Via IMF (Den Internationale Valutafond)

An ambulance driver in a hospital, Lagos, Nigeria. The IMF’s financial assistance to Nigeria will provide critical support to shore up the country’s heath care sector and to protect jobs and businesses. (photo: R3957 Ton Koene/TON KOENE/Newscom)

An ambulance driver in a hospital, Lagos, Nigeria. The IMF’s financial assistance to Nigeria will provide critical support to shore up the country’s heath care sector and to protect jobs and businesses. (photo: R3957 Ton Koene/TON KOENE/Newscom)

Nigeria’s IMF Financial Assistance to Support Health Care Sector, Protect Jobs and Businesses

April 30, 2020

The IMF has approved its largest COVID-19 emergency financing
package so far—a US$3.4 billion Rapid Financing Instrument (RFI) for Nigeria. The country has been hit hard by the coronavirus,
particularly because of the associated plunge in the price of oil—Nigeria’s
top export commodity. 

In a conversation with IMF Country Focus, the IMF’s mission chief for
Nigeria, Amine Mati, described the economic situation confronting Nigeria,
and how the country will use the money negotiated with the IMF.

What has been the impact of COVID-19 on Nigeria?

The COVID-19 pandemic is severely impacting economic activity in Nigeria.
The country’s main export commodity is oil, which represents around 90
percent of its exports. The sharp fall in international oil prices,
together with reduced global demand for oil, is worsening the country’s
fiscal and external positions. The country’s oil exports are expected to
fall by more than US$26 billion.

The economy—which remains highly reliant on foreign exchange proceeds and
the recycling of petrodollars—is expected to contract by about 3.4 percent
in 2020, a 6-percentage point drop compared to pre-COVID-19 projections.
With the decline in economic activity, large fiscal and external financing
gaps have emerged.

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What are the risks to the growth outlook for Nigeria?

Our baseline scenario is uncertain and subject to heightened risks. These
are mostly linked to a further collapse in oil revenue—due to persistent
low oil prices, an inability to sell oil because of depressed global demand,
or declining production because of additional OPEC-agreed cuts. Our growth
outlook also assumes the COVID-19 spread in Nigeria is contained in the
second half of 2020. If these measures fail to contain the virus or
domestic infections rise, the economic recovery would be slower and gaps would become even larger.

What emergency assistance can the IMF provide to Nigeria?

To help alleviate the impact of the COVID-19 pandemic and the sharp fall in
oil prices, Nigeria requested emergency assistance of about US$3.4
billion—equivalent to 100 percent of its quota— under the IMF’s RFI. The financial support—approved by the IMF
Executive Board on April 28, 2020—will provide critical support to shore up
Nigeria’s heath care sector, and shield jobs and businesses from the shock
of the COVID-19 crisis. It will also help limit the decline in
international reserves.

Why is the RFI the best way to borrow for Nigeria?

The RFI is a loan that is repaid in 5 years, with repayments starting in the third year.
It currently costs 1 percent in annual interest—which is about one tenth of
the current risk premium on Nigeria’s sovereign bond. Unlike the IMF’s
standard financial package, there are no ex post conditions attached to this
emergency loan.

However, a member country requesting RFI assistance is required to
cooperate with the IMF to solve its balance of payments difficulties, and
to describe the general economic policies that it proposes to follow.

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Why didn’t Nigeria benefit from recent IMF debt service relief?

On April 13, the IMF Executive Board approved immediate debt service relief to
25 of the IMF’s member countries under the IMF’s revamped Catastrophe
Containment and Relief Trust (CCRT)—a part of the Fund’s response to help
address the impact of the COVID-19 pandemic. Nigeria was not included in
the list of beneficiary countries for this initiative because Nigeria had
no outstanding debt owed to the IMF at that time.

What measures will be introduced to ensure RFI money is used for its
intended purpose?

To enhance transparency and governance, 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 the names of awarded companies and
beneficial owners.

Special budget lines are to be created to record all crisis emergency
response measures, which are published daily on Nigeria’s treasury online
portal. These measures will not only ensure financial assistance received
as part of the COVID-19 response is used for its intended purposes, but
also significantly strengthen the oversight of the entire budget used for
the government’s crisis response.