In view of targeted fiscal policy responses, the Federal Government recognises that the outcome of -2.18 percent for the first half of the year is a reflection of the efforts already put in place to forestall a far worse decline of the economy.
According to Mrs. Zainab Ahmed, the Honourable Minister of Finance, Budget and National Planning, despite the recent oil and non-oil revenue challenges that led to the revision of the 2020 budget, the government remains committed to fully funding the 2020 Amendment Budget as well as the economic sustainability plan (ESP), to accelerate the fiscal responses to the deteriorating economic situation nationwide.
In a release on gross domestic product (GDP) report for second quarter (Q2) 2020, it is stated: “Specifically, the Federal Government is committed to meeting these present challenges by focusing on optimal budget execution anchored by enhanced fiscal management, robust monitoring and evaluation (M&E) as well as strict consequence management frameworks.”
Ahmed-led “Federal Ministry of Finance, Budget and National Planning is releasing the 2020 capital budget vote to ministries, department and agencies (MDAs) based on their approved ESP implementation plans. Specifically, the Ministry has already released capital votes for all federal MDAs at a minimum of 50 percent and is in the process of releasing targeted funds to cash-back priority capital projects.”
Under the enhanced fiscal management framework, optimal treasury operations, as stated, would be key to: Ensure that time-sensitive expenditures are prioritised over less critical spend; cash management is enhanced to accelerate the conversion of liquidity into the achievement of optimal outputs and outcomes; and financial controls are strengthened to detect and eliminate instances of waste, funds misappropriation and corruption.
“A robust M&E framework is being implemented to enhance value for money and optimise the delivery of critical outputs and outcomes vital to address the COVID-19 pandemic, protect pro-poor spending, and accelerate economic recovery from the impending recession. Feedback from budget M&E on a live basis will inform continuous adjustments in budget implementation.
“The Presidential Revenue Monitoring and Reconciliation Committee (PRM&RC), chaired by the Director-General of the Budget Office, has been mandated to anchor the revenue-side, in addition to similar development planning M&E being undertaken by the Federal Ministry of Finance, Budget and National Planning for Budget Expenditure.
Following the development, “the Federal Government is closely engaging with the States in implementing the ESP, as well as preparing the successor plans to the economic recovery and growth plan (ERGP). The Federal Government is also supporting the States to contain the health and economic challenges arising from the COVID-19 pandemic as well as the decline in oil revenues due to price and production challenges.
“The government is implementing an enhanced consequence management framework to assess the impact of current spending by MDAs as well as to inform future allocations to MDAs. A suite of sanctions is being finalised to enforce this consequence management Framework.
According to the report, which measures economic growth, Nigeria’s GDP declined by –6.10 percent in real terms in the second quarter of 2020, ending the three-year trend of low but consistently improving positive real growth rates recorded since the 2016/17 recession. Consequently, for the first half of 2020, real GDP declined by –2.18 percent (year-on-year), compared with 2.11 percent recorded in the first half of 2019. A total of 13 activities recorded positive real growth compared to 30 in the preceding quarter.
“While the overall decline of -6.1 percent (for Q2 2020) and -2.18 percent (for 2020 half year) was unfavourable, it is better than our anticipated forecast of -7.24 percent as estimated by the National Bureau of Statistics (NBS) earlier and outperformed outturns in many other countries recorded during the same quarter.
“The government’s anticipation of the impending economic slowdown which it had communicated to the public much earlier and accordingly the various initiatives it introduced early as a response to cushion the economic and social effects of the pandemic may have contributed to dampening the severity of the pandemic on growth.
On the fiscal side, a robust financing mechanism was designed to raise revenue to support humanitarian assistance, in addition to special intervention funds for the health sector. Adjustments to the national budget as well as emergency financing from the concessional lending windows of development finance institutions were critical in supporting government’s capacity to meet its obligations.
On the monetary side, moratorium on loans, credit support to households and industries, regulatory forbearance and targeted lending and guarantee programmes through NIRSAL were some of the measures implemented in response to the pandemic during the second quarter.
Considering complementary monetary policy and real sector interventions, the Central Bank of Nigeria (CBN) is intervening with a suite of monetary policy interventions to complement the aforementioned fiscal policy reforms such as: Diagnostic testing and laboratory research efforts; reducing the interest rate on CBN intervention facilities from nine percent to five percent with a 1-year moratorium, creating a N50 billion targeted credit facility and injecting N3.6trillion into the banking sector; and expansion of the government’s social investment programme.
According to the government, other complementary critical real sector interventions include: Boosting aggregate demand or at least keep at pre-crisis levels. Consumption is a critical (and large) element of economic activity.
Therefore, we must ensure that disposal incomes of Nigerian workers are safeguarded by paying salaries across all tiers of government and considering slight (even if temporary) reduction in personal income taxes; working to moderate rising inflation, which not only protects the value of incomes of households, but gives businesses certainty required for investment planning; ensuring stability in the exchange rate through a combination of increased FX supply and demand management to avoid importation of products that can be made here in Nigeria, keeping in mind that imports are a leakage to the economy (that is, we pay other countries, in foreign currency, for their goods and services); focusing more on diversifying non-oil export potentials whilst ensuring that oil production is at an optimal level and hope that oil prices continue to recover, albeit slowly;
In addition, it is also about improving transport and logistics infrastructure given the steep decline in both categories for the recently released numbers; putting people back to work by targeting selected construction projects that are shovel-ready. This does not help improve infrastructure but also improve aggregate demand through consumption; continuing with pressurizing the banks to ensure that the much-needed loans are given to households and businesses though steadfast implementation of the CBN’s policy on Loan-Deposit Ratio; and urgently working on clearing major bottlenecks at the ports to ensure that businesses are able to import/export much more easily.
Planning for the future to deliver bold structural reforms required to accelerate recovery and reposition the economy for the realities of the Post-COVID-19 global economy, it is noted that the current challenges would profoundly impact on Nigeria’s socio-economic development trajectory. “While the structural reforms will be fully articulated in the ERGP successor plan(s), in the short-to-medium term, the Federal Government remains committed to accelerating key structural reforms, including: Consolidating on the recent exit from the fuel subsidy through PMS price modulation; exiting from the power subsidy via power sector recovery plan; accelerating civil service reforms; tightening and enhancing the coordination of fiscal, monetary & trade policies; restructuring and reforming key state owned enterprises (SOEs) and government owned enterprises (GOEs); reforming tax expenditures and incentive policies to optimise value for money and phase out inefficient incentives; addressing lingering fiscal federalism and sustainability issues at the sub-national level; and crowding-in private sector funding in key sectors to complement, enhance or substitute for inadequate public expenditure; increase investment in human capital development; etc.).
Accordingly, it is anticipated that while the third and fourth quarters will reflect the continued effects of the slowdown, the fiscal and monetary policy initiatives, robust response to the challenges posed by the COVID-19 pandemic, and preparedness of healthcare workers and other front-line responders will greatly contribute towards limiting the most negative economic effects of the current downturn. As Nigeria’s economy progressively returns to normal commercial activity, “we must remain vigilant to mitigate the negative impact of the COVID-19 Pandemic and avoid the emergence of a second wave,” Mrs. Ahmed cautions. Federal Government Committed To Fully Funding The 2020 Amendment Budget
…despite Q2 decline.
In view of targeted fiscal policy responses, the Federal Government recognises that the outcome of -2.18 percent for the first half of the year is a reflection of the efforts already put in place to forestall a far worse decline of the economy.
According to Mrs. Zainab Ahmed, the Honourable Minister of Finance, Budget and National Planning, despite the recent oil and non-oil revenue challenges that led to the revision of the 2020 budget, the government remains committed to fully funding the 2020 Amendment Budget as well as the economic sustainability plan (ESP), to accelerate the fiscal responses to the deteriorating economic situation nationwide.
In a release on gross domestic product (GDP) report for second quarter (Q2) 2020, it is stated: “Specifically, the Federal Government is committed to meeting these present challenges by focusing on optimal budget execution anchored by enhanced fiscal management, robust monitoring and evaluation (M&E) as well as strict consequence management frameworks.”
Ahmed-led “Federal Ministry of Finance, Budget and National Planning is releasing the 2020 capital budget vote to ministries, department and agencies (MDAs) based on their approved ESP implementation plans. Specifically, the Ministry has already released capital votes for all federal MDAs at a minimum of 50 percent and is in the process of releasing targeted funds to cash-back priority capital projects.”
Under the enhanced fiscal management framework, optimal treasury operations, as stated, would be key to: Ensure that time-sensitive expenditures are prioritised over less critical spend; cash management is enhanced to accelerate the conversion of liquidity into the achievement of optimal outputs and outcomes; and financial controls are strengthened to detect and eliminate instances of waste, funds misappropriation and corruption.
“A robust M&E framework is being implemented to enhance value for money and optimise the delivery of critical outputs and outcomes vital to address the COVID-19 pandemic, protect pro-poor spending, and accelerate economic recovery from the impending recession.
Feedback from budget M&E on a live basis will inform continuous adjustments in budget implementation. The Presidential Revenue Monitoring and Reconciliation Committee (PRM&RC), chaired by the Director-General of the Budget Office, has been mandated to anchor the revenue-side, in addition to similar development planning M&E being undertaken by the Federal Ministry of Finance, Budget and National Planning for Budget Expenditure.
Following the development, “the Federal Government is closely engaging with the States in implementing the ESP, as well as preparing the successor plans to the economic recovery and growth plan (ERGP). The Federal Government is also supporting the States to contain the health and economic challenges arising from the COVID-19 pandemic as well as the decline in oil revenues due to price and production challenges. The government is implementing an enhanced consequence management framework to assess the impact of current spending by MDAs as well as to inform future allocations to MDAs. A suite of sanctions is being finalised to enforce this consequence management Framework.
According to the report, which measures economic growth, Nigeria’s GDP declined by –6.10 percent in real terms in the second quarter of 2020, ending the three-year trend of low but consistently improving positive real growth rates recorded since the 2016/17 recession. Consequently, for the first half of 2020, real GDP declined by –2.18 percent (year-on-year), compared with 2.11 percent recorded in the first half of 2019. A total of 13 activities recorded positive real growth compared to 30 in the preceding quarter.
“While the overall decline of -6.1 percent (for Q2 2020) and -2.18 percent (for 2020 half year) was unfavourable, it is better than our anticipated forecast of -7.24 percent as estimated by the National Bureau of Statistics (NBS) earlier and outperformed outturns in many other countries recorded during the same quarter.
“The government’s anticipation of the impending economic slowdown which it had communicated to the public much earlier and accordingly the various initiatives it introduced early as a response to cushion the economic and social effects of the pandemic may have contributed to dampening the severity of the pandemic on growth. On the fiscal side, a robust financing mechanism was designed to raise revenue to support humanitarian assistance, in addition to special intervention funds for the health sector. Adjustments to the national budget as well as emergency financing from the concessional lending windows of development finance institutions were critical in supporting government’s capacity to meet its obligations. On the monetary side, moratorium on loans, credit support to households and industries, regulatory forbearance and targeted lending and guarantee programmes through NIRSAL were some of the measures implemented in response to the pandemic during the second quarter.
Considering complementary monetary policy and real sector interventions, the Central Bank of Nigeria (CBN) is intervening with a suite of monetary policy interventions to complement the aforementioned fiscal policy reforms such as: Diagnostic testing and laboratory research efforts; reducing the interest rate on CBN intervention facilities from nine percent to five percent with a 1-year moratorium, creating a N50 billion targeted credit facility and injecting N3.6trillion into the banking sector; and expansion of the government’s social investment programme.
According to the government, other complementary critical real sector interventions include: Boosting aggregate demand or at least keep at pre-crisis levels. Consumption is a critical (and large) element of economic activity. Therefore, we must ensure that disposal incomes of Nigerian workers are safeguarded by paying salaries across all tiers of government and considering slight (even if temporary) reduction in personal income taxes; working to moderate rising inflation, which not only protects the value of incomes of households, but gives businesses certainty required for investment planning; ensuring stability in the exchange rate through a combination of increased FX supply and demand management to avoid importation of products that can be made here in Nigeria, keeping in mind that imports are a leakage to the economy (that is, we pay other countries, in foreign currency, for their goods and services); focusing more on diversifying non-oil export potentials whilst ensuring that oil production is at an optimal level and hope that oil prices continue to recover, albeit slowly;
In addition, it is also about improving transport and logistics infrastructure given the steep decline in both categories for the recently released numbers; putting people back to work by targeting selected construction projects that are shovel-ready. This does not help improve infrastructure but also improve aggregate demand through consumption; continuing with pressurizing the banks to ensure that the much-needed loans are given to households and businesses though steadfast implementation of the CBN’s policy on Loan-Deposit Ratio; and urgently working on clearing major bottlenecks at the ports to ensure that businesses are able to import/export much more easily.
Planning for the future to deliver bold structural reforms required to accelerate recovery and reposition the economy for the realities of the Post-COVID-19 global economy, it is noted that the current challenges would profoundly impact on Nigeria’s socio-economic development trajectory. “While the structural reforms will be fully articulated in the ERGP successor plan(s), in the short-to-medium term, the Federal Government remains committed to accelerating key structural reforms, including: Consolidating on the recent exit from the fuel subsidy through PMS price modulation; exiting from the power subsidy via power sector recovery plan; accelerating civil service reforms; tightening and enhancing the coordination of fiscal, monetary & trade policies; restructuring and reforming key state owned enterprises (SOEs) and government owned enterprises (GOEs); reforming tax expenditures and incentive policies to optimise value for money and phase out inefficient incentives; addressing lingering fiscal federalism and sustainability issues at the sub-national level; and crowding-in private sector funding in key sectors to complement, enhance or substitute for inadequate public expenditure; increase investment in human capital development; etc.).
Accordingly, it is anticipated that while the third and fourth quarters will reflect the continued effects of the slowdown, the fiscal and monetary policy initiatives, robust response to the challenges posed by the COVID-19 pandemic, and preparedness of healthcare workers and other front-line responders will greatly contribute towards limiting the most negative economic effects of the current downturn. As Nigeria’s economy progressively returns to normal commercial activity, “we must remain vigilant to mitigate the negative impact of the COVID-19 Pandemic and avoid the emergence of a second wave,” Mrs. Ahmed cautions.
- Abdullahi is Media & Communications Adviser to Finance Minister
