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 throughhe 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.