Charles Omole, CEO, Prodel Global Services
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- Commercial Policy
- Economic Governance
- Fiscal Policy
- Law & Economy
- Monetary Policy
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Fiscal policy options to fight coronavirus in Nigeria 13 Apr 2020
Human history has recorded many deadly pandemics. But the world is experiencing unprecedented responses to the coronavirus pandemic. Countries have put in place social restriction measures; some have completely shut down international borders to reduce the number of infections and deaths. In Nigeria, the Lagos State Government should be commended for its efforts so far. Many businesses (particularly in the entertainment and leisure sectors) have experienced restrictions in ways never seen before.
The Federal Ministry of Health and Nigeria Centre for Disease Control (NCDC) have been working tireless to put in place facilities for Covid-19 testing, treatment, and contact tracing. Nigerians are also regularly being briefed by the ministry and the agency.
Common to all national responses globally has been the need for extra-budgetary expenditures by the governments to protect the economies from likely catastrophic collapse as economic activities grind to a halt and individuals lose their means of livelihoods. But for a nation like Nigeria that was already billed to borrow to fund its 2020 budget, there is no headroom for additional spending to combat the Covid-19 pandemic without major changes to the nation’s economic outlook and strategy.
As a fallout of coronavirus, oil prices have crashed, seriously threatening government’s major revenue source, which is oil and gas. Consequently, the 2020 budget is already in trouble. Since the Senate approval of the presidential proposal to borrow new $22.7 billion from foreign institutions, the plan has been in a hiatus. The new borrowing plan is injudicious, given the country’s already high indebtedness and high debt service cost.
There are two other policy choices for the government, namely reducing recurrent expenditure in the 2020 budget and virement of capital allocations to provide stimulus packages for businesses, increase healthcare spending and provide palliatives for low-income citizens.
To reduce recurrent expenditure in the short term is not wiser than allowing the long-term implications of over-indebtedness. A measure that would deliberately cut jobs is unthinkable as a response to Covid-19. In its adjustments to this year’s fiscal plan last month, the government reduced the 2020 budget from N10.59 trillion to N9.09 trillion. Capital expenditure was cut by 25 per cent. With regard to the recurrent expenditure, the government could only impose a ban on recruitments into Ministries, Departments and Agencies.
Nonetheless, the government can achieve efficiency savings and also redirect foreign travel budgets. The government can also reduce some benefits for senior officials.
Having ruled out the first option, which involves even more debilitating borrowing, we have also looked at the challenge of implementing the second option that involves cutting recurrent expenditure. The only viable option for Nigeria is a reduction in capital spending and virement of the allocations to the crisis at hand.
There is an inevitable global economic recession that is expected to occur during the first half of this year due to the massive loss of productivity globally, caused by the widespread lockdown. This is expected to lead to sharp increase in unemployment as inactive companies lay-off staff. With high unemployment in Nigeria before the coronavirus outbreak, a recession in the country will exacerbate the unemployment challenge. In the event of a dramatic surge in outbreak in Nigeria, the weak healthcare system in the country will need tremendous support to address the public health emergency.
Several capital projects need to be suspended to allow some capacity to fund the activities needed to combat the Covid-19 pandemic. For instance, the National Assembly can postpone the “refurbishment" of its complex for which N37 billion has been budgeted.
There are many allocations in the 2020 budget meant to start projects, which will be completed in the years ahead. I will advise allocations for such projects – and those that have started but have long gestation periods – should be transferred to fund stimulus packages to support businesses that have been shut down to reduce the spread of the virus. This will be an unprecedented intervention in the country. It will enable such businesses to meet part of their obligations to their workers.
The nature of this crisis is such that business as usual will not work. The length and depth of a coronavirus-induced recession and the period of recovery after the pandemic has been defeated will be determined by the response efforts of all governments, including in Nigeria. The impact of the coronavirus pandemic will be massive on the Nigerian economy either as a result of its direct exertion on the nation’s economy or its collateral impact as a result of the global meltdown it will cause. The National Assembly may need to revisit the 2019 Finance Act signed by President Buhari in January 2020 to help provide additional fiscal stimulus (through tax and rate reliefs) for businesses to help boost the economy.
Governments that have the resources have said they would do “whatever it takes” to bailout their economies. Fiscal responses by countries that have the resources have included direct cash transfers to help citizens who have been laid off.
Rapid increase in testing capacity and centres should be a priority for the Nigerian government. Treatment and vaccines will be a global solution. So, the Nigerian government will simply piggyback on solutions found through the World Health Organisation (WHO). We should not divert our limited resources to finding a treatment for Covid-19 as richer nations are already doing a lot in this regard. They also have greater capacity and bandwidth to fund such research than we do.
The Nigerian government also needs to foot the bill for testing and treatment for Covid-19, especially for the low-income population. In the meantime, we need to focus on minimising the spread of the virus and contain cases to the bare-minimum. Social distancing regime will be a challenge in Africa and in Nigeria. Due to the high rate of poverty, it is common to find ten family members crowded in a one-room apartment. Social distancing or self-isolation in such scenarios are not feasible control measures. A distinctly African solution must be found. Nevertheless, efforts to limit inter-family and inter-community spread must still be pursued.
There is a vital lesson we can learn from the ways different countries are dealing with this pandemic in terms of citizens’ compliance with tight government-imposed measures to limit the spread of the virus. It is easier when there is government support to mitigate economic losses. You cannot ask businesses to close and citizens to stay at home when the government has done nothing to provide for them.
The Nigerian government is on the right track, but more resources are needed to ramp up viable responses to the pandemic.
One final caution is that this pandemic must not be allowed to spread to our rural and urban poor population. If this happens, the spread and fatalities would become exponentially higher and much more difficult to control. Controlling this pandemic will cost a lot of money in the immediate term. But if too little is done, Nigeria runs the risk of turning a manageable crisis into a total economic catastrophe.