Despite CBN’s Swift Response to Covid-19, FG Delays Fiscal Stimulus

Godwin Emefiele

The Central Bank of Nigeria recently unveiled a series of multi-billion naira credit facilities aimed at stimulating the economy in the wake of the rampaging coronavirus. While the intervention is welcome especially in aiding struggling SMEs, families and healthcare industry, there is need for the federal government to do more to assist the poor through fiscal interventions. Nosa James-Igbinadolor writes

In a series of intervention last week, the Central Bank of Nigeria, CBN, unveiled a succession of targeted facilities including a N50billion targeted credit facility as well as a N100billion credit support intervention for the health sector. The apex bank announced the dual funds in response to the coronavirus pandemic, which had led to unprecedented disruptions to global supply chains, sharp drop in global crude oil prices, turmoil in global stock and financial markets, lockdown of large swaths movements of persons in many countries, including Nigeria.

While the N50billion targeted credit facility stimulus package, according to the bank aims to among others, cushion the adverse effects of COVID-19 on households and MSMEs, support households and MSMEs whose economic activities have been significantly disrupted by the COVID-19 pandemic and stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, and research and development, the N100billion credit support intervention for the health sector seeks to strengthen the industry’s capacity to meet potential increase in demand for healthcare products and services. Specifically, the CBN noted that “the scheme is to provide credit to indigenous pharmaceutical companies and other healthcare value chain players intending to build or expand capacity”.

The apex bank further noted that, “the scheme is expected to improve public and private investment in the healthcare sector, facilitate improvements in healthcare delivery and reduce medical tourism to improve foreign exchange conservation”.

While the N50 billion scheme which is expected to be financed from the Micro, Small and Medium Enterprises Development Fund (MSMEDF) will cover key economic activities including agricultural value chain, hospitality (accommodation and food services), airline service providers, manufacturing/value addition, trading and any other income generating activities as may be prescribed by the CBN, with NIRSAL Microfinance Bank being the eligible participating financial institution for the Scheme, the N100 billion health intervention fund is expected to be funded from the Real Sector Support Facility-Differentiated Cash Reserves Requirement (RSSF-DCRR) and have Deposit Money Banks and Development Finance Institutions were eligible to disburse the fund.

The Nigerian central bank’s action comes against several monetary policy measures taken earlier to keep the economy afloat. As noted by investment firm, Cardinal Stone Partners, these include a N1.1 trillion stimulus to support local manufacturing & boost import substitution as well as ensure that laboratories, researchers, and innovators work with global scientists to patent and produce vaccines. The CBN also quietly devalued the naira by adjusting its FX intervention rates at the I&E (-5.6%% to c.N380/$) and BDC (-5.0% to c.N378/$) markets, amongst others, in response to Nigeria’s weakening external position and buffers. At the official window, the naira was also repriced lower to c.N360/$ from N307/$, resulting in a narrower spread between the official rate and the rates in other FX market strata. Elsewhere, the apex bank revealed plans to activate the N1.5 trillion Infraco project and redirect oil & gas dollar sales to itself instead of the NNPC. The former is expected to boost infrastructure while the latter is aimed at ensuring continued funding for petroleum imports and supporting the new policy on fuel price modulation.

It also comes against global monetary and fiscal responses to the debilitating effect of the COVID 19 attacks across the world. In the United States, the congress last week approved a $2trillion stimulus package, the largest economic stimulus in US history, in response to the economic impacts of Covid-19. While corporations will be the biggest recipients of the bailout, some of that money will be paid directly to Americans hit by the pandemic. Most taxpayers will get a check in the mail, while those directly impacted by the economic effects of Covid-19 are slated to receive robust government support.

In the United Kingdom, a gigantic stimulus package was launched to stabilise Britain’s virus-hit economy on Friday, including the government paying the wages of workers throughout the country. British Finance Minister, Rishi Sunak said that to help businesses pay people and keep them in work, the next quarter of VAT payments will be deterred, which “means no business will pay any VAT from now until the end of June and you’ll have until the end of the financial year to repay those bills.”

India’s finance ministry announced a 1.7 trillion ($22 billion) economic stimulus package that will include delivering grains and lentil rations for three months to 800 million people, some 60% of the world’s second-most populous country.

No doubt, the multi-billion naira multi-targeted credit facilities as policy responses will likely provide a calming effect on the economy. As noted by analysts at Cardinal Stone, “the measure could help manufacturers cover important obligations and keep plants running to meet domestic demand without inordinately raising prices to account for the rising cost of raw materials. The measures to support pharmaceutical and healthcare companies are also positive, given the shutdown of countries across the globe, ongoing spread of the COVID-19 virus in Nigeria, and sustained panic buying of pharmaceutical products domestically.”

However, the terms of participation would likely crowd out the most affected economic demographics from accessing these credits. The interest rate of 5% per annum for interested participants in the N50 billion scheme remains very high for households who are eligible to access a maximum of three million naira as well as for SMEs who will be allowed a maximum of twenty-five million naira credit.

For the loan tenor, the CBN posits that “working capital shall be for a maximum period of one year, with no option for rollover. Term loan shall have a maximum tenor of not more than 3 years with, at least, one-year moratorium.”

In addition, before beneficiaries can access the facility, the guidelines requires that a collateral be pledged by beneficiaries under the programme which shall be “acceptable by NIRSAL Microfinance Bank (MFB), but may include any one or more of the following: Moveable asset(s) duly registered on the National Collateral Registry (NCR); Simple deposit of title documents, in perfectible state, Deed of Debenture (for stocks), in perfectible state; Irrevocable domiciliation of proceeds; Two (2) acceptable Guarantor; Personal Guarantee of the promoter of the business; Life Insurance of the Key-Man, with NIRSAL Microfinance bank (NMFB) noted as the First Loss Payee and Comprehensive Insurance over the asset.

For households and SMEs, the guidelines stated that eligible households or MSMEs will have to submit applications directly to NIRSAL Microfinance Bank (NMFB). The application the guidelines said must, among others, “contain BVN number, business registration (where applicable) and business plan with clear evidence of the opportunity or adverse impact as a result of COVID-19 pandemic.”

While the monetary intervention from the Central Bank is welcome, there is need for the government to do more. The unprecedented orders from the federal and many state governments keeping nearly 200 million Nigerians at home for all but critical expeditions to places like markets and pharmacies risk heaping further hardships on the people. Blue collar workers including Carpenters, Masons, Plumbers, Mechanics as well as itinerant produce peddlers, day laborers and other informal workers form the backbone of the Nigerian economy, comprising a major component of all employment, according to official data. Many buy food with the money they make each day and have no savings to fall back on. Their main concern is food and not the virus. Untold numbers are now out of work and many families have been left struggling to eat.

The House of Representatives on Thursday, passed the Emergency Economic Stimulus Bill, 2020, which, among other things, aims at providing temporary relief to companies and individuals from the economic consequences of the COVID-19 pandemic. The bill seeks to provide temporary relief to companies and individuals, and to alleviate the adverse financial consequences of a slowdown in economic activities brought on by the outbreak of the COVID-19 disease in Nigeria. It will also protect the employment of Nigerians who might otherwise become unemployed as a consequence of management decision to retrench personnel in response to the prevailing economic reality. It will also provide for a moratorium on mortgage obligations for individuals at a time of widespread economic uncertainty and “cater to the general financial wellbeing of Nigerians pending the eradication of this pandemic and a return to economic stability.”

The Senate is yet to however pass the measure having gone on recess to resume in two weeks. This means that Nigerians badly affected by the COVID -9 crisis will have to wait for the Senators to return from their holiday in order to make critical economic gains from the buffeting corona pandemic.

Managing Partner of Sahel Consulting, Ndidi Okonkwo Nwuneli, in a recent write-up, in response to the growing coronavirus, warned that while it is planting season in most parts of the continent, “farmers are being asked to sit at home, the movement of seasonal workers is restricted, research institutes that provide seeds, fertiliser blending companies and agro dealers, processors and markets are all being shut down. Our regional and national borders are closed, and trading is being restricted. These realities, if prolonged and not urgently addressed, will lead to short term consequences of food shortages, price hikes, and medium to long term consequences of under-nutrition, mass starvation and eventually death, especially among our most vulnerable populations.”

Nwuneli further cautioned that “beyond guidance and protocols, our governments must urgently partner with the financial services sector to develop comprehensive loan packages for farmers, and entrepreneurs who are committed to working during the crises and can demonstrate their capacity to fill critical gaps in the food ecosystem.”

There is therefore an urgent need for the government to go beyond the monetary interventions by the CBN and fashion a fiscal stimulus package to blunt the effects of the lockdown on the poor, an economic demographic that has been geometrically expanding since 2015 as a result of millions of job losses that have characterised the Buhari administration.