Details emerged on Wednesday about the case the Nigerian government made to secure the approval of the Executive Board of the International Monetary Fund (IMF) to its request for a $3.4 billion emergency loan. The loan is to assist the country’s effort to contain the impact of the coronavirus pandemic on her economy.
An IMF Country/Staff Report on Nigeria No. 20/142 published on Wednesday disclosed that between April 21 and 22, Nigerian officials in charge of economic development, led by Vice President Yemi Osinbajo engaged the IMF Board through a web conference on the request.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, and the Governor of the Central Bank of Nigeria, (CBN), Godwin Emefiele, also participated in the conference arranged to deliberate on Nigeria’s request under the Rapid Financing instrument (RPI).
The report said Nigeria told the IMF how the COVID-19 pandemic was severely impacting the country’s economic activity following the sharp fall in international oil prices and reduced global demand for Nigeria’s oil.
These developments, the Nigerian delegation noted, were worsening the country’s fiscal and external positions, as Nigeria’s oil and gas exports (84 per cent of total exports) were expected to fall by more than $26.5 billion.
With the economy projected to contract by almost 3.5 per cent in 2020, a six-percentage point drop relative to pre-COVID-19 projections, the officials said the already high downside risks have heightened with the pandemic.
Apart from sharper and protracted falls in crude oil prices, a declining oil production from future Organisation of Petroleum Exporting Countries (OPEC) output caps or inability to sell oil cargoes, the officials said more protracted disruptions to economic activity were due to a more expansive effect of the pandemic.
On justification for the request for support, Nigeria said it was facing an immediate balance of payments challenge, given the sharp contraction in oil prices and the COVID-19 pandemic, which, if not addressed, would result in immediate and severe economic disruption.
“There is also a high degree of uncertainty on the duration and scale of the COVID-19 impact, which imply that an upper credit tranche (UCT) quality programme cannot be quickly put in place.
“The authorities are seeking financial assistance under the IMF’s Rapid Financing Instrument (RFI) exogenous shock window of SDR 2454.5 million, equivalent to 100 per cent of quota. The authorities intend to use the resources for budget support. Staff supports this request,” Nigeria said.
On macroeconomic policies, Nigeria said since the onset of the crisis, its authorities have allowed greater exchange rate (FX) flexibility and have taken important steps towards unification of existing FX windows, which should be finalised immediately.
In assuring the IMF of government’s seriousness, Nigeria resolved to put certain measures in place to contain the pandemic and mitigate its economic impact.
Once the COVID-19 crisis passes, it said, government intends to resume the revenue-based fiscal consolidation programme–which it started this year by increasing the VAT rate from 5 per cent to 7.5 per cent.
Other policies include introduction of an automatic fuel pricing mechanism, while creating fiscal space for priority spending and avoiding recourse to central bank financing. Staff would assess public debt to be sustainable and ensure that there is adequate capacity to repay the Fund.
The IMF acknowledged that the Nigerian government was committed to continue to strengthen financial supervision and regulation in order to safeguard macro-financial stability.
To ensure financial assistance received as part of the COVID-19 response is used for intended purposes, the Nigerian authorities committed to undertake an independent audit of crisis-mitigation spending and related procurement processes and to publish procurement plans and notices for all emergency-response activities, including names of awarded companies and beneficial owners.