International media outlets began to issue reports on the Coronavirus disease (COVID-19) in late 2019. The situation had further deteriorated with reports of infections observed in locations outside China in the early weeks of 2020. The World Health Organization (WHO) declared the COVID-19 outbreak, a Pandemic on 11 March 2020.1

For a year that started out with lots of promise for Nigeria and the World, this unforeseen development undoubtedly changed the course of the year and this comes with striking impacts on all sectors of the global economy. Following the record of Nigeria's first COVID-19 incidence on 27 February 2020 and the gradual increase in the number of reported cases, President Muhammadu Buhari directed a two-week lockdown of two major commercial states, Lagos and Ogun States, and the Federal Capital Territory, Abuja on 29 March 2020.2 With Nigeria's major trading partners like China being affected by the COVID-19 resulting in significant drop in oil demand and prices as well as disruptions in supply chains, coupled with measures to curb the steady spread of the virus across the nation such as the unavoidable lockdown and the attendant consequences of physical distancing measures3 , our fear that the crisis is not only health-related but has serious economic implications has become a reality.

Governments across the world have started responding to the crisis with various regulations and economic measures (i.e. fiscal and monetary) to tackle the crisis head-on. It is on this note that Andersen Tax, Nigeria has commenced this series of publication to monitor and document the Nigerian Government's economic and regulatory interventions and provide useful insights for businesses and households in managing the challenges of the COVID-19 disruptions.

A. Monetary Policy Interventions

The Central Bank of Nigeria (CBN) issued a Press Release on 6 March 2020 to introduce a ₦50 billion Targeted Credit Facility (TCF) as a stimulus package to support households and micro, small and medium enterprises (MSMEs) affected by the COVID-19 Pandemic. The CBN has subsequently issued a detailed guideline for the implementation of the facility. As part of the stimulus package, the CBN is granting one-year moratorium and an interest rate of 5% per annum which will last until 28 February 2021 and shall revert to 9%, effective 1 March 2021.

As part of measures to address the impact of the COVID-19 Pandemic on the Nigerian economy, the CBN also unfolded a plan to support critical sectors of the economy with ₦1.1 trillion intervention fund. ₦1trillion of the ₦1.1 trillion is to be directed at local manufacturing sector and boosting import substitution while the balance of ₦100 billion credit support, which will operate till 2030, will be focused at the health sector. According to the CBN, the objective of the health credit facility is to provide low cost finance for healthcare infrastructure development that will facilitate the evolution of world-class healthcare facilities in the Country and result in the reduction of health tourism to conserve foreign exchange.

Under a regulatory forbearance measure, the CBN has permitted deposit money banks to go into bilateral loan restructuring arrangements with businesses and households affected economically by the COVID-19 Pandemic. The CBN has advised banks to focus on businesses in the following sectors – oil and gas, agriculture and manufacturing.4 This measure is commendable for its ability to provide financial stability to players in these sectors, but the CBN will need to balance the need for financial stability of institutions against the capital adequacy and reserve requirements of these banks.

The CBN has also provided assurances that it will support industry funding levels with the expectation that this will free up resources for deposit money banks to provide credits to individuals, households and businesses. This is in tandem with the CBN's role as a lender of last resort. It is important to mention that this measure will become more critical in the coming weeks as some households are likely to lose their sources of income.5

We expect more trade and monetary policy measures to be coordinated in the coming weeks and months to mitigate the impact of the Pandemic. For instance, the CBN may need to take additional steps towards ensuring that credit lines for inter- bank lending remain open. This is to avoid full a blown financial and economic crisis occasioned by inadequate lending across the financial institutions and credit crunch for the real sector.

B. Fiscal Interventions

1. Budget Review

The Nigerian economy being largely dependent on oil revenue is faced with shocks from the recent dynamics in the global oil market. The reduction in the global demand due to the adverse impact of COVID-19 on major buying economies such as China, coupled with the oil price war between Russia and Saudi Arabia, has largely distorted the plans contained in the 2020 Appropriation Act given that oil price and daily oil production were key parameters considered in drafting the budget. Following the dip and inconsistency in oil price and the country's daily oil production, the Federal Government is proposing a review of the benchmarks for the 2020 budget from an initial price of USD57 to USD30 per barrel and oil production from 2.18mbpd to 1.7mbpd, respectively.

The Minister of Finance noted via a Press Statement that the Government has had to adjust the Non-Oil Revenue projections downwards, including various tax and customs receipts, as well as proceeds of privatization exercises. According to her, the Budget Office is working on a revised 2020 - 2022 Medium-Term Expenditure Framework / Fiscal Strategy Paper ('MTEF/ FSP') and an Amendment to the 2020 Appropriation Act. It is expected that the requisite Presidential and Legislative approvals will be expeditiously granted upon completion of the Executive's 2020 Amended Budget.

2. External Interventions from International Financial Institutions (IFIs)

The Nigerian Government is engaging with the IFIs to fund critical healthcare expenditure and the implementation of the 2020 Budget. Of the USD90 million World Bank's Regional Disease Surveillance Systems (REDISSE) facility available to the Nigeria Centre for Disease Control (NCDC), it has accessed USD8 million and has requested to draw the balance. The Finance Minister also noted that the Government has requested for additional USD100 million from the REDISSE project to meet COVID-19 emergency needs.

Furthermore, the Federal Government has applied to draw from the Country's existing holdings with the World Bank Group / International Monetary Fund (IMF). This is in respect of the funding from the IMF's COVID-19 Rapid Credit Facility which is devoid of any conditionalities.

In a similar vein, the African Development Bank has issued a USD3 billion Fight COVID-19 Social Bond to raise funds that will be directed at alleviating the economic and social impacts of the COVID-19 on the African Continent. The Bond is reported to be the largest USD Social Bond transaction ever recorded in the capital markets and with an interest rate of 0.75%. It has already attracted bids exceeding USD4.6 billion, with strong interests from the central banks, financial institutions, investors and assets managers.

3. Removal of Fuel Subsidy

In line with the falling and fluctuating price of crude, the Group Managing Director of Nigeria National Petroleum Corporation (NNPC) announced the removal of fuel subsidy during a televised broadcast on Monday, 7 April, 2020. It is expected that going forward, the price of refined petroleum products in Nigeria will be determined by the market forces and international oil price.6

While the removal of the fuel subsidy is not tantamount to full deregulation of the petrol subsector, the NNPC intends to continue to help moderate prices so as to sustain the security of supply at market price. The subsidy or under-recovery payment is expected to free up monetary resources to fund other critical infrastructure. However, it remains unclear whether government would not bring back subsidy if market conditions change and engender a spike in the landing cost of petrol beyond the previous ceiling price of ₦145 per litre. Meanwhile, the removal of the subsidy is expected to lead to a correction of distortions such as smuggling and products arbitrage that had existed in the market.

To view the full article, please click here.

Footnotes

1. William Wan, 'WHO Declares a Pandemic of Coronavirus Disease COVID 19' (Washington Post, 11 March 2020) https://www.washingtonpost.com/health/2020/03/11/who-declares-pandemic-coronavirus-disease-covid-19/ accessed 9 April 2020.

2. Speech by President Muhammadu Buhari, GCFR, delivered on 30 March 2020.

3. Social distancing is the functional preventative measures against the spread of disease which involves a reduction in the frequency of people coming in contact with each other.

4. Central Bank of Nigeria, 'Circular to Deposit Money Banks and the General Public on: CBN Monetary Policy Measures in Response to COVID – 19 Outbreak and Spillover'

5. Ibid.

6. In a television interview conducted by the African Independent Television on, see "youtu.be/DiXxke9s9hDc" accessed on 9 April 2020.

Originally published 12 April, 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.