The International Monetary Fund (IMF) Executive Board, on Tuesday, approved Nigeria’s request for US$3.4bn emergency financial assistance to enable her to meet the urgent balance of payment needs arising from the shock caused by the outbreak of the Coronavirus (COVID-19) pandemic, under the Rapid Financing Instrument (RFI).
The pandemic has exposed the shallowness of the nation’s economy, resulting from the sharp drop in the price of crude oil, which accounts for an estimated 90% of Nigeria’s foreign exchange income. This has been worsened by the slowdown in demand arising from the closure of factories with most economies on lockdown, as the country braces up for a recession with its GDP projected to drop by 3.4%.
“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 IMF noted.
But until then and in the near-term, the fund warned that the economic impact of COVID-19 would be severe, with high downside risks already on the increase for an economy that was already facing headwinds from rising external vulnerabilities and falling per capita GDP levels even before the COVID-19 outbreak.
The pandemic—along with the sharp fall in oil prices, it continued, “has magnified the vulnerabilities, leading to a historic decline in growth and large financing needs.
“The IMF financial support will help 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 said it remains closely engaged with the Nigerian authorities, expressing readiness to provide policy advice and further needed support.
Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, said in a statement that the pandemic, magnified by the sharp fall in international oil prices and reduced global demand, is severely impacting economic activity in Nigeria.
These shocks, he continued, have created large external and financing needs for 2020, just as additional declines in oil prices and more protracted containment measures would seriously affect the real and financial sectors and strain the country’s financing.
He welcomed the immediate response to the crisis, assuring that “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 rate are also important and unification of the exchange rate should be expedited.
“Once the COVID-19 crisis passes, the focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending. Implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, remains 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 BOP 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.