POLICY BACKGROUND
The coronavirus has changed the modern world with a velocity un-foretold. To protect their populations, nations have taken unprecedented steps in closing down cities, halting socio-economic activities and quarantining vast numbers of people. Given the lethality of the disease, the public health measures have been prudential. If such action were not taken, the toll of this pandemic might rival the 1958 Asian Flu which took over 1m people or, worse, the 1918 Spanish Flu where an estimated 50m people passed away. While the public health measures may save lives, their economic consequences have been brutal enough to place large numbers of people in a different form of jeopardy. We face a trade-off between certain pandemic and possible widespread depravation. Having to make this dismal trade-off between a currently incurable sickness and significant economic contraction is a dilemma no nation wishes to face. However, it is the one upon us. The Nigerian government acted wisely to suppress the virus. Our health system and medical facilities simply cannot cope with legions of cases. The capacity and aptitude of government are more suited to dealing with the economic fallout of the public health restrictions than in dealing with the medical complexities of a contagion no one fully understands. If we so utilize this moment, it will be recorded as a pivotal one in our national history. If we allow this moment to slip, history will not be obliged to treat us with great mercy.
THE ECONOMIC SITUATION:
The global economy has turned against us. Oil prices have steeply fallen. The price may rebound but not nearly enough to return to customary levels. The resultant revenue loss impairs the naira exchange rate. In general, the price of imports per unit has become dearer. Thus, wise policy suggests limiting our imports during this emergency in order to save hard currency and protect the exchange rate. Nigeria’s private-sector economy can be divided into three broad sectors: 1) Agriculture, 2) Service and 3) Industry. Each sector has been affected by this crisis but with different degrees of severity and, in some instances, in entirely different ways. The money-less family still needs food, water, shelter and, to a lesser degree,utilities. In a compassionate society,they should not be made to do without.Most families need relief.If relief is not forthcoming, these families risk hunger and its attendant suffering & woes.
SITUATION WITH BUSINESSES:
The CBN can lend large amounts of virtually non interest loans to these firms with the proviso that the companies maintain their existing payrolls.
If we must hold to the restrictive public health measures, the people will need economic relief. Activating Trader-moni and other programs will help many small-scale traders but not the average wage earner who just lost his job. Resort to the strategic grain reserves will blunt hunger but the finite reserve cannot cover all who are in danger.
POLICY RECOMMENDATIONS
Recessionary forces outweigh inflationary ones at this time. The agricultural sector mostly intact but hurt in part. The service and manufacturing sectors have been weakened and urban employment severely battered. The economy will suffer palpable contraction unless government enacts countervailing measures.
- SUSPEND/AMEND 5 PERCENT DEFICIT LIMIT OF THE FISCAL RESPONSIBILITY LAW.
The Fiscal Responsibility Act prohibits fiscal deficit of more than 5 percent of GDP. The fiscal responsibility limit, while perhaps well intentioned, is, to say the least, inapt for a nation in our economic situation. The provision is based on two inaccurate assumptions.
The first myth is the belief that national govt fiscal deficits are always harmful. The second is that economic conditions will always be “normal” even for the long-term. A government deficit serves to enrich the private sector. A deficit means government spends more than it takes in. That extra amount goes to the private sector. As such, national govt deficits boost private sector growth & activity.The only legitimate concern with deficit spending is inflation. In the present case, the threat we face is more recessionary than inflationary.A bit of inflation is the cost we should be prepared to pay. Second, the efficacy of the law unduly hinges on the long-term clairvoyance of the legislature that wrote it and on the questionable soundness of the assumption that times will always be normal. No fiscal legislation can predict the future in perpetuity.
The best step would be to suspend the 5 percent budgetary limit for this fiscal year. Alternatively, the limit should be raised to 25-30 percent to allow the federal government more room to make the minimum expenditures necessary to save the economy and the people.
- 2. EMERGENCY SUSTENANCE PAYMENTS
With the fiscal latitude provided by lifting the budgetary limit, government can render emergency sustenance relief to most Nigerian households, especially the recently unemployed, via cash payments.
AGRICULTURAL MARKET AND COMMODITY BOARDS
To maintain adequate supply of food and ensure price stability, government should re-establish commodity boards for strategically important crops. These boards will specify a guaranteed minimum-maximum price range for these crops.
FARM TO MARKET FACILITATION; 5. IMPORT SUPPRESSION; 6. MAINTAIN AND EXPAND SCHOOL FEEDING PROGRAMS; 7. DIPLOMATIC PUSH FOR DEBT RELIEF;
FINANCIAL SECTOR MEASURES
The CBN should lower interest rates to single digits. This may spur some private sector and will lower the charge on government deficit spending. To ensure the health of commercial banks, CBN should give liberal access to its discount window at a virtual zero interest rate policy. To assist large businesses maintain operations and their payrolls, the CBN can give conditional interest free loans. Conditions could include firms maintaining their work force and even hiring extra.