The Corona Virus (COVID-19) which has been declared a global pandemic by the World Health Organization (WHO), has its effects for the global economy and by extension, the Nigerian economy.
The pandemic which started in China has led to disruptions in international trade with the aviation and tourism sector(s) as worse hit, sharp reduction in crude oil prices owing to the reduced demand from China and the Saudi Arabia Russia conflict, massive sellout global stock and financial markets leading to a sharp drop in value, postponements and outright cancellation of key business and sporting events, among others.
The COVID-19 is not just having implications for the health sector, it is affecting all sectors of the global economy.
The Central Bank of Nigeria (CBN) in response to the economic effect of the virus in Nigeria have come up with palliative measures, they are:
Interest Rate Reduction
Interest rates on all applicable CBN intervention facilities are hereby reduced from 9 to 5 percent per annum for 1 year effective March 1, 2020. An example of this is the CBN intervention for rice farmers.
Creation of a N50bn Targeted Credit Facility
The CBN hereby establishes a facility through the NIRSAL Microfinance Bank for households and small- and medium-sized enterprises (SMEs) that have been particularly hard hit by Covid-19, including but not limited to hoteliers, airline service providers, health care merchants, etc.
Credit Support for Healthcare Industry
To meet potential increase in demand for Healthcare services and products, the CBN hereby opens for its intervention facilities, loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in Nigeria, as well as to Hospital and Healthcare practitioners who intend to expand/build the Health facilities to first class centres. This is in addition to growing the size of existing interventions to the Agricultural and Manufacturing sectors in Nigeria.
Extension of Moratorium
All CBN intervention facilities are hereby granted a further moratorium of one year on all principal repayments, effective March 1, 2020. This means that any intervention loan currently under moratorium are hereby granted additional period of one year. Accordingly, participating financial institutions are hereby directed to provide new amortization schedules for all beneficiaries
The CBN hereby grants all Deposit Money Banks (DMB’s) leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of Covid-19 particularly Oil & Gas, Agriculture, and manufacturing. The CBN would work closely with DMBs to ensure that the use of this forbearance is targeted, transparent and temporary, whilst maintaining individual DMB’s financial strength and overall financial stability of the system.
Strengthening of the CBN LDR Policy
In view of the success of the Loan Deposit Ratio (LDR) Policy in growing credit to the economy and reducing interest rates, the CBN would further support industry funding levels to maintain DMBs’ capacity to direct credit to individuals, households, and businesses. We will also consider additional incentives to encourage extension of longer tenured credit facilities. DMBs are encouraged to continue to build capital buffers in order to improve resilience of the sector.
The Central bank governor Mr Godwin Emefiele stated that “The Bank stands ready to provide liquidity backstops as and when required in view of its role as Banker to the Federal Government and lender of last resort. The CBN shall continue to monitor developments and will issue further updates as may be appropriate”.
We commend the CBN on the measures taken in response to the adverse effect of the COVID-19 on the Nigerian economy and also the Federal Government of Nigeria for the measures taken to curb the spread of the virus in the country. That being said, such shocks can be reduced in a well-diversified economy. Government revenue can be diversified if more attention is given to other critical sectors of the economy aside oil.
The Franco-Nigerian Chamber of Commerce and Industry also supports the budget review as global oil price is trading below the budget benchmark of 57dpb and advocate a reduction in recurrent expenditure while focusing more on capital items like access road and power.