The International Monetary Fund (IMF) on Tuesday approved a $3.4 billion emergency funding as requested by Nigeria, to help the country cushion the impact of the coronavirus pandemic on her economy.
The executive board of the fund gave the approval under the Rapid Financing Instrument to support the government's efforts to address the devastating impact of COVID-19.
It is the single largest aid for any African country facing the pandemic. The fund had earlier approved $1 billion for Ghana.
On April 6, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said at the launching of the N500 billion fiscal stimulus measures in response to the COVID-19 pandemic that the IMF request was part of a number options the country was exploring raise funds to salvage its economy.
The minister said the other options to mobilise financial support to the country's economic stimulus fund included a $2.5 billion credit facility from the World Bank, and another $1 billion from the African Development Bank.
At the meeting of its executive board on Tuesday to consider Nigeria's request, the IMF noted that the COVID-19 outbreak has magnified existing economic vulnerabilities, leading to a historic contraction in the economic growth of most countries, and to large extent their external and fiscal financing needs.
"Once the impact of the COVID-19 shock passes, the authorities' commitment to medium-term macroeconomic stability remains crucial to support the recovery and ensure debt remains sustainable," the board said.
The board said the approval of 100 per cent of Nigeria's contribution to the Fund as emergency financial assistance was based on the country's Special Drawing Rights under the Rapid Financing Instrument.
Noting that the near-term economic impact of COVID-19 is expected to be severe, the board said Nigeria's economic condition was already facing high risks from external headwinds from rising external vulnerabilities and falling per capita GDP levels.
The impact of the pandemic, coupled with the sharp drop in crude oil prices at the international oil market, worsened the country's vulnerabilities, leading to a historic decline in growth and large financing needs.
The IMF said its financial support would help Nigeria limit the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing and mitigating the economic impact of the pandemic and of the sharp fall in international oil prices.
"The IMF remains closely engaged with the Nigerian authorities and stands ready to provide policy advice and further support, as needed," the Deputy Managing Director and Acting Chair of the Executive Board, Mitsuhiro Furusawa, said on Tuesday.
"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 crude oil prices and more protracted containment measures would seriously affect the real and financial sectors and strain the country's financing," it added.
The fund welcomed Nigerian government immediate actions to respond to the crisis, saying 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.
Besides, he said other steps taken by the Central Bank of Nigeria (CBN) toward a more unified and flexible exchange rate are also important and unification of the exchange rate should be expedited.
Post COVID-19 Focus
Mr Furusawa uurged the government to ensure that once the COVID-19 crisis was over, its focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria's debt sustainable.
Also, the IMF advised the Nigerian government to create fiscal space for priority spending on infrastructures to strengthen the economy.
In addition, the fund recommendes the implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power supply and good governance, saying these remain crucial to boost growth over the medium term.
The emergency financing under the RFI, the IMF said, would provide much needed liquidity support to respond to the urgent balance of payment needs, while additional assistance from development partners would 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," the Fund advised.