COVID-19: Nigeria must do this to revamp economy- IMF

By Bassey Udo

International Monetary Fund (IMF)

Despite being categorized among economies in sub-Saharan Africa that would be hit hardest by the impact of the deadly coronavirus pandemic, the International Monetary Fund (IMF) says Nigeria can come out of the crisis with a combination of sound macroeconomic policies and deft deployment of available resources.

Also, the Fund urged President Muhammadu Buhari to prioritize revenue mobilization to limit the humanitarian and economic cost of the crisis to protect the people’s health and boost health spending.

Apart from targeted cash transfers and similar measures to support people whose livelihoods have been significantly distorted, the IMF also wants the Nigerian government to consider giving temporary and targeted support for hard-hit small and medium scale enterprises.

Although the Fund acknowledged the country’s economy was already grappling with the impact of declining crude oil prices since 2015, it said the current global pandemic has worsened the situation.

This, it noted, has pushed the country into making significant adjustments to its fiscal and budgetary estimates to accommodate the new realities in the government’s economic growth and recovery plan.

To redress the crisis, the IMF advised the government to address the immediate challenge of prioritising revenue mobilisation in the medium-term, till enough resources become available over the next four to five years for infrastructure development, building the network of universities, and public education entities.

“It is only when the health and acute part of the economic crisis have subsided that fiscal policy can revert to medium-term past consistent with debt sustainability considerations,” the IMF African Department Director, Abebe Selassie, said on Wednesday during the online launch of the regional economic outlook for Sub-Saharan Africa.

In the near-term, the IMF said with Nigeria’s request for support under its rapid credit financing instrument, no resource should be spared to quickly strengthen health spending to provide social protection to people against the COVID-19 pandemic.

On the fiscal policies, the Fund proposed a monetary exchange rate policy framework by the Central Bank of Nigeria (CBN) to support other measures to be adopted by the government to contain the crisis.

In his introductory remarks, Mr Selassie said the new publication focused on the impact of the COVID-19 pandemic, which triggered an unprecedented crisis threatening to reverse the region’s recent development and policy gains.

He said the crisis has brought significant distortions to the Sub-Saharan African economy, with the outlook expected to contract by about 1.6 per cent in 2020.

Describing the contraction as the highest, in terms of per capita income, close to 4 per cent, Mr Selassie, who noted this to be the region’s worst performance since 1970, said urgent policies were required to protect lives and ensure a swift recovery.

Although the possibility of further growth contraction remained high, he argued that even if it was limited to the current level, it would still represent a 5 per cent points downward revision since last October.

“The hit to growth reflects a poisonous cocktail of shocks affecting livelihoods and economic activity. Swift and decisive measures, closing borders, shattering businesses, requiring people to stay at home were adopted to halt the advance of the virus before it overwhelmed already stretched health services, but it also disrupted production and reduce demand sharply,” he said.

Impact on vulnerable

The greatest impact of the crisis was on the region’s most vulnerable people, who, the Fund said, have to go out every day to earn income to feed, “but who are now being required to stay at home”.

Apart from the declining global demand for the region’s goods and services, tourism, remittance flows, the IMF said tighter global financial conditions triggered significant capital outflows, which also adversely affected the prospect for investment

Although the Fund noted that no country would be spared the impact of the crisis, it, however, said commodity-exporting economies, like Nigeria, would be hit the hardest, as they would suffer from an additional sharp decline in key commodity prices.

“As elsewhere, the region faces a synchronised and deep economic downturn with less diversified economies. All exporters’ tourism dependent economies set to be very hard.

“Critically, the ability of the countries to mount an adequate response will depend on a bold and decisive support from the international community to contain the unprecedented crisis.

“With domestic savings and financing options severely limited, as countries have been shut out of capital markets, excellent financing on concessional and grant terms has an inordinate important role to play,” the group said.

Maintaining a looser monetary policy, the IMF said, would complement the fiscal and financial measures to help minimise credit or liquidity disruptions for businesses.

While countries with flexible exchange rates could consider a combination of currency movement and the drawdown on reserves, it said “others facing significant outflows distortions might consider temporary capital flow measures as part of a wider policy package”.

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