeria). The NESP is a 12-month ‘transit’ plan between the Economic Recovery and Growth Plan (ERGP) and the ERGP-successor-plan currently being worked upon.
In addition to unveiling N2.3 trillion stimulus package, the government initiated recently another N75 billion investment fund to encourageyouths delve into enterpreneurship. The approved fund is the first-ever approved specifically for youths.
The establishment of the N75 billion Nigerian Youth Investment Fund (NYIF) to support enterprise among 68 million Nigerian youths between ages 18 and 35 was the brainchild of Minister of Youth and Sports Development, Sunday Dare. Shedding light on the fund, Dare described it as a fund “that will cater specifically for our youths within the stipulated age bracket which is going to be between 18 and 35 years. He said that the funds would be distributed through micro-credit banks in the country. “This fund will be assessed by our youths, once they are able to present their ideas, they can assess this fund directly,’’ he further explained.
The minister explained that the funds would not just be randomly distributed among youths, but will be used to assist the most qualified ones with genuine business ideas. “For the first time in the history of Nigeria, the Federal Executive Council today approved the establishment of the Nigerian Youth Investment Fund (NYIF) to the tune of N75 billion,” he said. He explained that qualified youths, who fall within the stipulated age bracket and have genuine business ideas, “can approach any of the 125 micro-credit banks across the country to access it. “This fund is meant to create a special window for accessing credit facilities and financing on the part of our youths that will help to fund their ideas, innovations and also support their enterprise,” he said.
Evaluating monetary policies
To complement the effort of the fiscal authority, the Central of Nigeria (CBN) rolled out stimulus packages to bolster the economy and shield it from sliding into economic recession post- COVID-19. At a well attended CBN conference, the apex bank’s Governor Mr. Godwin Emefiele, rolled the first in series of COVID- 19 stimulus packages. Firstly, Emefiele expressly granted additional one year moratorium across all CBN’s intervention facilities as part of policy measures to cushion adverse effects of coronavirus on businesses. Conscious that the economy is largely driven by informal sector, the governor announced a N50 billion Targeted Credit Facility (TCF) through NIRSAL Microfinance Bank for households and Small and Medium scale Enterprises (SMES) hit by Covid-19, including but not limited to hoteliers, airline service providers , health care merchants, etc. CBN’s TCF comes with icing on the cake.
To the surprise of the facility beneficiaries, Emefiele granted a further moratorium of one year on all principal repayments across all CBN’s facilities effective March 1, 2020. Implication of the new policy, according to Emefiele, is that “any intervention loan currently under moratorium are hereby granted additional period of one year.” Thus, he directed participating financial institutions to provide new amortisation schedules for all beneficiaries.
Yet, CBN bent backward to waive provisioning of guarantors as a requirement for accessing N50 billion TCF for households and SMEs loans. Other palliative rolled out by the CBN to shield businesses include interest rate reduction from nine per cent to five per cent per annum on all applicable CBN intervention facilities effective March 1, 2020; credit support for health care Industry to assist the sector meet potential increase in demand for Healthcare services and products. Aside credit support to health sector, the CBN governor declared that the apex bank would open its intervention facilities, loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in Nigeria, as well as to hospital and healthcare practitioners who intend to expand/build the health facilities to first class centres.
“This is in addition to growing the size of existing interventions to the agricultural and manufacturing sectors in Nigeria,” Emefiele added. And to all banks operating in the country, the apex bank also approved regulatory forbearance to allow them consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of Covid-19 particularly oil and gas, agriculture, and manufacturing. CBN , Emefiele said, would work closely with DMBs to ensure that the use of forbearance is targeted, transparent and temporary whilst maintaining individual DMB’s financial strength and overall financial stability of the system. As part of COVID – 19 induced policy, he said the apex bank would strengthen its Loan to Deposit Ratio (LDR) policy in view of the success LDR has recorded by way of increase credit flow Policy to the real sector of the economy.
Massive spending by government is one way of containing recession. The combined efforts of monetary and fiscal authorities through stimulus package interventions if sustained would defuse the impact of recession. Nigeria is working hard to change the curve from severe to shallow economic recession with minimal fatality.