Highlights from Conference Call with Minister of Finance, CBN Governor and Budget Office

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Thursday, June 25, 2020  / 08:57 AM / By Cardinal Stone / Header Image Credit: Ecographics

 

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On June 23, 2020; the fiscal and monetary authorities provided updates on developments in the economy via a conference call. Below are the key highlights of the discussion.

 

Fiscal Understandings 

1.  2020 GDP growth expectation revised from 2.9% growth in pre-COVID-19 estimate to 4.4% contraction

2.   FGN expects any recession to be short lived, with a possible return to growth in Q4'2020 or Q1'2021 at the latest, driven by improved harvests and productivity

3.   The Budget benchmark oil price is now $28/barrel (previously $57/barrel) while target production is now 1.9 million barrel per day (vs. 2.2 million barrel per day pre-adjustments)

4.    Budget exchange rate adjusted to N360/$ from N305/$ previously

5.   The new expected fiscal gap for 2020 is approximately $13.8 billion (N4.97 trillion using N360/$) compared to $7.1 billion (N2.56 trillion using N/360/$) previously.

6.   The removal of fuel subsidies is already in force. Next up is a transition to full cost reflective power tariff in 2021 as the government prepares for possible revenue weakness in the coming year. Notably, the oil benchmark price for 2021 is a conservative $35/barrel (vs. $48/barrel in EIA estimates)

 

Funding Government 

7.   The government aims to fund this shortfall using $5.5 billion of foreign borrowings, $6.1 billion of domestic debt, $1.1 billion of project-tied loans, $700 million drawdowns from the special accounts, and $400 million from privatization 

8.   Due to tilt towards domestic and concessionary borrowing, debt service is estimated to increase by only N200 billion

9.     Nigeria has no plans to ask for debt forgiveness

10. The already obtained $3.4 billion IMF facility forms part of proposed foreign borrowings for 2020. The government aims to acquire a further $1.5 billion from the World Bank, $500 million from the African Development Bank (partial approval obtained for $288.5 million already), and $100 million from the Islamic Development Bank

11. The government is confident of closing its projected fiscal deficit of $13.8 billion and balance of payment shortfall of $14.0 billion for 2020

 

Monetary Expectations 

12.  Retreat to safe-haven assets is likely to sustain capital outflows so CBN will aim to close balance of payment shortfall with a combination of reserves and funding from multilateral lenders

13.  CBN to continue to pursue the unification of currency rates around the NAFEX window

14. CBN policies have continued to drive growth in credit creation (+20.5% between April 2019 and April 2020)

15. CBN believes that the banking sector remains adequately capitalized with adequate buffers to withstand shocks

16. In response to COVID-19, CBN has granted regulatory forbearance to banks in assessing loans to firms that are significantly affected by the economic impact of the spread of the virus. Such firms are likely to be offered a moratorium on loan obligations and restructuring opportunities 

17.  So far, the CBN has disbursed N107.3 billion to support local manufacturing and production across critical sectors

18. In the Q&A session, the CBN assured that FPIs will get their monies in an orderly manner. CBN made reference to 2016 where no investor lost money

 

For further information, kindly contact research@cardinalstone.com


Download the Global Investor Call Addressing COVID-19 in Nigeria HERE. 

 

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