Like its counterpart in the United States, the Central Bank of Nigeria (CBN) is swiftly rolling out measures to help cushion the impact of the coronavirus pandemic on the nation’s economy, writes Emmanuel henry. With the coronavirus turmoil coupled with the collapse of negotiations between leading producers, Saudi Arabia and Russia, resulting in prices of crude oil (the commodity which accounts for over 70 per cent of Federal Government revenue and 80 per cent of the country’s export earnings) falling to about $30 per barrel on March 9, far below the 2020 budget benchmark price of $57 per barrel, it was clear that Nigeria’s fiscal and monetary authorities needed to swiftly take measures to protect the economy. President Muhammadu Buhari seemed to appreciate the urgency of the situation because on the same March 9, he set up a committee to assess the impact of the raging coronavirus on Nigeria’s 2020 budget. According to the Presidency, the committee’s primary job was to assess how the crash of crude oil prices to $30 per barrel would affect the budget.
The committee, which had the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, as Chairperson, also had as its members, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, the Minister of State, Petroleum Resources, Mr. Timipre Sylva; the Minister of State, Budget, Mr. Clement Agba and the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr. Mele Kyari.
Although the committee submitted its report to the president 48 hours later, Nigerians did not immediately get to know exactly what it contained until March 18.
CBN unveils palliatives
However, before the government released the report, Emefiele, had on March 16, at a press briefing in Abuja, unveiled several initiatives aimed at reducing the devastating impact of the COVID-19 pandemic on the economy. The CBN’s measures include an extension of the moratorium on the apex bank’s various intervention programmes, interest rate reduction, creation of a N50 billion targeted credit facility and credit support for the healthcare industry.
Others are strengthening the CBN’s Loan to Deposit Ratio (LDR) policy and regulatory forbearance.
Specifically, the CBN governor announced a moratorium of one year on all principal repayments, effective March 1, 2020, as well as interest rate reduction on all applicable CBN intervention facilities from nine per cent to five per cent per annum for one year effective March 1, 2020.
He said the total CBN intervention facilities through the Commercial Agricultural Credit Loan Scheme, the Anchor Borrowers’ Programme (ABP) and the Agric, Small and Medium Enterprise Scheme (AGSMEIS) among others were currently worth about N3 trillion, adding that the new rate cut will apply to all facilities.
He also announced the creation of a N50 billion targeted credit facility through the NIRSAL Microfinance Bank for households and Small and Medium sized enterprises (SMEs) that have been particularly negatively impacted by the virus outbreak including but not limited to hoteliers, airline service providers, health care merchants, among others.
Added to these was the unveiling of some sort of credit support for the healthcare industry to meet the potential increase in demand for healthcare services and products in the country. Consequently, Emefiele said the apex bank had extended its intervention facilities to provide loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in the country.
He said the healthcare programme would also accommodate hospital and healthcare practitioners who intend to expand/build the health facilities to first-class centres, stressing that this is in addition to growing the size of existing interventions to the agricultural and manufacturing sectors in the country.
Furthermore, the CBN governor announced a regulatory forbearance for deposit money banks (DMBs) to help preserve financial stability in the face of the ravaging coronavirus.
He said the CBN would immediately grant all DMBs 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 and gas, agriculture, and manufacturing.
He emphasised that the apex bank would work closely with the DMBs to ensure that the use of the forbearance is targeted, transparent and temporary while maintaining individual lender’s financial strength and overall financial stability of the system. Emefiele also said the CBN was committed to strengthening its LDR policy in view of the success already recorded in growing credit to the economy and reducing interest rates.
He stated that the CBN would further support industry funding levels to maintain DMBs’ capacity to direct credit to individuals, households, and businesses, adding that the regulator would consider additional incentives to encourage the extension of longer tenured credit facilities.
According to him, DMBs would be encouraged to continue to build capital buffers in order to improve the resilience of the industry.
Emefiele said the apex 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,” adding that “the CBN shall continue to monitor developments and will issue further updates as may be appropriate.”
He explained that the regulator had to respond swiftly given the devastating impact of the coronavirus pandemic on both the global and Nigerian economies.
He noted, for instance, that revenue shortages caused by the impact of COVID-19 could make loan repayment difficult for individuals and organisations, who had subscribed to some of its intervention schemes, such as the Anchor Borrowers Programme (ABP) and the Agric, Small and Medium Enterprise Scheme (AGSMEIS) among others.
“What we are trying to say is that the burden of taking a loan and the strain of getting revenue to repay the loan has been ameliorated for you to the extent that you pay much less for your loan repayment for a longer period,” the CBN Governor said.
Intervention fund
Perhaps, to underline how seriously it was handling the pandemic challenge, the CBN two days later, announced a fresh N1.1trillion intervention fund to support critical sectors of the economy.Emefiele, who disclosed this in a statement, said out of the N1.1trillion, about N1trillion would be used to support the local manufacturing sector as well as boost import substitution.
He explained that the balance of N100billion would be used to support the health authorities to ensure laboratories, researchers and innovators work with global scientists to patent and produce vaccines and test kits in the country.
He said that given the continued impact of the disease on global supply chains, the CBN would increase its intervention in boosting the economy.
In addition, he said all DMBs had been directed to increase their support to the pharmaceutical and healthcare industries.
According to him, support from banks should be channeled to support local drug manufacturing, increase bed count in hospitals across Nigeria, fund intensive care as well as in training, laboratory testing, equipment, research and development.
According to him, “first, the CBN is directing all deposit money banks to increase their support to the pharmaceutical and healthcare industries. In addition to the N50billion soft loans to small businesses already announced, the CBN will increase its intervention by another N100billion in loan this year to support the health authorities.
“Secondly, given the continuing impact of the disease on global supply chains, the CBN will increase its intervention in boosting local manufacturing and import substitution by another N1trillion across all critical sectors of the economy.” Emefiele further disclosed that an implementation committee, which would work on the private sector contribution of N1.5trillion infrastructure funding that would link farming communities to markets, would be set up this week.
Bankers’ Committee backs regulator
Given that the CBN governor had already indicated in his statement last Wednesday that the palliative measures he announced would be discussed at a Bankers’ Committee on Saturday, industry watchers looked forward to the outcome of the meeting at the weekend.
According to the communiqué announced by Emefiele, who presided over the meeting, the committee supported the apex bank’s stimulus package which has now risen to N3.5trillion.
The CBN boss also disclosed that the committee had pledged to grant funding facilities (in naira and foreign exchange) to pharmaceutical companies in the country to enable them procure raw materials and equipment to boost local drug production in Nigeria.
He said some of the pharmaceutical companies shortlisted as beneficiaries of the fund include, Emzor Pharmaceuticals, Fidson Healthcare Limited, Glaxo Smithkline Consumer Nigeria PLC, and May & Baker Nigeria PLC. Others are Unique Pharma, Swiss Pharma, Neimeth International Pharmaceuticals Plc, Sagar Vitaceuticals Nigeria Limited, Orange Drugs and Dana Pharma.
Emefiele assured that the industry was committed to resolving all existing financial commitments in a comprehensive and orderly way.
“We have resolved that profit would not be the primary motive at this time. Rather, preserving confidence, financial stability and support for the economy will be the overriding objectives,” he said. While reaction to the CBN’s response to the coronavirus pandemic has been overwhelmingly positive, the view in some quarters is that implementation would determine the effectiveness of the measures.
Commenting on the issue in a chat with New Telegraph, a financial analyst, Mr. Idika Aja, said: “The CBN’s response is ok. But the problem is whether the deposit money banks (DMBs) would be able to implement it. It is one thing for the CBN to churn out policies; it is another for the banks to implement.”
Continuing, he said: “We are already getting reports that some of the banks have started reforecasting, reducing their loan growth ratios for 2020 lower than what they got in 2019. So the issue is why are the banks doing this? Does it mean that they were not actually lending to the real sector? I suspect that they are taking this action because they were giving the bulk of their loans to the oil and gas sector (big ticket transactions).
“I believe the CBN should actually look at the components of the loans that the banks are giving out very well to know the percentage that is going to the real sector, which is the purpose for introducing the LDR policy. Without developing the real sector, I don’t think we would be able to make it economically as a nation.”
Conclusion
In fact, analysts have also argued that no matter how many laudable initiatives the CBN rolls out, the economy will not be effectively shielded from major external shocks like the coronavirus pandemic without the fiscal authorities complementing the apex bank’s actions.
