According to the world-renowned economist, Paul A. Samuelson, “the lives and fortunes of millions of people depend upon whether economists find correct diagnoses for major macroeconomic ailments – and upon whether governments apply the right remedies at the right time.” This is so true for all economies around the globe – whether in normal times or in times of crises.
With the advent of Keynesian Economics (post great depression), most governments all over the world play active roles in stabilizing markets as well as providing necessary and needed support to economic agents (individuals, households, small businesses, large corporations, and even governmental and non-governmental agencies or organizations), especially when destructive forces or crises besiege the markets and the economy. This played out so well during the 2008-2009 Global Financial Crises (GFC) which saw virtually all economies of the world applying varying degrees and mixture of monetary and fiscal policy initiatives (including interest rates adjustments, quantitative easing, regulatory forbearances, huge borrowings, fiscal hand-outs, tax reliefs, among many others) – in the efforts to normalize economic activities, drive growth and enhance shared prosperity.
Even with all the remedies applied by monetary and fiscal authorities of many nations, the global economy still wobbled for almost a decade – with several economies struggling to return to their pre-GFC economic growth and development indices. And here comes the Coronavirus Pandemic (popularly known as Covid-19).
With Covid-19 Pandemic which started in Wuham, China in December 2019 (so we were told), the global economy is again in the eye of the storm. Global supply chains are badly disrupted, crude oil prices are in record lows due to sharp decline in demands as well as the Saudi Arabia–Russia fisticuff, financial markets around the world are in turmoil, other markets are equally in shock, economic activities are grounded to a halt due to lockdown imposed across nations (willingly or unwillingly), international travels are restricted, and many economic sectors are badly affected (including energy, transportation, hospitality, entertainment/sports, manufacturing, among others).
In fact, some analysts have interpreted the situation as that in which nations have administered a self-imposed coma on their economies in the desperate moves to curtail and contain the invisible enemy (the coronavirus) which has shown a demonstrable capacity to wipe out a whole society if not fought aggressively. The consequences of this situation on the lives of billions of people in almost all the nations of the earth are better imagined.
Therefore, any nation that desires to preserve its human capital, prevent a total economic collapse, sustain a reasonable level of aggregate consumer demand, curb impending high-level unemployment with its attendant troubles, maintain inflation at fairly reasonable levels, sustain internal and external trades (post pandemic crisis), prevent worsening inequities in their economy, as well as secure the resuscitation of its markets, among other objectives, must take bold, result-oriented, and implementable monetary and fiscal policy steps as quickly as possible.
The Nigerian Central Bank announced, earlier in March, a number of monetary policy palliatives to cushion the effects of the Covid-19 on the economy. Key policy measures announced included: extension of moratorium on all CBN intervention funds, effective March 01, 2020; interest rate reduction on all applicable CBN intervention facilities; creation of a N50billion targeted credit facility through the NIRSAL Microfinance Bank for households and SMEs; credit support for healthcare industry; regulatory forbearance in agreement with eligible financial institutions; and the strengthening of the CBN’s LDR policy which is intended to drive easy access to cheap loans for SMEs and retail consumers.
Beyond rhetoric, what is the expected impact of these policies in the face of the Covid-19 pandemic? How pragmatic are they in addressing the concerns of today’s problems? How forward-looking and fresh are these policies in our current circumstances? What are the routes to effective implementations for attaining desired or intended results? This article would offer a few comments on the above issues.
On the fiscal front, His Excellency, President Muhammadu Buhari, on the 29th of March, 2020 finally addressed the nation on the Covid-19 pandemic – after weeks of expectations and murmurings from citizens that their President needed to assure Nigerians that he had some concerns about their lives and well-being. In his address, the President mentioned a few actions that government had already taken in their plans to prevent, contain and cure the effects of Covid-19. According to the President, government had recruited and trained some adhoc medical staff to cover the states of the federation; beefed up border security; and created initial monetary and fiscal policy intervention funds.
President Buhari also announced a lockdown in Lagos and Ogun States as well as the Federal Capital Territory (Abuja) effective 11pm of Monday, March 30, 2020. Key fiscal policy announcements or promises made His Excellency included: deployment of relief materials to the rural poor communities (especially in lockdown areas); sustaining of the school feeding programme (even while all the schools are shut down nation-wide); a three-month moratorium on Tradermoni, Marketmoni, and Farmermoni loans as well as on all FG related loan transactions; conditional cash transfers for the next two(2) months; and the promise to send 2-months food rations for all internally displaced persons in the coming weeks.
Again, a critical view of the President’s policy announcements would leave one wondering whether they were well thought-through or articulated to solve real problems or just to fulfil all righteousness since other great nations are making similar announcements in the face of the pandemic. Not only that the announcements contained no specifics in terms of the various amounts to be spent on the different fiscal interventions, the announcements also lacked coherence in terms of how the government intended to implement each policy. As things stand right now, nobody is aware what the government is doing and how they are doing them.
We must bear in mind that in a situation like this Covid-19 pandemic in which people are required or mandated to stay at home, locked down or quarantined, there would be collateral damages which must be mitigated, otherwise, more death or losses could be incurred in seeking solution to the pandemic. For example, many civil servants who are owed salaries for months may not be able to feed their families during this period; many breadwinners would fail to feed their households as they must work daily to earn wages; many workers would altogether lose their jobs as employers manage their losses; people who depend on gifts from family and friends to feed would find it more difficult to survive now; among several others.
Even while locked down, families need electricity to store food items for surviving the period; they also need to entertain themselves to sustain mental health; clean water is needed by these families too. The housing situation of many families warrant that social distancing is never practicable, and when isolation is required, these families cannot afford to isolate anyone.
On the medical front, every community in the states of the federation must be fully provided with well-equipped medical centres for testing, isolating, and treating Covid-19 cases. Test kits, personal protective equipment (PPE), masks, gloves, drugs, hospital beds, among many others must be provided in all the states.
On the general economic front, many small businesses who are supposed to be the backbone of employment generation and GDP growth drive are bound to shut down or scale down their activities at this time. Many jobs would be lost consequently. Some big players in critical sectors (like aviation, oil & gas, hospitality and tourism, sports and entertainment as well as some critical manufacturing concerns) may also need succour.
Based on the foregoing facts, therefore, the efficacy or effectiveness of any monetary or fiscal policy initiative directed at cushioning the effect of Covid-19 on the Nigerian economy MUST address the realities of our socio-economic life as a nation. They must be intended to directly and indirectly affect a majority of Nigerians across all the states of the Federation in the aftermath of the pandemic. They must recognize that there are fresh challenges faced by players in the economy of the nation.
Let us, therefore, look at the Central Bank’s monetary palliative measures and offer some critical reviews as well as useful suggestions with a view to ensuring positive impacts in the lives of over 200 million Nigerians whose lives are now at great danger. While the Central Bank’s extension of moratorium on all CBN intervention funds as well as the reduction of interest rates on all applicable CBN intervention facilities is commendable, I am convinced that these policies would have very little impact on the economy in the face of Covid-19 pandemic. Only a very small fraction of the Nigerian population is involved in these existing CBN intervention loans – most of which, I am aware, are already delinquent. While the beneficiaries are a part of our economy, they represent an insignificant portion compared to the millions of small and medium enterprises in the various sectors of the economy that are facing challenges at this point.
On the creation of a N50billion targeted credit facility for households and small businesses through the NIRSAL Micro-Finance Bank, it is important to note that this amount is a plain joke considering the importance of the SME sector in an economy that is about N150trillion in size. Again, apart from setting a limit to how much households and SMEs can apply for, there are no clear guidelines covering the criteria for qualification as well as the documentation requirements for the loans. No timelines are set for the aggressive disbursement of these facilities to support families and businesses. And the NIRSAL Micro-Finance Bank is certainly not nationally spread enough as to be accessible by all Nigerians who would need the intervention funds.
The subsequent announcement by CBN of N1.1trillion facility for bigger business concerns in manufacturing and other key sectors, and also the for the health sector is more heart-warming though. But again, no clear guidelines are provided for qualification, documentation, disbursement, monitoring, and impact assessment for this intervention.
Suggested Way Forward for the CBN Covid-19 Policies:
In view of the issues raised with the CBN Intervention Funds for Covid-19, it is my considered view that the intervention funds must be expanded both in size and in the modalities for disbursement. I am persuaded that the Central Bank should expand the households’ consumer loans and the SMEs’ business loans intervention funds to at least N200billion (with internal guidance rule to ensure that about a minimum of N5billion is spent in each state of the federation). Clear criteria for qualification must be stated, and the local and community authorities must provide guarantees for applicants of these loans – for the purpose of ensuring that only known Nigerians or community members are given access to these refundable funds. Focus must also be given to SMEs who are involved in agricultural activities and other critical sectors.
To ensure wider coverage, in addition to the NIRSAL Micro-Finance Bank already approved by the CBN for the intervention funds management, a select few of well-managed and professionally governed Micro-Finance Banks across all the states of the Federation should be recruited to participate in the programme – since they are closer home to understand the peculiarities of their environment as well as ensure better loan appraisals, disbursement, and recovery methods. Well-tailored training must be conducted for all participating banks, and a constant awareness campaign, sponsored by the CBN, must be engaged in to ensure confidence and effective utilisation of these funds.
The Central Bank must also ensure that the Regulatory Forbearance it intended to grant commercial banks and other concerned financial institutions are not abused, hence, creating loopholes in the banking system. They must also critically review the LDR policy to ensure that Deposit Money Banks are not put in a position where they hurriedly create loans that eventually become delinquent, hurting the financial system.
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Suggested Way Forward For Covid-19 Fiscal Policy Initiatives
The first and foremost fiscal intervention one expects in a pandemic like this is government’s spending in preventing and containing the spread of the disease, and in curing patients. This requires the set up of isolation centre, test centres, patient management centres, purchase of test kits, PPEs and other medical tools required to manage the outbreak – in all the states of the federation. The Minister of Health working together with the Presidential Taskforce on Covid-19 must ensure that all the states are ready to combat the common enemy. A clear budget must be made for this and monitored closely by all stakeholders.
The next most important fiscal initiative is to map out a clear amount of intervention funds for each State of the Federation – as federal palliative support or gifts to poor families and communities who may face extreme hunger in the midst of the lockdown. And considering the fact that Nigeria currently lacks data to establish qualifications for these hand-outs, community leaders in the various (electoral) wards or town union leaders or traditional chiefs must be involved in all the states of the Federation to ensure effective allocation of these hand-outs. A dashboard must also be provided in the news media and other platforms to announce how much is given to each community in every state – to ensure transparency and accountability. Otherwise, these conditional cash transfers or gifts would be corruptly cornered by the political elites as usual.
The Federal Government must also intervene with the appropriate authorities to ensure that fairly regular supply of electricity and clean water are guaranteed during this lockdown period, to reduce the burden families face in storing and managing food and other scarce resources.
It is also imperative that the Federal Government, working together with the Central Bank, must provide a quantum of funds to support some strategic investments or businesses which may be hard hit by this pandemic – in order to save millions of jobs. This must be done on the merit of each case with national interest considered utmost.
Tax reliefs are also very critical for businesses at this point in time. I would not go into this for want of space but tax policies may be deployed to ensure some businesses do not fail, as well as to ensure domestic demand is sustained in the economy.
In conclusion, there is no doubt that the Covid-19 pandemic would disrupt the course of our economy which was already struggling to pick up on a better growth trajectory before the pandemic. A possible economic recession is now a clear and present danger for Nigeria. However, bold, transparent, honest, and transformational leadership is required by every leader in Nigeria at this time.
Fiscal and monetary authorities must be at their best in applying the right remedies at the right time to safeguard the lives of our people and businesses to ensure that economic growth and development are not sacrificed at the alter of incompetence, nepotism and corrupt leadership.
Orji Udemezue, a Management and Financial Consultant, Policy Analyst, and Leadership Advocate is the CEO of Flame Academy & Consulting Limited – a foremost training and consulting firm based in Lagos. You can contact him via: [email protected].
