Due to economic uncertainty arising from the Coronavirus pandemic, the Federal Government is seeking a total of $7.05billion (or N2.679 trillion at N380/$) from multilateral financial institutions and the Nigeria Sovereign Investment Authority (NSIA) to mitigate the impact of the virus on the economy. A breakdown of the funds indicates that $3.4billion is being sought from the International Monetary Fund (IMF), $2.5billion from the World Bank and $1billion from the African Development Bank (AfDB), an unspecified amount from the Islamic Development Bank, as well as $150billion to be drawn from the NSIA Stabilisation Fund to support the June 2020 Federation Account Allocation Committee (FAAC) disbursement to the three tiers of government in the federation.   

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, who made the disclosure, explained that the government had already applied for the release of its contributions to the IMF, totaling $3.4billion under the Fund’s Rapid Credit Facility. The loan will not be tied to any IMF conditionalities.  While the Rapid Credit Facility is a Drawing Right for every member country to draw up to maximum amount it has contributed to the Fund, it does not mean that the Fund will give that amount applied. It is subject to negotiation. Under the World Bank facility, Nigeria requested to fully draw down on its outstanding $82million.

In addition, the government will use the N500billion stimulus package to upgrade healthcare facilities across the country as well as finance interventions to support states to improve their healthcare system among others. About N102.5billion has been set aside as direct intervention in the healthcare sector, from which N6.5billion has been made available to the Nigeria Centre for Disease Control (NCDC).

There is no doubt that Nigeria, like many other countries affected by the novel Coronavirus, is passing through a difficult time that require all hands to be on deck to contain the deadly virus. The COVID-19 pandemic has exposed the vulnerabilities of our economy to both internal and external shocks. Although Nigeria had passed through a similar phase in 2009/2009 as well as in 2015/2026 that culminated in recession, our current lower fiscal buffers seem to make the present challenges more daunting. The decline in international oil price and domestic production may be more severe if the spread of the virus escalates. Already, Nigeria’s external reserves have slipped below $34billion, lowest in 29 months, according to data from the Central Bank of Nigeria (CBN).

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It is sad that the Coronavirus pandemic has come at a time when the economic outlook was already bleak, recovery very sluggish, headwind inflation and external borrowing high, coupled with weak revenue generation. The Federal Inland Revenue Service (FIRS) and the Nigeria Customs Service have reported less than half of their projected revenues for the first quarter of 2020. Currently, Nigeria’s ratio of revenue to the GDP has hit an all-time low since 2012.

We are not against external borrowing, but we caution that government should be circumspect in its borrowing and invest the facility in productive sectors that can guarantee repayments. Only last month, the Senate had approved President Buhari’s request for a $22.7billion loan amid uproar by some members who were concerned about the rising debt stock of the country. Although experts within and outside the country have called for debt relief and outright debt forgiveness for emerging markets, such as Nigeria and other sub-Saharan African countries, there is need to prioritise our expenditures and drastically cut costs, especially on unproductive projects.

It is time for government to fix the economy using the brightest and imaginative minds in the country. In this regard, government should be extremely cautious in resorting to extra-budgetary spending through overdraft or constant intervention by the CBN. Nigeria could slip into another debt crisis reminiscent of the 1990s when the country was highly indebted to the London and Paris Club of creditors. This is time to tighten monetary and fiscal policies, while limiting our domestic and external borrowing.

Three years ago, the Debt Management Office (DMO) expressed concern that Nigeria’s rising debt profile was spiralling out of control, even though it was within the international accepted threshold. However, the vulnerability of the economy due to the Coronavirus pandemic may draw Nigeria close to the maximum borrowing ceiling. Staying within the borrowing limit will save the country from debt overhang. Therefore, government should embark on aggressive diversification of the economy.