The Board of the International Monetary Fund (IMF) yesterday approved Nigeria's request for $3.4 billion in emergency financial assistance under the fund's Rapid Financing Instrument (RFI) to support the federal government's efforts in addressing the severe economic impact of the COVID-19 economic shock and the drastic fall in oil prices.
This would bring a sigh of relief to fiscal and monetary authorities as the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, awaits another $3.5 billion in support loans from the World Bank and the African Development Bank.
RFI, which is given to member countries without the strings and conditionalities attached to an IMF formal programme, is being disbursed immediately "in a matter of days, and will boost the foreign currency reserves of the Central Bank of Nigeria (CBN) and give monetary authorities the required firepower as it moves towards convergence and stability of the exchange rate in a time of supply and demand shocks," analysts said.
The Washington-based institution disclosed this in a statement by its Deputy Managing Director and Acting Chair, Mr. Mitsuhiro Furusawa.
IMF Executive Board approved Nigeria's request for emergency financial assistance of Special Drawing Right (SDR) 2,454.5 million (US$ 3.4 billion, 100 per cent of quota) under RFI to meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic.
The latest approval by IMF is the largest allocation to member countries, so far, to assist in the fight against the pandemic.
The multilateral institution pointed out that the COVID-19 outbreak had magnified existing vulnerabilities, leading to a historic contraction in Nigeria's real Gross Domestic Product (GDP) growth and to large external and fiscal financing needs.
Furusawa explained: "The COVID-19 outbreak--magnified by the sharp fall in international oil prices and reduced global demand for oil products--is severely impacting economic activity in Nigeria.
"These shocks have created large external and financing needs for 2020. Additional declines in oil prices and more protracted containment measures would seriously affect the real and financial sectors and strain the country's financing.
"The authorities' immediate actions to respond to the crisis are welcome. The short-term focus on fiscal accommodation would allow for higher health spending and help alleviate the impact of the crisis on households and businesses. Steps taken toward a more unified and flexible exchange rates are also important and unification of the exchange rate should be expedited."
He advised the federal government that once the COVID-19 crisis passes, the focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep the country's debt sustainable and create fiscal space for priority spending.
Furthermore, he said the government should also focus on implementing the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, which remained crucial to boost growth over the medium term.
"The emergency financing under the RFI will provide much needed liquidity support to respond to the urgent Balance of Payment needs. Additional assistance from development partners will be required to support the government's efforts and close the large financing gap.
"The implementation of proper governance arrangements--including through the publication and independent audit of crisis-mitigating spending and procurement processes--is crucial to ensure emergency funds are used for their intended purposes," he added.
According to IMF, in the near-term, the economic impact of COVID-19 was expected to be severe, stating that already, high downside risks in the country have increased.
It pointed out that even before the COVID-19 outbreak, "Nigeria's economy was facing headwinds from rising external vulnerabilities and falling per capita GDP levels."
IMF said it remained closely engaged with the Nigerian authorities and was ready to provide policy advice and further support whenever required by the country.
Senate Endorses Buhari's N850bn Loan Request
The Senate yesterday returned from a five-week break to speedily approve the N850 billion local loan request by President Muhammadu Buhari to fund critical capital projects in the 2020 budget after which the lawmakers adjourned indefinitely.
The upper legislative chamber, after rising from a two-hour executive session, considered the loan request contained in a two-page letter dated March 24 from Buhari, and read at plenary by the President of the Senate, Dr. Ahmad Lawan.
The Senate Leader, Senator Yahaya Abdullahi, moved a motion for the suspension of Order 1 of the Senate Rules to allow the Senate to consider the loan request.
He requested that the loan application be granted due to the necessity of the time and the strategic projects to be executed with it.
There was no dissenting voice and the Senate unanimously approved the N850 billion loan request.
Lawan thereafter directed the Minister of Finance, Budget and National Planning to furnish the Senate Committees on Appropriation and Finance with full details and breakdown of the approved loan.
Buhari had sought the approval in the letter entitled: "Request for the National Assembly to raise N850 billion in new external borrowing in the 2020 Appropriation Act in naira from the domestic capital market."
In the letter, the president noted that the 2020 Appropriation Act provided for N1,594,986,700,544 of new domestic borrowing and N850 billion of new external borrowing.
These borrowings were to part-finance the 2020 budget deficit of N2,175,197,885,232 only.
"Furthermore, the Senate may wish to note that external borrowing from the international capital market increases Nigeria's external reserves, provides access to lower costs as well as avoids crowding out private sector borrowers who also wish to access the domestic capital market," he said.
The president said recent developments in the global economic environment as a result of the COVID-19 pandemic and the decline in international oil prices had made it less attractive to borrow from the international capital markets at this time.
"To ensure that there are adequate funds to finance critical projects and programmes in the 2020 budget, I hereby seek the Senate's approval to raise the N850 billion of new external borrowing in naira from the domestic capital market instead of from the international capital market," he said.
The president, however, explained that it might still access the international capital market when situations improve to refinance the N850 billion of new borrowing and epitomise the benefits inherent in external borrowing.
He explained further that presently, the conditions in the domestic capital market were favourable in terms of availability of funds and relatively low interest rates.
"This cause of action is deemed prudent given our current realities. I have directed the Minister of Finance, Budget and National Planning to make herself available to provide any additional information or clarification which you may require," Buhari said.
Earlier yesterday, the senate president had lamented the negative impact of the pandemic on the 2020 budget, rallying senators behind the executive to see the country out of the woods.
Welcoming the senators back after a long break, Lawan said: "The pandemic has affected our budget for this year, not just because of falling oil prices, but also because it has forced a reduction in economic activities, leading to an enormous loss of revenue," he said.
He noted that the Senate leadership had been working with the executive on areas of adjustments for a more realistic implementation, adding that the resumption yesterday would lead to a quicker resolution of some of its decisions.
"The pandemic has unsettled economies, affected the way we relate to each other and disrupted calendars of activities across different sectors," Lawan said, adding: "Government has responded well under the recommendations of scientists and experts."
He also appealed to senators to continue to educate Nigerians and their constituents on COVID-19 protocols of social distancing and using of facial masks as one of the ways to prevent the spread of the pandemic.
After the approval of the Senate votes and proceedings for yesterday, the Senate president adjourned plenary sine die.
DMO Explains N850bn Borrowing
Meanwhile, the Debt Management Office (DMO) has shed more light on the N850 billion domestic borrowing, saying it was initially captured in the 2020 Appropriation Act as 'External Borrowing.'
It said in a statement yesterday that the Appropriation Act approved a total of N1,594.99 trillion as 'new borrowing' to part-finance the deficit in the budget.
This, it stated, was made up of N794.99 billion domestic borrowing and N850 billion external borrowing.
It explained: "With the COVID-19 pandemic and its attendant effect on the world economy and the international capital market, the federal government reappraised its borrowing plans and decided that it would be more expedient to raise the N850 billion, earlier approved as external borrowing, from domestic sources.
"This conversion from external to domestic is to ensure that the implementation of the 2020 Appropriation Act is not jeopardised by lack of funds."
According to DMO, the N850 billion is not new nor an incremental borrowing, but rather an amendment of the source of borrowing from external to domestic.
"With this change, the total new domestic borrowing under the 2020 Appropriation becomes N1,594.99 billion, which is the same as the total new borrowing in the 2020 Appropriation Act.
"For compliance with the law, His Excellency, President Muhammadu Buhari, forwarded requests to the Senate and House of Representatives to convert the source for raising the N850 billion from external to domestic," the agency said.