Covid-19: Nigerian government explains how it will fund proposed N2.3 trillion stimulus

The Nigerian Government has released its Economic Sustainability Plan which it hopes will address the economic challenges of the COVID-19 pandemic.

The plan was put together by the Economic Sustainability Committee (ESC) assembled by President Muhammadu Buhari. Members of the committee included the Vice President, CBN Governor, 15  Ministers, GMD NNPC, and the Permanent Secretary.

In the report seen by Nairametrics Research, the teams were expected to deliver the following;

1. Develop a clear Economic Sustainability Plan in response to challenges posed by the COVID-19 Pandemic;
2.  Identify fiscal measures for enhancing distributable oil and gas revenue, increasing non-oil revenues and reducing non-essential spending, towards securing sufficient resources to fund the plan;
3. Propose monetary policy measures in support of the Plan;
4. Provide a Fiscal/Monetary Stimulus Package, including support to private businesses (with emphasis on strategic sectors most affected by the pandemic) and vulnerable segments of the population;
5. Articulate specific measures to support the States and FCT;
6. Propose a clear-cut strategy to keep existing jobs and create opportunities for new ones; and
7. Identify measures that may require legislative support to deliver the Plan.

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The 76-page report contained recommendations from the committee on what the government should do to bring the economy back on track. Reading through the report, we observe several assumptions made by the committee on the possible effect of COVID-19 oil revenues and the exchange rate. Here are a few;

• The government opines that if oil revenues averages $30 for the rest of the year, Nigeria will probably earn N88.4b monthly from oil or N1 trillion when annualized.
• Here is a direct quote from the report: “It is expected that if oil prices average $30 over the rest of the year, oil revenues (assuming Nigerian National Petroleum Corporation reduces Joint Venture operating costs by 20%), would amount to about N88.4 billion monthly. Assuming that non-oil revenues are sustained at the lower level projected in the revised budget estimates, the total allocations to FAAC for the rest of the year would then be around N485 billion a month. This time last year total allocations to FAAC was N669.9 bn monthly. The very steep decline in revenues available for sharing among governments of the federation will have serious implications for wages, overheads, and capital expenditures at Federal, State, and Local Government levels.”
• The Government budgeted N7.6 trillion from oil revenue for the year while the FG’s portion of the amount is N3.6 trillion.
• The government in its report also projects Nigeria’s unemployment rate to rise to 33.6% from 23.1% as of September 2018. The Bureau of Statistics is yet to publish unemployment figures since then.
• Direct quote “Unemployment rate which was 23.1% (or 20.9m people) at the end of 2018 is expected to rise to 33.6% (or 39.4 million people) at the end of 2020 if urgent steps are not taken.”
• The report also projects Nigeria’s economic growth rate to contract between 4.4% and 8.91% “depending on the length of the lockdown period, the potency of the economic plans that are put in place, and, in particular, the amount of stimulus spending.”

The one year plan basically focuses on achieving mass employment and mass domestic production, which it claims “are not dependent on importation or foreign exchange expenditure.”

Their proposal

The ESC, therefore, decided to adopt the use of a stimulus package which it referred to as a “time tested approach to fighting a recession” even though a stimulus was not used the last time Nigeria experienced a recession in 2016.

In proposing a package the committee claimed it explored 4 scenarios based on an average oil price of $30 for the rest of the year.

• Scenario 1: With no stimulus, i.e., if we simply stick to our budget the economy will decline by minus 4.40% at best.
• Scenario 2: With a stimulus of just N500 billion, the economy will decline by minus 1.94%.
• Scenario 3: With a stimulus of N2.3 trillion, the economic decline will be lower at minus 0.59%.
• Scenario 4. With a stimulus of N3.6 trillion, there will still be negative growth but only of -0.42%

The committee eventually settled for a variant of scenario 3 which requires a stimulus package of N2.3 trillion. The government explained that the reason for settling for Scenario 3, citing  “the low level of revenues and the importance of monetary stability” as reasons.

How will the stimulus be funded? According to the government it plans to fund the stimulus from three major sources;

Firstly, it claims it will raise N500 billion from Special Accounts. Special Accounts are government accounts approved by the National Assembly where monies are accrued from tax deductions, oil proceeds, or any other source as provided in the law. Examples are the Ecological Funds, Education Trust Fund, Universal Basic Education Fund, etc.

Secondly, it proposes to raise about N1.1 trillion from what it termed “CBN Structured Lending” which suggests more intervention loans from the CBN. It could also include restructuring existing intervention loans by offering moratorium and lower interest rates which were also captured in the report.

The balance of N334 billion and N302.9 billion respectively will come from “external bilateral/multilateral sources – N334billion and other funding sources – N302.9bn.” These are basically loans and grants from monetary development institutions and rich donor countries.

Upshots

The government has not confirmed if the recommendations included in this report will be adopted. However, several pronouncements from the government indicate this is the direction they plan to follow.

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