Some of the Tools for the Job in Hand

BY Gregory Kronsten

The principal losers from COVID-19, as with other global viruses and all national disasters, are the poorest members of society. They have fewer, if any savings. They generally live on top of one another. Their income is received in cash because their jobs, if any, are not secure.

They depend upon the state for education and health so when the government seizes up for whatever reason, they are left without. We could go on. The lucky ones are the “professionals” who can work from home and adapt to the restrictions imposed by their government.

The authorities in Nigeria have sought to respond with monetary and fiscal stimuli. The headline measure on the monetary side was the rate cut of 100 basis points (bps) announced by the monetary policy committee (MPC) last month.

The impact of rate changes is limited for well-documented reasons, which explains the consensus view (including our own) ahead of the meeting on 28 May that there would be no change. The cut was the signal/message, whatever its effect, that central banks and MPCs across the world have sent in the face of COVID-19 and the ensuing lockdowns.

On 16 April, the CBN governor outlined a package of regulatory and credit measures that was costed at N3.5trn in aggregate. The largest intervention was a N1trn facility for agriculture and manufacturing, of which N93bn had been disbursed for 44 projects one month later. Similarly, for the N100bn healthcare intervention, a total of N10bn had been released.

This is not particularly fast or slow. The CBN has tested procedures to follow. There are not the resources available for the quick fix. In the US the government sent a cheque to each household. In several European countries such as Germany, Switzerland and the UK, banks released government-guaranteed loans for small business after credit checks that could charitably be termed light.

There is little doubt that some of these loans were fraudulent and that many will turn sour. However, governments in advanced economies can take the hit.

The Federal Government of Nigeria’s (FGN) contribution to the fight against COVID-19 is the inclusion of a N500bn COVID-19 crisis intervention fund within the latest version of the 2020 budget, approved by the National Assembly on 11 June.

This fund is to be targeted on improvements to healthcare facilities and a special scheme of public works to employ 770,000 Nigerians. Additionally, the FGN will request funding from the World Bank Group for its Nigeria Centre for Disease Control (NCDC), the country’s leading public health institute, and from a West African disease surveillance vehicle to provide US$100m for the state governments to tackle the impact of COVID-19.

These initiatives will complement programmes financed by the US$5.5bn multilateral borrowing in the budget, of which the IMF has already disbursed US$3.4bn. A further US$290bn has been approved for release by the African Development Bank.

It is far too early to say how much COVID -19 will hit the health of Nigerians, let alone the broader economy. An analysis of the victims elsewhere tells us that the young average age of the population stands in Nigeria’s favour.

We should also cite the possibility that the average temperature counts as another positive. All advantages, and we will add the sizeable domestic investment institutions that will fund most of the FGN’s borrowings, are to be valued since Nigeria has limited resources to fight off COVID-19.

Gregory Kronsten is Head Macroeconomic and Fixed Income Research, FBNQuest