How Nige­ria’s mon­e­tary, fis­cal re­sponse to COVID-19 com­pares with peers

Business Day (Nigeria) - - FRONT PAGE - MICHAEL ANI & FAVOUR OLAREWAJU

Nige­ria’s re­sponse to­wards calm­ing the eco­nomic and health cri­sis oc­ca­sioned by the coro­n­avirus ( COVID- 19) pan­demic falls short in com­par­i­son with peer coun­tries.

While cen­tral banks and gov­ern­ments in South Africa, North Amer­ica, Asia and Europe have of­fered huge fis­cal

and mon­e­tary stim­u­lus to prop up busi­nesses hit by lock­downs and pro­vide a safety net for the swelling ranks of the un­em­ployed, a lack of fis­cal am­mu­ni­tion has re­stricted the Nige­rian govern­ment from pro­vid­ing sim­i­lar re­lief.

As a per­cent­age of gross do­mes­tic prod­uct, Africa’s big­gest econ­omy is spend­ing roughly 3 per­cent as both mon­e­tary and fis­cal stim­u­lus, to heal its over 200 mil­lion pop­u­lace and busi­nesses cur­rently reel­ing from the im­pact of the pan­demic, ac­cord­ing to World Bank data.

That com­pares with a stim­u­lus worth 7 per­cent of GDP in South Africa; 9 per­cent in Poland, and 16.6 per­cent in Brazil. In ad­vanced coun­tries, like in the US, Canada and Ja­pan, fis­cal and mon­e­tary stim­u­lus aimed at ad­dress­ing the pan­demic stood at 15 per­cent, 12 per­cent and 42 per­cent GDP, re­spec­tively.

“As much as the fis­cal pol­icy in Nige­ria is, it is not as high as what is seen in other coun­tries due to the coun­try’s lim­ited space,” Jas­min Rah­man, In­ter­na­tional Mon­e­tary Fund’s (IMF) mis­sion chief to Nige­ria, says.

Rah­man, who fa­cil­i­tated the $3.4 bil­lion Rapid Fi­nan­cial Instrument­s Nige­ria bor­rowed from the IMF af­ter it suf­fered the shock of a huge drop in oil prices, states that Nige­ria en­tered the cri­sis in a weak po­si­tion with real GDP growth of 2 per­cent, roughly half the growth in peer coun­tries; and in­fla­tion that was three times more than what was seen in peer coun­tries.

Nige­ria was also faced with fis­cal and cur­rent ac­count deficits much worse than be­fore the con­trac­tion in 2016, when a crash in oil prices trig­gered 5-quar­ters of neg­a­tive growth.

“The av­er­age Nige­rian was ex­pe­ri­enc­ing both fall­ing real per capita in­come and a high cost of liv­ing be­fore the pan­demic, hence, Nige­ria en­tered the cri­sis with low pol­icy stance and risky fi­nanc­ing struc­ture, not sur­prised the coun­try has been hit hard,” Rah­man states at a we­bi­nar hosted by the Amer­i­can Busi­ness Coun­cil and Citibank.

The IMF ex­pects the econ­omy to con­tract by 5.4 per­cent this year, the worst con­trac­tion in al­most three decades.

The govern­ment says rev­enues from oil, which con­trib­utes over 50 per­cent of govern­ment rev­enue, could fall by as much as 80 per­cent this year.

To cush­ion the ef­fect of the health and eco­nomic im­pact of the pan­demic and avert any fur­ther im­pend­ing cri­sis on its econ­omy, Nige­ria is spend­ing as much as N5.8 tril­lion as both fis­cal and pol­icy mea­sures.

This com­prises a N2.3 tril­lion fis­cal pack­ages em­bed­ded in its Eco­nomic Sus­tain­abil­ity Plan (ESP), in which the govern­ment aims to sup­port small and medium en­ter­prises, and cre­ate 774,000 in­for­mal jobs for its teem­ing pop­u­la­tion.

The govern­ment be­lieves that with strict im­ple­men­ta­tion of the ESP, the coun­try might en­ter a shal­low re­ces­sion with a neg­a­tive growth of -0.59 per­cent by year-end, but come out of it in Q1 2021, ac­cord­ing to Zainab Ahmed, min­is­ter of fi­nance and bud­get and na­tional plan­ning, dur­ing an in­ter­view with Busi­ness­day in her Abuja of­fice.

“The Na­tional Bureau of Sta­tis­tics (NBS) has al­ready done an ini­tial assess­ment that the econ­omy could go into re­ces­sion to as much as 4.2 per­cent by 2020, but if we are fully able to de­ploy this N2.3 tril­lion, we might end up in -0.59 per­cent. That is a bit fair,” Ahmed said.

“Mean­ing that by the end of Q1 2021, we should have been out of the re­ces­sion and back to steady growth. So, the im­ple­men­ta­tion of the ESP is very im­por­tant,” the min­is­ter said.

The Cen­tral Bank of Nige­ria (CBN) gov­er­nor, Godwin Eme­fiele, has sounded sim­i­lar op­ti­mism with a fore­cast of a -1.03 per­cent con­trac­tion in GDP for the sec­ond quar­ter of 2020; even though many econ­o­mists say a deeper re­ces­sion is more likely.

Nige­ria also has a mon­e­tary stim­u­lus pack­age worth N3.5 tril­lion. The fund, pro­vided by the CBN for SMES, house­holds, phar­ma­ceu­ti­cal com­pa­nies and do­mes­tic man­u­fac­tur­ers, is sup­posed to help soften the blow of the pan­demic on busi­nesses and house­holds.

The CBN joined other of its coun­ter­parts around the world in em­ploy­ing var­i­ous ortho­dox poli­cies in­clud­ing cut­ting bench­mark in­ter­est

spend­ing.

Nige­ria had re­ported 43,841 cases of the virus as of Au­gust 3, in­clud­ing 20,308 re­cov­er­ies and 888 deaths, ac­cord­ing to data from the Nige­rian Cen­tre for Dis­ease Con­trol (NCDC).

But for the low test­ing, the num­bers could have been more. The coun­try has suc­ceeded in do­ing about 1,312 tests per one mil­lion of its pop­u­la­tion, data from Worl­dome­ter show.

Like else­where, strict five weeks of eco­nomic lock­downs have stripped many Nige­ri­ans of their liveli­hoods. More than 50 per­cent of the coun­try’s pop­u­la­tion toils in the in­for­mal sec­tor, ac­cord­ing to NBS data.

The weighty eco­nomic im­pact of the virus is al­ready be­ing felt in busi­nesses. Fast­mov­ing con­sumer goods gi­ants, in­clud­ing Unilever, Cad­bury both recorded a huge drop in rev­enues.

Rev­enue of beer man­u­fac­tur­ing com­pany, In­ter­na­tional Brew­eries, dropped by more than 11.68 per­cent to N60.61 bil­lion in the first half of 2020 from N68.63 bil­lion in H1 2019.

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