Expert Urges States to Float Pandemic Bonds

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UCHE UWALEKE

By Ndubuisi Francis in Abuja

As the COVID-19 pandemic exerts enormous strain on the Nigerian economy, a former Imo State Commissioner for Finance and Nigeria’s first professor of capital market, Prof. Uche Uwaleke has advised state governments to, among others, consider issuing a ‘pandemic bond’ to help finance economic recovery and growth efforts.

In an interview with THISDAY, Uwaleke who is also the President of the Association of Capital Market Academics of Nigeria, and a former Head of the Department of Banking and Finance, Nasarawa State University, stated that in response to the impact of COVID-19 on revenue, the federal government had scaled down the 2020 Budget, slashing the benchmark for crude oil prices from $57 per barrel to $30 as well as production volume, consistent with the Organisation of Petroleum Exporting Countries (OPEC) production cut agreement.

“The consequence is a reduction in spending plan likely to affect the execution of critical capital projects. The twin shock is that the pandemic is also increasing spending in an unprecedented way capable of widening the country’s fiscal deficit and raising the public debt burden,” he said, noting that state governments would be worst-hit, being heavily dependent on federation account allocation.

The financial expert said: “Sub-national governments will be worst-hit since they depend so much on federation account allocation. Even the VAT revenue from which states and local governments get 85 per cent of collectible revenue will shrink due to reduced consumption from lockdowns in Lagos and Abuja, the country’s economic powerhouse and major sources of VAT.

“The internally generated revenue of most states will plummet due to movement restrictions constraining the activities of the ubiquitous informal sector.

“So, in many ways, the tragedy of our situation is that as the epicentre of the disease gradually shifts from Lagos to Kano and other big cities in Nigeria, the human and economic costs will keep mounting leaving in its wake rising unemployment and inflation rates.”

He advocated a number of steps for the states to weather the storm, including cost-cutting measures, prudent application of limited resources, availing themselves of financial sources, such as the capital market, among others.
“These states can approach the Stock Exchange with a view to issuing COVID-19 or pandemic bonds that should be deployed to expand medical facilities and adequately prepare against any future pandemic.

“This also puts the state in good stead for a public-private partnership arrangement that can boost medical tourism in the state including establishing a world class medical city. In this regard, the Securities and Exchange Commission may consider relaxing some of the conditions to enable interested states do so,” Uwaleke said.

He commended the capital market regulators, adding that they have been quite proactive and consistent with the guidance provided by the International Organisation of Securities Commissions and International Federation of Exchanges to maintain market integrity.

He noted: “For example, I am aware that SEC, as part of its COVID-19 response efforts adopted an electronic filing approach for capital market operators and stakeholders and also approved a sixty-day extension for public companies and capital market operators to file their 2019 annual reports and their first quarter 2020 reports.

“I am also privy to the fact that the Nigerian Stock Exchange activated its business continuity plan by providing remote trading access for dealing member firms which has ensured continued trading during normal hours, a development that could encourage direct transactions by investors which will be positive for the market.”