COVID-19 Spillovers: Are the Proposed Economic Stimulus Measures Enough?

Globally, countries are responding to the unprecedented economic challenges brought by COVID-19.  In Nigeria, the CBN recently announced some stimulus measures to support the real sector given COVID-19 spillovers. Some of the measures announced include the reduction of interest rate to 5.0% from 9.0% and a one-year moratorium on all CBN intervention facilities. The apex bank also created a ₦50.0bn targeted credit facility to support households and SMEs as well as a special credit support of ₦1.1tn for the manufacturing and the healthcare sectors respectively. In addition, the CBN announced a private sector coalition to support the FG in procuring medical supplies to contain COVID-19 pandemic. To further support the economy, the commercial banks have also been granted regulatory forbearance in the restructuring of loans. As we noted in our Post-MPC release earlier this week, the stimulus measures adopted so far are marginal at less than 1.0% of GDP and the impact on the economy would be limited.   

On the fiscal side, an 'Emergency Economic Stimulus Bill 2020' to support households and corporates passed three readings in one day at the House of Representatives, an impressive milestone. The Bill now awaits consent by the National Assembly (NASS) and given the urgency at hand, we expect NASS to pass the Bill in record time despite being on recess. The Bill proposes temporary measures to cushion the effects of COVID-19 spillovers on Nigerians and businesses and is expected to terminate in December, 2020.  Some of the provisions of the Bill include the suspension of import and stamp duties on essential medical supplies required to fight the pandemic as well as a 50.0% rebate on corporate taxes and the imposition of new moratorium on mortgage obligations.

In our view, the proposed stimulus measures are laudable. However, we believe the impact of the stimulus measures would be limited. The rebate on trade duties should support Nigeria’s response to the spread of COVID-19 and the healthcare system. The discount on corporate taxes will also support businesses, but this leaves out the informal sector which accounts for around 60.0% of economic activities. The same applies to the moratorium on mortgages given weak penetration, especially at the bottom of the pyramid. We believe stimulus measures should be scaled up and targeted at states and the informal sector for significant impact. Although the FG has a limited room to support the economy given weak revenues, high non-discretionary obligations including debt and reduced investors’ confidence, we believe concessionary loans from multilateral organisations, foreign aid and the issuance of discounted bonds locally would provide comfort.