•Allays fears over Nigeria’s downgrade by international credit rating agencies
Francis Ndubuisi in Abuja, Obinna Chima and Dike Onwuamaeze in Lagos with agency report
The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, yesterday said Nigeria would have to take tough measures to stop the country from slipping into an economic recession as a result of the harmful impact of COVID-19 on the economy.
Ahmed spoke during an interview on Arise TV, the broadcast arm of THISDAY Newspapers, and said with the massive plunge in the price of oil, arising from multiple shutdowns occasioned by the advent of COVID-19, which had distorted the basic assumptions of the 2020 Budget, the country would have to take bold steps to avert a recession.
She, however, allayed fears over the downgrading of Nigeria by major international credit rating agencies, explaining that the phenomenon was not unique to Nigeria, and added that others countries would suffer the same fate as a result of the adverse impact of the pandemic on the global economy.
“So, we need to do things that are very radical, and very bold and very different and maybe, even unusual so that we don’t slip into a recession,” she said.
Ahmed expressed worry at the state of the economy, which had been worsened by freefall in the price of oil, Nigeria’s major foreign revenue earner.
“It worries me that our economy is in crisis,” she told Arise TV, adding: “It worries me that when we did an assessment, our own assessment is that we could go into a recession in 2020 and the numbers we have from the NBS (National Bureau of Statistics) is a -3-4 and that is very disturbing. The multilateral institutions placed us on a much higher number.”
The minister emphasised that the collapsing demand for crude oil was giving Nigeria a great deal of concern because of the projected crude oil price of $57 per barrel in the 2020 Budget had become unrealistic.
She explained: “Now, we have to work with an average of $30 per barrel. We also have to adjust the volume from 2.1 million barrels per day to 1.7 million barrels per day because the market is low.
“In the last couple of weeks, we have cargoes of crude that are not moving because Europe is literally shut down and that’s where we have our biggest market and also India is shut down. So, the demand is very low. We have seen countries planning to shut down production or part of their production. We hope it doesn’t get to that.
“We are happy that the price has adjusted at least within the $30 range now. Last week, there were some days that it went to as low as $17.5 per barrel. What we are doing now is we are reassessing our plans. We are deferring anything that is not vital.”
She said, however, that the federal government was studying the situation and making appropriate decisions on how to safeguard the economy from slipping into a recession, pointing out that one of the measures was the stimulus package and the moved to pick up $7billion from multilateral agencies, including the International Monetary Fund (IMF), the World Bank, African Development Bank (AfDB) and the Nigerian Sovereign Investment Authority (NSIA).
Allays Fears over Downgrade of Nigeria by Credit Rating Agencies
Ahmed also spoke on the downgrading of Nigeria by international credit rating agencies that were moving Nigeria to a negative rating.
“We will continue to engage the rating agencies,” she said, explaining: “The reassessment they are doing now is not just about Nigeria. They are reassessing all countries where they have ratings. I don’t think there is any country where the rating would not be lowered.”
She said the agencies were assessing what the various governments were doing given the current global economic situation and making their judgments, revealing that Nigeria’s team had a long meeting with Moody’s on Monday on the country’s situation.
According to the minister, “What we need to do, and that we are doing is to continue to update them on what we are doing, as we implement major decisions.
“It is a positive thing that we have deregulated the PMS sector. It is also a positive thing that the exchange rate is aligned now; there are no more multiple exchange rates.”
She said the rating agencies were happy that the federal government was cutting back on expenses that were not essential at these times, adding that the review of the 2020 budget to make it more realistic was also pleasing to them.
Saying that the government’s quest for new funding sources at a lower cost of financing its projects would shore up Nigeria’s rating, Ahmed concluded: “They are doing their assessment based on what the realities are at the moment and it is not unique to Nigeria.”
Admitting that it was not a nice thing to be downgraded, she said Nigeria would, however, have to live with it and take the appropriate measures to move up.
On Nigeria’s rising debt portfolio, she insisted that Nigeria did not have a debt problem, explaining that the challenge was revenue shortfall.
She said deliberate efforts were being made to shore up new revenue sources.
Presidential Directive on Salaries
On efforts to cut costs she said Buhari had ruled out job cuts and had in fact, directed that salaries and pensions must be paid in spite of dwindling resources.
“The president has also directed that we must make sure we protect salaries and pensions so that people have basic resources.”
On how long the federal government could sustain the payment of salaries and pensions when there is no certainty on the likely end of the current global economic meltdown caused by the virus, the minister said: “Our plan is that we have to do that in the course of 2020. We have reviewed the plans and we will be discussing this week with the National Assembly on the review before it is finally delivered to them.”
FG Won’t Seek Eurobond Waiver
Also speaking to Bloomberg, the minister said the federal government would not seek a suspension of interest payments from its Eurobond holders, but will seek debt relief from China as the government races for funds to battle the COVID-19 pandemic.
“We have not considered investors of our commercial paper,” Ahmed, told Bloomberg.
“If it happens anywhere, if it’s something that would work, then we will look at it, but right now we are looking at multilateral lenders.”
Ahmed said it’s unclear how a debt service moratorium, which was requested by African finance chiefs last month, could be sought from holders of Eurobonds, which are actively traded.
Nigeria paid $771 million in interest on its Eurobonds last year compared with $329 million in debt service to multilateral creditors, according to the country’s Debt Management Office.
The government plans to hold talks with China to seek a deferral of interest payments on bilateral loans, she said.
“We will talk to the Chinese. We will negotiate multilateral loans and bilateral loans and where we get accommodation we will take it,” Ahmed said, without saying how much the government expects to save in payments this year.
The federal government has asked for $7 billion in loans from multilateral creditors, including the International Monetary Fund, to allow the government to increase health spending as the COVID-19 as spreads in Africa’s most populous country. Tumbling oil prices have slashed revenue to the continent’s top oil producer, which could face its worst recession in decades this year.
Nearly half of Nigeria’s outstanding external debt is with multilateral lenders, with the World Bank Group being its top creditor with $10.1 billion in loans.
Beijing-based Export-Import Bank of China is the second-largest single creditor with loans totaling $3.2 billion while Eurobonds account for $10.86 billion or 39 per cent of external debt.
Explaining the moves towards seeking external interventions from multilateral institutions, the minister had said on Monday: “Nigeria has a contribution of $3.4 billion with IMF and we are entitled to draw up to the whole of that $3.4 billion or less. We have in the first instance applied for that maximum amount; then in the process when we negotiate, we might get the maximum amount or less but that is the amount of our contribution with IMF and this is the provision that the IMF has made for every member-country that you can apply for between 50 to 100 per cent of your contribution to IMF.
“Again, this is a programme that has no conditions attached to IMF programmes and this is not an IMF programme.”
She stated that up to about 80 countries had applied to draw from their contributions to IMF, in a bid to assuage the impact of COVID-19.
Ahmed said Nigeria has also requested from the World Bank $2.5 billion and another $1 billion from the AfDB.
The minister added that when secured, $1.5 billion of the $2.5 billion World Bank facility would go to the federal government, while the states get $1 billion.
We are Working Hard on Nigeria’s $3.4bn Request, Says IMF
Meanwhile, the International Monetary Fund (IMF) yesterday said it is working hard to respond to a request by the federal government to draw down a total of $3.4 billion out of the country’s contribution to the multilateral institution.
IMF’s Managing Director, Ms. Kristalina Georgieva, disclosed this in a statement posted on the Washington-based institution’s website.
Ahmed, had on Monday said Nigeria was seeking $3.4 billion from the IMF, among other measures the government was taking to reflate the economy, due to the disruptions caused by COVID-19.
She had explained: “Nigeria has a contribution of $3.4 billion with IMF and we are entitled to draw up to the whole of that $3.4 billion or less. We have in the first instance applied for that maximum amount; then in the process when we negotiate, we might get the maximum amount or less but that is the amount of our contribution with IMF and this is the provision that IMF has made for every member-country that you can apply for between 50 to 100 per cent of your contribution to IMF.
“Again, this is a programme that has no conditions attached to IMF programmes and this is not an IMF programme.”
She stated that up to about 80 countries had applied to draw from their contributions to IMF, in a bid to assuage the impact of COVID-19.”
Furthermore, the IMF boss pointed out that the Nigerian economy was being threatened by the twin shocks of the COVID-19 pandemic and the associated sharp fall in international oil prices.
Georgieva also noted efforts by the federal government to contain the virus.
“Nigeria’s economy is being threatened by the twin shocks of the COVID-19 pandemic and the associated sharp fall in international oil prices.
“President Buhari’s administration is taking a number of measures aimed at containing the spread of the virus and its impact, including by swiftly releasing contingency funds to Nigeria Center for Disease Control and working on an economic stimulus package that will help provide relief for households and businesses impacted by the downturn,” she said.
To this end, she said, to support the efforts, Nigeria’s government had requested financial assistance under the Fund’s Rapid Financing Instrument (RFI).
According to Georgieva, the emergency financing would allow the government to address additional and urgent balance of payments needs and support policies that would make it possible to direct funds for priority health expenditures and protect the most vulnerable people and firms.
“We are working hard to respond to this request so that a proposal can be considered by the IMF’s Executive Board as soon as possible,” she said.