The Federal Government is in the process of amassing a $6.9 billion war chest to combat the impact of the coronavirus on the Nigerian economy and healthcare sector. This is coming at a time Federal Accounts Allocation Committee (FAAC) disbursements to the three tiers of government have fallen to the lowest level so far in 2020.
Nigeria does not intend to negotiate any formal loan programme with the International Monetary Fund (IMF) but has formally asked the fund to release all its existing holdings, totalling $3.4bn, to enable it to combat the huge impact of COVID-19 pandemic in the country.
Zainab Ahmed, minister of finance, budget and national planning, announced this on Monday and confirmed the money is expected a few weeks, but at no conditions.
“These funds will not be tied to any conditionalities. However, let me clarify that Nigeria does not intend to negotiate or enter into a formal programme with IMF at this time or in the preceding future,” Ahmed said while addressing a press conference in Abuja on government’s fiscal measures against COVID-19 pandemic and oil price shock.
Government is also in talks with the World Bank for a donation of up to $2.5bn on behalf of the Federal Government and $1bn for the states.
A similar request has also been made to the African Development Bank for up to $1bn as well as from the Islamic Development Bank, but Ahmed didn’t give details.
Nigeria will also source some $150m from the Sovereign Wealth Fund (SWF) to fund June 2020 FAAC disbursements as the country battles severe income shortages on account of the pandemic and fiscal shock from slumped oil prices.
The Stabilisation Fund (SF), a component of the SWF managed by the Nigerian Sovereign Investment Authority (NSIA), is structured as to provide some buffer against short-term macro-economic instability.
She said the government also expects that the annual dividend from the Nigeria Liquefied Natural Gas (NLNG) will come in earlier than expected to augment FAAC monthly disbursements.
Ahmed said while the country’s buffers have depleted, the intervention is critical at this time when FAAC monthly income and subsequent disbursements to the three tiers of government have consistently dropped since January 2020.
Monthly federation account (FAAC) disbursements to the federal and state governments were projected at N888.5 billion in the 2020 Appropriation Act.
However, the significant drop in the international oil price benchmark (Brent) has pushed disbursements to N716.3 billion in January, N647.4 billion in February and N581 billion in March, and is now being projected at as close as N400bn over the next three to six months.
“Our experience shows that monthly FAAC receipts must average at least N650 billion for the federal and state governments to meet their current obligations. Unfortunately, we project that monthly receipts may decline to below N400 billion over the next three to six months,” she said.
To provide additional relief, President Buhari has also asked the Finance Ministry to engage with the Central Bank of Nigeria (CBN) on a debt and interest moratorium for states on Federal Government and CBN-funded loans, in order to create fiscal space for the states, given the projected shortfalls in FAAC allocations.
“Accordingly, once-monthly average FAAC receipts fall below a specific threshold, interest and capital payments by states shall be suspended till monthly average FAAC receipts exceed the threshold. The details of this moratorium will be expeditiously worked out with a view to submitting the final proposals for Mr President’s guidance and final approvals,” Ahmed said.
Ahmed also confirmed government plans to seek some sort of debt relief from multilateral organisations.
“The Federal Ministry of Finance is also reaching out to multi-lateral organisations where we have borrowed externally, either for the Federal Government or on behalf of the states to also negotiate the debt defilement or debt suspension,” she said.
She also confirmed a meeting with all the African ministers of finance last week where they agreed to collectively ask for suspension of the debt service obligation for 2020 and 2021.
“Nigeria is not alone in this, all African countries have the same rule and the World Bank and IMF that were in the meeting indicated that this possible and we will be negotiating with them the terms of referrals,” she said.
Oluwatosin Ayanfalu, an analyst at Lagos-based Zedcrest Capital, said Nigeria’s move to seek multilateral funds from the likes of IMF and World Bank is informed by tight market conditions in the bonds market due to the coronavirus pandemic.
“Now is not the time to raise Eurobonds,” Ayanfalu told BusinessDay. “However, the concern is how effective it would be for Nigeria in obtaining the amount it seems because obviously we won’t be the only ones approaching those institutions.”
Ayanfalu noted that decline in oil price and the economic effect of the pandemic is weighing on the creditworthiness of Nigeria but recent downgrades seen are not peculiar to Nigeria.
Johnson Chukwu, CEO, Cowry Asset Ltd, said it should not be difficult for Nigeria to raise $2.5bn given IMF’s firepower of around $1trillion and commitment to assisting countries in need.
“Nigeria is one of the countries with positions in IMF,” he said.
The minister announced that President Buhari has approved the temporary restructuring of the Treasury Single Account (TSA) to accommodate cash donations from the public on COVID-19 as concern rises over the effective utilisation of contributions which have reached N19.4bn from the Nigeria Private Sector Coalition Against COVID-19 (CACOVID).
She said this initiative will help to better mobilise cash donations from individuals and corporate bodies across the nation, create flexibility and build a coalition with financial institutions while maintaining the sanctity of the TSA.
President Buhari has also approved the establishment of an N500 billion COVID-19 Crisis Intervention Fund, part of which the Federal Government has provided N102.5 billion in resources to be available for direct interventions in the healthcare sector, all in a coordinated effort to save the lives of Nigerians and protect the economy from the adverse impact of the global outbreak of the coronavirus (COVID-19).
Of this sum, N6.5 billion has already been made available to the Nigeria Centre for Disease Control (NCDC) for critical expenditure.
“The government has provided N102.5 billion in resources to be available for direct interventions in the healthcare sector… More funds are to be provided from the proposed crisis intervention fund to address emerging and priority funding needs as these arise,” Ahmed said.
The establishment of the fund would involve mopping-up much-needed cash resources from various special funds and accounts, in consultation with and with the approval of the National Assembly.
Apart from the proposed N500 billion intervention fund meant to upgrade healthcare facilities as earlier identified by the Presidential Task Force on COVID-19 and approved by the president, the fund is also to finance the Federal Government’s interventions to support states in improving healthcare facilities; finance the creation of a special public works programme, and fund any additional interventions that may be needed.
Ahmed said, in addition to the identified special accounts from where the money will be drawn as loans, the proposed intervention fund is also expected to be sourced from grants being expected and loans from international development partners, the multilateral institutions.
“Mr President had previously approved a pilot special public works programme in eight states to be implemented by the National Directorate of Employment (NDE) from February 2020 to April 2020. Mr President has now approved that this programme is extended to all 36 states and the FCT from October 2020 to December 2020,” Ahmed stated.
On the chosen timeframe, she said: “It is to ensure that the programme is implemented after the planting season, and this will result in the employment of about 774,000 Nigerians (that is, 1,000 people per local government). There will be N60 billion in allowances and operational costs earmarked from the COVID-19 Crisis Intervention Fund for this initiative.”
The Federal Ministries of Finance, Budget and National Planning, Works and Housing, Water Resources, and Environment are also to evaluate how best to extend the public works programme, to provide modest stipends to workers, to undertake roads rehabilitation, social housing construction, urban and rural sanitation, health extension, and other critical services. This intervention, according to Ahmed, will be undertaken in conjunction with the states to financially empower individuals who lost their jobs due to the economic crisis.
Considering the involvement of the National Assembly, Ahmed said that further details regarding the operation of the N500 billion COVID-19 Crisis Intervention Fund would be announced once the consultations with the National Assembly are concluded.
