Late last year, a coronavirus outbreak in Wuhan, China became a global pandemic, which led to global lockdown. As a result, industries closed, farms closed and businesses shut down. As a result, crude inventories mounted with countries unable to find markets. As oil producers represented by OPEC and outside the cartel agonised over the phenomenon, an agreement between OPEC and some other major oil producers meant to be renewed in March also collapsed. And then Saudi Arabia and Russia embarked on an oil war in which the two countries flooded the already saturated market with much more oil that will not be useful to anyone. The result of that ego trip was a freefall in prices as inventories mounted and countries like United States fully filled its reserves. By the second week of April, WTI price was less than $0 per barrel. However, Brent crude where Nigeria’s oil falls fared a bit better, selling at the lower twenties.
The development translated into double jeopardy for Nigeria as eventually, coronavirus penetrated the country forcing a lockdown of Lagos, Ogun, Rivers, Akwa Ibom, Delta and FCT, which are the most productive states. In fact, Ogun and Lagos represent 80 per cent of Nigeria’s manufacturing according to Manufacturers Association of Nigeria (MAN). Akwa Ibom, Rivers, Delta and Bayelsa on the other hand are responsible for over 90 per cent of Nigeria crude oil production.
Already, panic has gripped relevant managers of the economy both at states and federal levels as federation revenue dwindle and allocations to the three tiers of government fell progressively since the beginning of the year. There are very present fears among workers of the 36 state governments over the ability of their governments to continue to pay their salaries. While FAAC shared N716.298 for December 2019, it shared N647.353 for January 2020. This went further down to N581.566 for February 2020 although there was an improvement for March when N661 was shared among the beneficiaries with over N100 billion sent into the excess crude account in anticipation of what was expected in April.
Group Managing Director of Nigerian National Petroleum Corporation (NNPC) had some time ago warned Nigerians to prepare for more economic trouble in view of the current multi-year low level of crude price in the international market. Already, crude prices had fallen to its lowest levels in 20 years.
The new crisis is coming even while workers in the states were just beginning to heave a sigh of relief after the economic recession of 2016 which threw workers of most states into economic misery. Between 2016 and early 2019, at least 27 states were owing workers and pensioners salaries and entitlements ranging from one to 36 months. A 2017 survey showed that many states defaulted in the payments of pensions and gratuities, with Imo, Taraba and Niger states owing pensioners two to three years in entitlements.
Now again, minimum wage in the country has been raised from the then N18,000 to N30,000.
Aside funds from federation accounts, the only other source of income for the states is their internally generated revenue (IGR), which was still paltry for most states and is unable to meet their recurrent needs. In the nine months to September 2019, the National Bureau of Statistics (NBS) reported the 36 states and FCT to have generated N986.29 billion as their IGR. Seven states recorded growth in IGR while 30 states and the FCT recorded decline in IGR at the end of Q3 2019. Lagos state has the highest Internally Generated Revenue with N297.09 billion recorded, closely followed by Rivers with N107.03 billion while Yobe State recorded the least Internally Generated revenue. Aside their paltry IGR, states were still groaning under the yoke of the repayments of massive bailout given them by the Federal Government during the 2016 recession. A total of N614 billion was issued out to 35 states except Lagos during the recession under the National Budget Support Loan Facility.
Some economic and financial experts have been advising on likely repercussions of the current situation and how to handle it.
A professor of capital market, Uche Uwaleke and financial consultant, Mr Tope Fasua have both warned that at over 20 million Nigerians may have lost their jobs by the end of the lockdown occasioned by COVID-19 pandemic. Fasua who is founder and CEO of Global Analytics Consulting Limited said “already, millions of Nigerians have lost their jobs but here, we don’t take account of who has lost jobs or not because they don’t file forms on unemployment benefits as against what happens elsewhere.
“You know that in the United States, about 16 million people have filed for unemployment benefits. 16 million jobs lost. If in Nigeria, we are 200 million and we have at least 120 million in the workspace, you can imagine that anything close to 20 million people could have lost their jobs. Also, Nigeria is run on a SME model and there are 41 million SMEs in Nigeria and that means that the SMEs are worst hit because a lot of the time, they are the type that tries to do daily business and just get by.”
But to mitigate the looming disaster, the Federal Government has set up machineries to borrow at least $7 billion (N2.5 trillion) from International Monetary Fund (IMF), World Bank, African Development Bank (AfDB) and others. It has also decided to withdraw $150 million from the Stabilisation Fund of Sovereign Wealth Fund to cushion economic effects of coronavirus pandemic and fallen crude prices.
According to Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, President Muhammadu Buhari has also approved the establishment of a N500 billion COVID-19 crisis Intervention Fund. She said Nigeria applied for $3.4 trillion loan from IMF, devoid of any normal conditions; $2.5 billion from World Bank and $1 billion from AfDB but refused to disclose how much government applied for from Islamic Development Bank and other multilateral agencies. She also explained that the N500 billion Covid-10 Fund, Ahmed would be used to upgrade healthcare facilities; finance the Federal Government’s Interventions to support states in improving healthcare facilities; finance the creation of a Special Public Works Programme; and fund any additional interventions that may be approved by Mr President.
Government has also requested to fully draw down on the outstanding balance of $82 million World Bank Regional Disease Surveillance Systems (REDISSE) facility for Nigeria Centre for Disease Control (NCDC) out of which $8 million has been drawn. “Government has also requested for additional financing in the sum of US$100 million from the REDISSE project to meet COVID-19 emergency needs in all the 36 states and the FCT, through the NCDC and Federal Ministry of Health. The Federal Government has provided N102.5 billion in resources to be available for direct interventions in the healthcare sector. Of this sum, N6.5 billion has already been made available to the NCDC for critical expenditure. The Federal Government remains committed to supporting the States in these difficult times, particularly those States that are currently battling with the COVID-19 Pandemic. Lagos State has already been provided N10 billion in emergency funding.”
These expected loans were in addition to the over N1.3 trillion stimulus packages already announced by Central Bank of Nigeria (CBN) and billions donated by the Coalition Against COVID-19 led by the apex bank will still not be enough to mitigate the financial disaster that threaten states in the event that the pandemic and low crude price continued beyond June. Federal Government had already envisaged that oil revenue into the federation account could amount to zero by June.
Some experts have also advised both fiscal and monetary authorities to create money as even developed economies are doing during this period.
Lee Jones observed that in northeast Asia, where social bonds remain stronger and states still take more direct responsibility for economic and social outcomes, COVID-19 has been more effectively contained than in Europe where post-sovereign states have been ravaged.
“In Britain, Sajid Javid was ousted as Chancellor to enable a quasi-Keynesian budget, including increased public spending, investment in infrastructure and a £30 billion stimulus. Unsurprisingly, the wealthy and propertied received the most immediate help, with £350 billion in loan guarantees and grants for business and mortgage holidays. But this was swiftly followed by a rent holiday and an extraordinary pledge to pay 80 per cent of wages up to £2,500, initially for three months but ultimately for as long as necessary, plus an extra £7 billion in welfare spending. The new chancellor, Rishi Sunak, pledged ‘unlimited sums’ of interest-free loans. The Bank of England similarly promised limitless quantities of new money. The total sum pledged already is equivalent to 15 per cent of Britain’s gross domestic product. An even more staggering $2 trillion stimulus is being planned states-side.
“As neoliberal orthodoxy is abandoned at breath-taking speed, left-wing ideas, previous considered beyond the pale, are effectively been adopted by right-wing governments. Few may have heard of Modern Monetary Theory (MMT): the claim that sovereign, currency-issuing states are never fiscally constrained but can issue money at will; only causing inflation if society’s productive capacities are exceeded. But MMT is now effectively the new orthodoxy.
“Neoliberals have been trying to avoid this conclusion ever since the global financial crisis, when vast sums of currency were issued – euphemistically termed ‘quantitative easing’ (QE) – for the banks’ benefit. $4.5 trillion in the US, over £400 billion in Britain, and €1.1 trillion in the Eurozone – yet inflation remained negligible. Ordinary people noticed this ‘magic money tree’ (as UK former Prime Minister, Theresa May puts it) and started to demand that it be shaken for them – ‘people’s QE.
“And where is all the money coming from? Taxes? Obviously not, as tax income is sharply contracting. The deficit hawks have all flown off. Borrowing, then – but, MMT adherents argue, this is merely an accounting convention. As former Federal Reserve Chairman Ben Bernanke admitted in 2009, ‘we simply use a computer to mark up the size of the account’.”
In Nigeria, former Lagos Governor, Ashiwaju Bola Tinubu has noted that the coronavirus is both a health and medical problem with huge economic challenges.
According to him, the Chinese are pumping untold trillions into their financial markets and productive economy. “The most austere large nation, Germany, casts aside its constitutional prohibition on deficit spending to enact a historic, unprecedented fiscal stimulus package.
“The free-market Tory government of Boris Johnson has abjured his conservative upbringing, if but for this harsh moment. His government has launched a fiscal stimulus unseen in the UK for decades. Likewise, the Bank of England vows to pump as much money into the financial market as is needed to unfreeze it and get it working again.
“The conservative Trump government also abandons its laissez faire ideology in the face of this exigency. Trump is giving 2 trillion in fiscal stimulus and this will likely be just the first tranche. The Federal Reserve has announced an aggressive monetary policy to bolster the financial sector. This is atop the 1.5 trillion the Fed already promised. In the end, do not be surprised if the US government injects over 5 trillion new dollars into the economy in the months to come.”
He explained that a government has the sovereign power and requisite duty to intervene in the economy in order to stave calamity and to aid in this task, a government has the unlimited ability and again public duty to issue as much of its own currency as needed to quell shortage and buffer the populace from hardship.
While noting that individuals, companies and even state governments can go bankrupt during hard times, the federal government cannot become naira insolvent because it has the ability to issue our national currency because he who holds the printing press is never insolvent.
“The most serious concern and limitation on federal naira spending is not insolvency but inflation. Consequently, should circumstances require increased spending, we should not hesitate to do so, but we must keep the watchful eye to ensure inflation does not climb too high. However, to save both lives and livelihoods during a moment of historic emergency, a touch of extra inflation from enhanced government spending is a small price to pay. In fact, it is a price that must be paid. The alternative may be a harmful deflation which historically has proven more difficult to tame and cure than a small inflationary increase.”
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