| World Bank IMF and Dev Agencies |    1032 VIEWS  |
| World Bank IMF and Dev Agencies | |
| 1032 VIEWS | |
 |
Thursday, April 30, 2020 / 08:17 AM / by IMF / Header Image Credit: Ecographics
Executive Summary
Context. The
COVID-19 pandemic is severely impacting economic activity. The sharp fall in
international oil prices and reduced global demand for Nigeria's oil products
are worsening the fiscal and external positions, as Nigeria's oil and gas
exports (84 percent of total exports) are expected to fall by more than $26 and half billion. The economy is projected to contract by almost 3 and half percent in 2020, a
six-percentage point drop relative to pre-COVID-19 projections. The already
high downside risks-particularly from sharper and protracted falls in oil
prices, a declining oil production from future OPEC caps or inability to sell
oil cargoes, and more protracted disruptions to economic activity due to a more
expansive effect of the pandemic-have heightened.
Request for Fund Support. Nigeria faces an immediate balance of payments need given the sharp
contraction in oil prices and the COVID-19 pandemic, which, if not addressed,
would result in immediate and severe economic disruption. There is also a high
degree of uncertainty on the duration and scale of the COVID-19 impact, which
imply that an upper credit tranche (UCT) quality program cannot be quickly put
in place. The authorities are seeking financial assistance under the IMF's
Rapid Financing Instrument (RFI) exogenous shock window of SDR 2454.5 million,
equivalent to 100 percent of quota. The authorities intend to use the resources
for budget support. Staff supports this request.
Macroeconomic Policies. Since the onset of the crisis, the authorities have allowed greater
exchange rate (FX) flexibility and have taken important steps towards
unification of existing FX windows, which should be finalized immediately. They
have put in place measures to contain the pandemic and mitigate its economic
impact. Once the COVID-19 crisis passes, they intend to resume their
revenue-based fiscal consolidation program-which they started this year by
increasing the VAT rate and introducing an automatic fuel pricing mechanism- while creating fiscal space for priority spending and avoiding recourse to
central bank financing. Staff assesses public debt to be sustainable and that
there is adequate capacity to repay the Fund. The authorities are committed to
continue to strengthen financial supervision and regulation in order to
safeguard macro-financial stability.
Governance. To ensure financial assistance received as part of the COVID-19
response is used for intended purposes, the Nigerian authorities 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 names of awarded companies and
beneficial owners.
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