Pick and Mix in Nigeria's Response to the COVID-19 Virus - FBNQuest

Tuesday, April07, 2020 / 05:40 PM / FBNQuest Research / Header ImageCredit: Africa News

Thecoronavirus knows no boundaries so governments across the world are strugglingto protect their populations and their economies as best they can. In advancedeconomies the focus has been monetary and fiscal, along with measures of socialcontrol.

InNigeria the lead role to date has been taken by the CBN. It has cut theinterest rate on its own credit interventions to 5 percent, and launched aone-year moratorium on principal payments. It has also launched new onestargeted on manufacturing (to encourage import substitution) and healthcare. Aselection of local pharma companies will receive priority funding, both nairaand FX, to access raw materials and boost domestic production. It will be achallenge to secure those materials since many governments have imposed exportbans to conserve stocks of what are now seen as strategic goods.

TheCBN already has a prominent role as a lender to the real economy. Its lateststatement of assets and liabilities from October 2019 show unspecified otherassets of US$12.6bn in a balance sheet total of US$80.0bn, converted at thecurrent NAFEX exchange rate. This development finance may not conform toorthodox definitions of central banking and some will say that the impact ofthe CBN's lending on its borrowers is less than that of the deposit moneybanks. Yet the response to a crisis is to wheel out the big guns withammunition to spare.

TheFGN does not have huge resources to throw at the challenge. Rather, it has toscale down its 2020 budget in view of the crashing oil price, and is said to bebasing the new version on an average oil price of US$30/b rather than theprevious US$57/b. Oil revenue collection of N2.64trn looks unattainableon the basis of both assumed price and output, but projections for non-oiltaxes are also vulnerable in view of the decline in consumption due tolockdowns.

Itsbriefings have indicated that it looks to remove N1.5trn in spending from theexisting budget. The priority of the FGN will be to pay salaries and meetdebt-service obligations. Personnel spending is set at N2.83trn in the budget,a steep increase on the outturn of N1.74trn in January-September 2019. The risewill be due largely to the higher national minimum wage. The loser will surelybe capital items in the budget, set originally at N2.46trn.

Sincethere are limits to the firepower of the big guns, the authorities will turn toborrowing. The DMO alluded to the budget reworking when it released itsissuance calendar for FGN bonds in Q2 2020, which it based on the currentfigure of N745bn for new domestic borrowing. It also noted that the approvednew external borrowing of N850bn could, subject to authorization, be raised inthe domestic market.

Thefinance minister, Zainab Ahmed, told the media yesterday that the FGN is toapproach the IMF, the World Bank and the African Development Bank (AfDB) for atotal of US$6.9bn to soften the impact of the virus. Details are thin but boththe Fund and the Bank have set aside funds for this purpose outside theirregular lending programmes. Both Washington institutions have indicated thattheir funds should be available for (relatively) rapid disbursement.