Covid-19 response: IMF says Nigeria directs oil firms to sell dollar to CBN
Nigeria has been severely hit by the spread of COVID-19 and the associated sharp decline in oil prices. Government policy is responding to both these developments. Nigeria’s first case was reported on February 28, 2020.
Since then, daily cases have been steadily increasing without any sign of reaching the peak yet.
A range of measures were implemented to contain the spread of the virus, including closure of international airports, public and private schools, universities, stores and markets, and suspension of public gatherings, and lockdown of some states.
Ease of lockdown continued with extended curfew from 10pm to 4am every day in Abuja, Lagos, and Ogun state; lockdown in Kano state was extended for another two weeks; some states have lifted partial lockdown on May 21 and allows religious congregation.
States now have the responsibility of enforcing NCDC guidelines and consider states’ peculiar cases to determine if worship centers are safe to receive congregation. The aviation sector will roll out compliance guidelines for reopening and if airlines and airports conform to such guidelines, domestic flights were planned to resume operation by June 21 but the plan was canceled. The presidential task force will review and consider ban on interstate vehicular travels. Previously, nationwide measures were introduced, including nighttime curfew, ban on non-essential inter-state passenger travel, partial and controlled interstate movement of goods and services, and mandatory use of face masks or coverings in public. Work at home is also encouraged in several states and government institutions while isolation centers are being expanded in Lagos state. The president ordered the release of inmates in correctional facilities to decongest prisons.
Key Policy Responses as of June 18, 2020
The Federal Executive Council (FEC) approved the N2.3 trillion stimulus package (1.6% of GDP) proposed by the Economic Sustainability Committee, designed to cushion the impact of the COVID-19 pandemic on Nigeria’s economy. The stimulus package includes the initially approved N500 billion (0.34% of GDP) intervention fund, which was approved by the President to support healthcare facilities, provide relief for taxpayers and incentivize employers to retain and recruit staff during the downturn. Earlier in the year, contingency funds of N984 million ($2.7 million) have been released to Nigeria’s Center for Disease Control, and an additional N6.5 billion ($18 million) was distributed for purchasing more testing kits, opening isolation centers and training medical personnel. Grant of N10 billion ($28 million) was released to the Lagos State to increase its capacity to contain the outbreak. The government is reviewing its 2020 budget and, given the expected large fall in oil revenues, announced plans to cut/delay non-essential capital spending by N1.5 trillion (close to 1 percent of GDP). Import duty waivers for pharmaceutical firms were introduced. Regulated fuel prices have been reduced, and an automatic fuel price formula introduced to ensure fuel subsidies are eliminated. The President also ordered an increase of the social register by 1 million households to 3.6 million to help cushion the effect of the lockdown.
MONETARY AND MACRO-FINANCIAL
The Central Bank of Nigeria (CBN) cut monetary policy rate on May 29 to 12.5 percent. It had introduced additional measures to combat COVID-19, including: (i) reducing interest rates on all applicable CBN interventions from 9 to 5 percent and introducing a one year moratorium on CBN intervention facilities; (ii) creating a N50 billion ($139 million) targeted credit facility; and (iii) liquidity injection of 3.6 trillion (2.4 percent of GDP) into the banking system, including N100 billion to support the health sector, N2 trillion to the manufacturing sector, and N1.5 trillion to the real sector to impacted industries. Regulatory forbearance was also introduced to restructure loans in impacted sectors. The CBN is also coordinating a private sector special intervention initiative targeting N120 billion ($333 million) to fight COVID-19. As of April 16, N42.6 billion was received, including $50 million grant from the European Union. The Nigeria Solidarity and Support Fund was established, looking to raise $50 million to support physical infrastructure of healthcare centers in Local Governments and existing Social Investment Program.
EXCHANGE RATE AND BALANCE OF PAYMENTS
The official exchange rate has been adjusted by 15 percent, with an ongoing unification of the various exchange rates under the investors and exporters (I&E) window, Bureau de Change, and retail and wholesale windows. The authorities committed to let the I&E rate move in line with market forces, and it has so far depreciated by about 4 percent. A few pharmaceutical companies have been identified to ensure they can receive FX and naira funding.
While I&E window turnover has been low since April, the CBN has resumed FX supply in some of the other windows. The Economic Sustainability Committee set up by President completed a response plan that recommends directing oil companies and oil service companies to sell foreign exchange to the CBN rather than the state oil corporation (NNPC) to improve foreign exchange supply.