The Nigerian Government has released its Economic Sustainability Plan which it hopes will address the economic challenges of the COVID-19 pandemic. The plan was put together by the Economic Sustainability Committee (ESC) assembled by President Muhammadu Buhari. Members of the committee included the Vice President, CBN Governor, 15 Ministers, GMD NNPC, and the Permanent Secretary.
In the report seen by Nairametrics Research, the teams were expected to deliver the following;
- Develop a clear Economic Sustainability Plan in response to challenges posed by the COVID-19 Pandemic;
- Identify fiscal measures for enhancing distributable oil and gas revenue, increasing non-oil revenues and reducing non-essential spending, towards securing sufficient resources to fund the plan;
- Propose monetary policy measures in support of the Plan;
- Provide a Fiscal/Monetary Stimulus Package, including support to private businesses (with emphasis on strategic sectors most affected by the pandemic) and vulnerable segments of the population;
- Articulate specific measures to support the States and FCT;
- Propose a clear-cut strategy to keep existing jobs and create opportunities for new ones; and
- Identify measures that may require legislative support to deliver the Plan.
The 76-page report contained recommendations from the committee on what the government should do to bring the economy back on track. Reading through the report, we observe several assumptions made by the committee on the possible effect of COVID-19 oil revenues and the exchange rate. Here are a few;
- The government opines that if oil revenues averages $30 for the rest of the year, Nigeria will probably earn N88.4b monthly from oil or N1 trillion when annualized.
- Here is a direct quote from the report: “It is expected that if oil prices average $30 over the rest of the year, oil revenues (assuming Nigerian National Petroleum Corporation reduces Joint Venture operating costs by 20%), would amount to about N88.4 billion monthly. Assuming that non-oil revenues are sustained at the lower level projected in the revised budget estimates, the total allocations to FAAC for the rest of the year would then be around N485 billion a month. This time last year total allocations to FAAC was N669.9 bn monthly. The very steep decline in revenues available for sharing among governments of the federation will have serious implications for wages, overheads, and capital expenditures at Federal, State, and Local Government levels.”
- The Government budgeted N7.6 trillion from oil revenue for the year while the FG’s portion of the amount is N3.6 trillion.
- The government in its report also projects Nigeria’s unemployment rate to rise to 33.6% from 23.1% as of September 2018. The Bureau of Statistics is yet to publish unemployment figures since then.
- Direct quote “Unemployment rate which was 23.1% (or 20.9m people) at the end of 2018 is expected to rise to 33.6% (or 39.4 million people) at the end of 2020 if urgent steps are not taken.”
- The report also projects Nigeria’s economic growth rate to contract between 4.4% and 8.91% “depending on the length of the lockdown period, the potency of the economic plans that are put in place, and, in particular, the amount of stimulus spending.”
The one year plan basically focuses on achieving mass employment and mass domestic production, which it claims “are not dependent on importation or foreign exchange expenditure.”
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The ESC, therefore, decided to adopt the use of a stimulus package which it referred to as a “time tested approach to fighting a recession” even though a stimulus was not used the last time Nigeria experienced a recession in 2016.
In proposing a package the committee claimed it explored 4 scenarios based on an average oil price of $30 for the rest of the year.
- Scenario 1: With no stimulus, i.e., if we simply stick to our budget the economy will decline by minus 4.40% at best.
- Scenario 2: With a stimulus of just N500 billion, the economy will decline by minus 1.94%.
- Scenario 3: With a stimulus of N2.3 trillion, the economic decline will be lower at minus 0.59%.
- Scenario 4. With a stimulus of N3.6 trillion, there will still be negative growth but only of -0.42%
The committee eventually settled for a variant of scenario 3 which requires a stimulus package of N2.3 trillion. The government explained that the reason for settling for Scenario 3, citing “the low level of revenues and the importance of monetary stability” as reasons.
How will the stimulus be funded? According to the government it plans to fund the stimulus from three major sources;
Firstly, it claims it will raise N500 billion from Special Accounts. Special Accounts are government accounts approved by the National Assembly where monies are accrued from tax deductions, oil proceeds, or any other source as provided in the law. Examples are the Ecological Funds, Education Trust Fund, Universal Basic Education Fund, etc.
Secondly, it proposes to raise about N1.1 trillion from what it termed “CBN Structured Lending” which suggests more intervention loans from the CBN. It could also include restructuring existing intervention loans by offering moratorium and lower interest rates which were also captured in the report.
The balance of N334 billion and N302.9 billion respectively will come from “external bilateral/multilateral sources – N334billion and other funding sources – N302.9bn.” These are basically loans and grants from monetary development institutions and rich donor countries.
The government has not confirmed if the recommendations included in this report will be adopted. However, several pronouncements from the government indicate this is the direction they plan to follow.
CBN extends Covid-19 forbearance for intervention loans by another 12 months
CBN will continue to charge an interest rate of 5% for its intervention loans for another 1 year.
The Central Bank of Nigeria has announced an extension of its regulatory forbearance for the restructuring of its intervention facilities by another 12 months.
In a circular signed by Dr. Kevin Amugo, the Director of Financial Policy and Regulatory. the apex bank said it will continue to charge its borrowers an interest rate of 5% per annum as against the 9% originally offered. The CBN had on March 20th reduced the interest rates on its intervention loans from 9% to 5% as part of its response to the economic crunch brought on by Covid-19 induced lockdowns.
The CBN also offered to rollover moratorium granted on all principal payments on a case by case basis. All credit facilities had been granted a one-year moratorium starting from march 1, 2020 when the pandemic first gripped Nigeria.
See excerpt from Circular
“The Central Bank of Nigeria reduced the interest rates on the CBN intervention facilities from 9% to 5% per annum for one-year effective March 1, 2020, as part of measures to mitigate the negative impact of COVID-19 Pandemic on the Nigerian economy.”
Credit facilities, availed through participating banks and OFIs, were also granted a one-year moratorium on all principal payments with effect from March 1, 2020.
Following the expiration of the above timelines, the CBN hereby approves as follows:
1) The extension by another twelve (12) months to February 28, 2022 of the discounted interest rate for the CBN intervention facilities;
2) The roll-over of the moratorium on the above facilities shall be considered on a case by case basis.
What this means
Companies who secured intervention funds from the CBN or through any of its on-lending banks will continue to service the loans at an interest rate of 5% per annum instead of 9%.
- They can also get another year of not needing to pay back the principal sum collection. However, they will need to apply.
- Whilst this move helps the small businesses continue to manage their cash flow, it means the CBN will record a reduction in its income extended under such facility.
- Regulatory forbearance is a widely adopted concept during an economic crunch and it is meant to help stimulate businesses. These pronouncements if implemented will only affect those who borrow from the CBN or BOI but those who do not will miss out.
- Download the circular here.
Senate endorses ex-Service Chiefs as Non-career Ambassadors
The Senate has confirmed President Buhari’s nomination of the immediate past service chiefs as non-career ambassadors.
The Nigerian Senate has endorsed the nomination of the past serving Military Service Chiefs as Non-career Ambassadors.
This was confirmed during Tuesday’s plenary session and announced in a social media statement by the Nigerian Senate.
Their confirmation follows the consideration of the report of the Senate Committee on Foreign Affairs, Chaired by Senator Adamu Bulkachuwa.
According to reports, the Senate Minority Leader Enyinaya Abaribe, however, questioned the nomination and confirmation of the ex-service chiefs when the Senate had on 3 different occasions called for their sack.
Senator Abaribe also raised issues on the petitions against the former service chiefs and questioned why they were dismissed without explanations.
But Senate President Ahmad Lawan dismissed Senator Abaribe’s concerns, ruling that the nomination of the former service chiefs cannot be nullified simply because the upper chamber had called for their sack, noting that this is totally a different assignment.
In his concluding statement, the Senate President, Senator Lawan added that these nominees that have just been confirmed have served this country to the best of their abilities. He appealed to the executive to make sure they use their experience as military men to the best.
“These nominees that we have just confirmed are nominees that have served this country to the best of their ability. Our appeal to the Executive is to make sure they use their experiences as military men to the best,” Lawan said.
Lawan, on behalf of the senate, wished them a very successful career in their capacity as Non-Career Ambassadors.
What you should know
- Recall Nairametrics reported earlier this month that President Muhammadu Buhari nominated ex-Service Chiefs for Senate approval as non-career Ambassadors-Designate.
- Their appointment came barely a week after their retirement as service chiefs and their replacement with new ones.
- This led to a spate of criticisms from some Nigerians who felt that the nation’s security situation got worse under their watch.
- They were reported to have tendered their resignation from their positions amid heightened calls that they should be sacked due to the increasing rate of insecurity across the country.
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