Nigeria was still grappling with recovery from 2016’s oil-induced economic recession when the pandemic struck.
In the spirit of economic recovery and growth sustainability, the Nigerian Federal budget for 2020 fiscal year was prepared with significant revenue expectations even though over ambitious.
The emergence of COVID-19 and its increasing incident in Nigeria however led to drastic reviews and changes in the pre-COVID 19 revenue expectations and fiscal projections.
When consumer spending and business activity slowed as a result of the coronavirus pandemic, Nigeria’s government, like others across the world, deployed policies to provide a more stable economic environment.
They hiked spending and provided tax relief to boost economic output (fiscal policy). In Nigeria’s case, the government offered a 50% tax refund to companies that did not retrench staff until the end of the year. The monetary authorities also increased available loans and reduced the cost of borrowing to make funds easier for individuals and businesses to access (monetary policy). As always, there were moves made on the exchange rate as well (exchange rate and balance of payments policy). Asides implementing this, the CBN also reduced interest rates by 100 bps in May from 13.5% to 12.5% and again in September from 12.5% to 11.5% in an attempt to stimulate the economy.
The apex bank also extended the payment of its intervention loans by one year and reduced the interest rate on these loans from 9% to 5%.
Most people in the country had taken a hit. With two-thirds of Nigerians experiencing a drop in their income, there was a sharp decline in the demand for non-essential commodities. This implied that many businesses particularly SMEs (not producing “essential” commodities) had to pack up before December. At that point, even the government’s 50% tax relief plan became irrelevant.
At the end of June 2020, the Federal Government (FG) had approved a ₦2.3 trillion stimulus plan to boost significant sectors of the economy. It was less than 2 percent of GDP but was a welcome move.
The scheme included many key infrastructure projects. It provided support to the three groups that bore most of the brunt from the crisis – healthcare industry, small and medium-scale businesses (SMEs), and the vulnerable. But, the size of the stimulus package paled in comparison to countries of similar size. While Nigeria’s stimulus package was 1.6% of its GDP, Morocco, Namibia, and Senegal deployed packages valued at 2.7%, 4.3%, and 7% of their GDP respectively.
The Federal Government also put out a lock-down order for several weeks, closed the border, banned overseas travel for moths. Revised its budget to reflect the new oil price, arranged for COVID testing kits and safety gears from China and are currently arranging for vaccines.
The overall aim was to ensure that economic output was eventually restored to the pre-pandemic levels. On a micro level, the goal was to protect individuals and businesses from the effect of the pandemic.
Despite scepticism from the general public on these policies, these strategies however worked, as Nigeria saw a swift exit from the economic recession in Q4 2020.
SO, WHAT POLICY MEASURES CHANGED?
Considering the significant adverse consequences of the pandemic as well as the unprecedented disruptions in global supply chains, the CBN in furtherance of its financial stability mandate announced the adjustment of the following policy measures:
EXTENSION OF MORATORIUM: All CBN intervention facilities were granted further moratorium of one year on all principal repayments, effective March 1, 2020.
INTEREST RATE REDUCTION: Interest rates on all applicable CBN intervention facilities were reduced from 9 to 5 percent per annum for 1-year effective March 1, 2020.
CREDIT SUPPORT FOR HEALTHCARE, AGRICULTURAL AND MANUFACTURING INDUSTRY: The CBN put in place intervention facilities to meet the potential increase in demand for healthcare services and products to healthcare practitioners who intended to expand/build the health facilities to first class standards. This was also in addition to the growing size of existing interventions to agricultural and the manufacturing sectors.
REGULATORY FOREBEARANCE: The CBN granted all Deposit Money Banks leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses, households and sectors most affected by the outbreak particularly Oil & Gas, Agriculture and Manufacturing.
STRENGHTENING THE CBN LDR (LOAN-TO-DEPOSIT RATIO) POLICY: Deposit Money banks were encouraged to continue to build capital buffers in order to improve resilience of the sector.
CREATION OF N50 BILLION TARGETED CREDIT FACILITY: The CBN established a facility through NIRSAL Microfinance bank for households and small and medium sized enterprises (SMEs) that were hit hard by the pandemic, including but not limited to hoteliers, airline service providers, healthcare merchants etc.
