Thursday, April 30, 2020 / 08:17 AM / by IMF / Header Image Credit: Ecographics
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.