The International Monetary Fund (IMF) has advised Nigeria to deploy the $3.5 billion emergency loan being processed for the country to strengthening infrastructure in the health and educational sectors.
Nigeria has applied to the IMF and African Development Bank (AfDB) to access $3.5 billion in concessional funding to support the 2020 budget.
According to Selassie, Nigeria has also asked for IMF loans through the Rapid Financing Instrument (RFI). “It is a quick instrument that the government can use to strengthen health spending and provide social protection for the people. There should also be monetary and fiscal policy framework that will help Nigeria put the COVID-19 crisis behind it,” he said.
He said Nigeria’s major problems have been listed in the Economic Recovery and Growth Plan -ERGP. For the medium term, the biggest challenge facing Nigeria is propritising revenue mobilisation. That, he added, is important for the government to have enough resources it can devote to providing infrastructure through public education and health.
Selassie said such move would, in the next four to five years, put Nigeria in a position where the Federal Government has enough revenue to meet the country’s spending needs.
“In the medium term, enough resources should be put in to address the health challenges and risks that Nigeria faces due to the COVID-19 pandemic. There should also be a scope for more supportive policies,” he said.
It said the COVID-19 pandemic has spread through almost all countries. And as in the rest of the world, the health crisis has precipitated an economic crisis reflecting three large shocks: disruption of production and a sharp reduction in demand; spillovers from a sharp deterioration in global growth and tighter financial conditions; and a severe decline in commodity prices.
As a result, the region’s economy is projected to contract by 1.6 percent this year—the worst-reading on record.
The economic crisis will exacerbate social conditions and aggravate existing economic vulnerabilities, while containment measures and social distancing will inevitably jeopardise the livelihoods of countless people. Decisive measures and support from the international community are urgently needed to limit the humanitarian and economic losses and protect the most vulnerable societies.
According to the Fund, the immediate priority is for countries to do whatever it takes to ramp up public health expenditures to contain the virus outbreak, regardless of fiscal space and debt positions.
“Timely and temporary fiscal support is also crucial to protect the most affected people and firms, including those in the informal sector. Given the one-off nature of the shock, some discretionary fiscal support is warranted, even in countries with limited space.
Policies could include cash transfers to help people under strain (including through digital technologies) and targeted and temporary support to hard-hit sectors. Once the crisis has subsided, countries should revert fiscal positions to paths that ensure debt sustainability,” it said.
The IMF said the ability of countries to mount the required fiscal stance, is however, highly contingent on ample external financing, on grant and concessional terms, being available from the international financial community and to a higher degree than usual, given the highly disrupted state of global capital markets.
Also, the absence of adequate external financing risks turning temporary liquidity issues into solvency problems, resulting in the effects of the shock becoming long rather than short-lived.
The IMF said the sharp decline in commodity prices is an additional shock for the region’s resource-intensive countries, further compounding the impact of the pandemic. The negative terms of trade shock will weigh on growth and add to fiscal and external vulnerabilities. More importantly, low commodity revenues would significantly constrain their resources to combat the virus outbreak and shore up growth.
These shocks, it said are compounding an already challenging economic situation in the region. “Economic activity in resource-intensive countries has been tepid in recent years because most countries were still adjusting to the 2014 commodity shock.
At the same time, the high growth in non-resource-intensive countries has often been supported by public sector investment and accompanied by elevated debt and external vulnerabilities. In addition, the security situation in the Sahel remains difficult, and the continent has been battered by multiple weather-related shocks, including cyclones, droughts in southern and eastern Africa,” it added.
The IMF said monetary stimulus can play an important role in containing the economic fallout. “Exchange rate flexibility in countries with floating regimes, and some drawdown of reserves where levels are adequate, can help cushion part of the external shock.
For countries facing sudden reversals of external financing and a resulting imminent crisis, temporary capital flow management measures could be considered as part of a wider policy package. Finally, broad-based support from development partners is essential to help the region prepare health systems and raise much-needed financing,” it said.
“The crisis response policies are temporary and should be implemented transparently, with effective communications to assure stakeholders that the increase in fiscal deficits and public debt will be reversed after the crisis. Such an approach will ensure that the region stays on track to meet its medium-term objectives, which include building resilience, restoring growth to create jobs, and achieving other sustainable development goals,” it added.
