Nigerian Economy and the Coronavirus Pandemic – Preliminary Notes

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Article written by Dr. Rislanudeen Muhammad, Abuja, Nigeria

The United States Senate this week passed a bipartisan USD2.2 trillion emergency relief package by a vote of 96-0, as the coronavirus pandemic devastates the world economy, marking the biggest rescue deal of its kind in US history.

Bank of England decided to cut interest rate to 0.1% , the lowest level since it was set up in 1694. This is in addition to GBP 330 billion package to support small businesses, underwriting up to 80% of salary of small business like restaurants, pubs that will be directly impacted by the lockdown etc.

India approved economic stimulus package worth 1.7trillion Rupees (USD22.5billion), to be disbursed through food security measures for poor households and direct cash transfers. Wage earners, small business owners and low income households are the most vulnerable during the three weeks lockdown in India. Both US Federal reserve Bank and Reserve Bank of India cut rates as an immediate step towards improving liquidity and supporting growth and hence, minimize the impact of coronavirus on their economies.

Saudi Arabia unveiled stimulus measures amounting to 120 billion Saudi riyals (USD32 billion) to support their economy hit by the double blow of the coronavirus crisis and dramatically lower oil prices, just like Nigeria’s.
The sum includes 50 billion Saudi riyal (USD13.3 billion) package to support small and medium-sized businesses and 70 billion riyals to aid businesses, including the postponement and exemption of various government taxes.

The United Arab Emirates boosted the size of its stimulus package to USD34 billion as the second-biggest Arab economy seeks to fend off the impact of coronavirus. This came after semi autonomous Dubai and Abu Dhabi governments unveiled several stimulus packages. The Dubai Government announced an AED 1.5 billion economic stimulus package to enhance liquidity and cushion the potential impact of the current global economic situation caused by the onset of the COVID-19. According to KPMG report, the package includes 15 focused initiatives aimed at reducing the cost of doing business and simplifying business procedures, especially in the commercial, retail, external trade, tourism, and energy sectors. Abu Dhabi has also announced 15 initiatives focused on supporting SMEs and easing the availability of loans to local companies. These measures are a part of “Ghadan 21”, an AED 50 billion development plan announced by Abu Dhabi in 2018 aimed at enhancing the competitiveness of the emirate.

The Central Bank of Nigeria and the bankers’ committee agreed last week to back a NGN3.5 trillion stimulus package for the Nigerian economy.
The CBN earlier disclosed that it would support critical sectors of the economy with N1.1 trillion intervention fund.

While about NGN1 trillion will be used to support the local manufacturing sector as well as boost import substitution, the balance of NGN100 billion will be specifically used to support Health sector “to ensure laboratories, researchers and innovators work with global scientists to patent and produce vaccines and test kits in Nigeria”. An economic stimulus of about N3.5 trillion? CBN pledged to grant funding facilities (in Naira and foreign exchange) to pharmaceutical companies in the country to enable them procure raw materials and equipment to boost local drug production in Nigeria. NGN1.1 trillion package by CBN is realistic and highly commendable. From the fiscal side, what is imminent is the 2020 budget review downwards in the light of reduced revenue from sale of crude oil as a result of impact of coronavirus pandemic, to reflect economic reality.

Earlier in the week, Daily Trust Board of Economists aptly reported that “while the adjustment in the 2020 Budget may affect the capital expenditure (N2.78trillion) which is discretionary, revenues from other sources and oil may not be sufficient to meet non-discretionary expenditures (N7.29trillion for Recurrent Non-debt and Debt Servicing)”, implying potential difficulty in even monthly salary payments. Meanwhile the CBN did not reveal where it plans to get the N3.5 trillion it will inject into the economy as a stimulus. However, CBN did mention that the NGN1.1 trillion will be disbursed as intervention funds to support SMEs. The CBN will however need to de risk the lending package to make it easier and accessible to the SMEs. From experience, the fund will come from the CBN’s balance sheet as part of its developmental finance programs. This may involve some kind of quantitative easing (an economic term for printing of money which can be inflationary in an import dependent economy like Nigeria). Will the balance of NGN2.4 trillion come from commercial banks in form of loans to small businesses and the manufacturing sector as well as the private sector led CBN Covid19 support program led by Dangote Foundation?

Note also that the monetary policy committee, at its meeting early in the week, decided to maintain status quo by specifically holding monetary policy rate at 13.5%, technically trading off growth in an economy evidently heading for another round of recession citing need to tame inflation and foreign exchange speculative demand. Given imminent lockdown of the country to prevent coronavirus, what immediate, actionable support will the self employed middle and low income class, artisans, traders, farmers, unemployed, underemployed and those who make ends meet daily require? Note that 2019 World poverty clock report states that 93.7 million Nigerians or nearly 50% of the population live on less that USD1.9 per day, earned on daily basis. Given Nigeria’s complete absence of fiscal buffer to support massive intervention program as well as limited options to even borrow optimally, at lower cost in the light global economic meltdown, potentially worse than 2007- 2008 financial crisis, what do we do?

CBN-supported stimulus package, though commendable, will definitely not impact the poor positively in time, that is even if it will. My suggestion is in the immediate, that is in the period of urgent, imminent lockdown, if you have the means please don’t buy food items, soap, hand sanitizers, water etc for your self and family alone. Buy for your vulnerable neighbors, friends, extended family, the elderly as well as the physically challenged. Health first and we talk about economic options later. May God save Nigeria, Nigerians and the entire world from the trauma as well as immediate economic impact of coronavirus pandemic. Astagfirullah.

Article written by Dr. Rislanudeen Muhammad, Abuja, Nigeria

Feature Image by Pete Linforth from Pixabay

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