…IMF’s mission chief explains why Nigeria did not benefit from recent IMF debt service relief
FRI, MAY 29 2020-theG&BJournal- The International Monetary Fund (IMF) says Nigeria has committed to show how they use the $3.4 billion in emergency financing support it provided the country to fight the coronavirus (COVID-19) pandemic, pointing to the measures taken to enhance transparency and governance in the use of the financing.
According to the rules, a member country requesting Rapid Financing Instrument (RFI) assistance is required to cooperate with the IMF to solve its balance of payments difficulties, and to describe the general economic policies that it proposes to follow.
On its part, the Nigerian government committed to undertake an independent audit of crisis-mitigation spending and related procurement processes, and to publish procurement plans and notices for all emergency-response activities, including the names of awarded companies and beneficial owners as part of key measures to enhance transparency and governance.
Special budget lines are to be created to record all crisis emergency response measures, which are published daily on Nigeria’s treasury online portal.
‘’These measures will not only ensure financial assistance received as part of the COVID-19 response is used for its intended purposes, but also significantly strengthen the oversight of the entire budget used for the government’s crisis response,’’ the IMF’s mission chief for Nigeria, Amine Mati said in a conversation with the IMF Country Focus.
The $3.4 billion financial support—approved by the IMF Executive Board on April 28, 2020—will provide critical support to shore up Nigeria’s heath care sector, and shield jobs and businesses from the shock of the COVID-19 crisis. It will also help limit the decline in international reserves.
The RFI is a loan that is repaid in 5 years, with repayments starting in the third year. It currently costs 1 percent in annual interest—which is about one tenth of the current risk premium on Nigeria’s sovereign bond. Unlike the IMF’s standard financial package, there are no ex post conditions attached to this emergency loan.
The mission chief also explained why Nigeria did not benefit from recent IMF debt service relief to 25 of the IMF’s member countries under the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT)—a part of the Fund’s response to help address the impact of the COVID-19 pandemic.
‘’Nigeria was not included in the list of beneficiary countries for this initiative because Nigeria had no outstanding debt owed to the IMF at that time,’’ Amine Mati explains.
The conversation with Mati covered how the COVID-19 is impacting the country, the risks to the growth outlook for Nigeria, the type of emergency assistance the IMF can provide to the country, why the Rapid Financing Instrument (RFI) is the best way to borrow for Nigeria and the type of measures to be introduced to ensure RFI money is used for its intended purpose.
The COVID-19 pandemic is severely impacting economic activity in Nigeria. The country’s main export commodity is oil, which represents around 90 percent of its exports. The sharp fall in international oil prices, together with reduced global demand for oil, is worsening the country’s fiscal and external positions. The country’s oil exports are expected to fall by more than US$26 billion.
The economy—which remains highly reliant on foreign exchange proceeds and the recycling of petrodollars—is expected to contract by about 3.4 percent in 2020, a 6-percentage point drop compared to pre-COVID-19 projections. With the decline in economic activity, large fiscal and external financing gaps have emerged.
When asked about the risks to the growth outlook for Nigeria, Mati said: ‘’Our baseline scenario is uncertain and subject to heightened risks. These are mostly linked to a further collapse in oil revenue—due to persistent low oil prices, an inability to sell oil because of depressed global demand, or declining production because of additional OPEC-agreed cuts. Our growth outlook also assumes the COVID-19 spread in Nigeria is contained in the second half of 2020. If these measures fail to contain the virus or domestic infections rise, the economic recovery would be slower and gaps would become even larger.’’
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