In a separate research note, the IMF called for countries to work together to finish the pandemic off.
The global economy faces a hard road back from the Covid-19 downturn, and nations should remove trade barriers on medical technologies to aid the recovery, the IMF chief said on Thursday.
The call from Managing Director Kristalina Georgieva ahead of this week’s G20 leaders summit comes as countries grapple with the fallout from a pandemic that has killed hundreds of thousands and caused a sharp contraction in growth.
“While a medical solution to the crisis is now in sight, the economic path ahead remains difficult and prone to setbacks,” Georgieva said in a blog post.
Major pharmaceutical companies are now closing in on vaccines against the virus, amid a global spike in cases that has caused some countries to reimpose restrictions to curb transmission.
“The resurgence in infections is a powerful reminder that a sustainable economic recovery cannot be achieved anywhere unless we defeat the pandemic everywhere,” Georgieva said.
She called for countries to cooperate to ensure an adequate supply of vaccines, tests and medicines, as well as “multilateral efforts on the manufacturing, purchase and distribution of these health solutions — especially in poorer nations.
It also means removing recent trade restrictions on all medical goods and services, including those related to vaccines,” Georgieva said.
– Last summit – The Covid-19 pandemic has caused more than 1.3 million deaths worldwide, according to an AFP tally, and wreaked a grievous toll on the global economy.
The IMF expects global growth to contract by 4.4 percent this year before rebounding 5.2 percent in 2021. However, Georgieva noted third-quarter growth was better than expected in the United States, Japan and European countries.
The virtual summit hosted by Saudi Arabia is set to be the last during the term of US President Donald Trump, who lost his bid for another four years in office earlier this month, though he has rejected the results.
Under his leadership, Washington has engaged in trade conflicts with strategic rival China as well as its European allies, which slowed down global growth even before the virus’s arrival.
“Combining well-coordinated national policies with joint measures at the global level will help ensure a strong, sustainable recovery,” the Washington-based crisis lender said.
“In the immediate term, the G20 should refrain from imposing or intensifying trade restrictions and promptly remove those put in place since the start of the year on all medical goods and services as well as on any goods and services related to vaccine manufacturing and distribution.”
The IMF called for Britain and the European Union to conclude a trade deal that would forestall new trade barriers as London disentangles itself from the regional bloc.
The lender also reiterated its call for more public spending to help countries escape the growth slowdown and reshape their economies for both growth and to fight climate change.
The International Monetary Fund on Monday said it had approved $4.3 billion in aid to South Africa to help it fight the coronavirus pandemic.
“The IMF approved $4.3 billion in emergency financial assistance under the Rapid Financing Instrument (RFI) to support the authorities’ efforts in addressing the challenging health situation and severe economic impact of the COVID-19 shock,” the Washington-based crisis lender said in a statement.
South Africa is the continent’s most-industrialized economy and has the largest number COVID-19 cases, with more than 445,000 detected and 6,769 deaths as of Monday, according to the Africa Centres for Disease Control and Prevention.
South African Finance Minister Tito Mboweni in June predicted the economy would shrink 7.2 percent in 2020, its deepest slump in 90 years, and compared the ballooning public debt to a “hippopotamus… eating our children’s inheritance.”
The South African treasury said the IMF money would go towards stabilizing the debt, creating jobs, helping frontline health workers fighting COVID-19 and reforming the economy to spur growth.
“Going forward, our fiscal measures will build on our policy strengths and limit the existing economic vulnerabilities which have been exacerbated by the COVID-19 pandemic,” Mboweni said in a statement.
The money from the IMF is the latest disbursement under the RFI, which allows nations to circumvent the lengthy negotiations usually needed to secure a full economic assistance program — time most countries do not have as they struggle to cope with the coronavirus crisis.
IMF deputy managing director Geoffrey Okamoto said “a deep economic recession is unfolding,” exacerbated by South Africa’s slow rates of growth, high unemployment and widening inequality.
The RFI money will help address the country’s balance of payment needs “that emerged as a result of the pandemic and thus contain the economic disruption and its regional spillovers.”
The money will specifically address “the fiscal pressures posed by the pandemic, limit regional spillovers and catalyze additional financing from other international financial institutions,” the IMF said.
The IMF board on Friday approved a one-year, $5.2 billion financing package for Egypt to help the country alleviate the economic impact of the COVID-19 pandemic.
The new funding under a standby arrangement comes on top of $2.8 billion in emergency aid the IMF board approved a month ago, although at the time officials acknowledged that more help would be needed.
The IMF noted Cairo had “a strong track record” of implementing economic reforms under fund-supported programs over the past four years, and the new loan will help put it on strong footing for recovery.
“Egypt was one of the fastest-growing emerging markets prior to the COVID-19 outbreak,” the IMF said in a statement. “However, the significant domestic and global disruptions from the pandemic have worsened the economic outlook and reshuffled policy priorities.”
The aid will focus first on health and social spending, as well as financial stability to keep a lid on inflation.
Fund staff agreed with authorities on the terms of the loan in early June, and said the funds also will open the doors to financing from other lenders and help support job creation by the private sector.
Egypt has suffered over 2,500 COVID-19 fatalities with over 61,000 cases, according to Johns Hopkins University’s tally.
Nigerians will pay much higher tariff for power in 2021, going by promises made by the Federal Government to the International Monetary Fund while seeking the $3.4bn emergency financial assistance recently approved for Nigeria.
The Executive Board of the IMF approved the Rapid Financing Instrument, which the Federal Government plans to use to address the economic impact of the COVID-19 pandemic in the country, on April 28.
A Letter of Intent, jointly signed by the Finance Minister, Zainab Ahmed, and the Governor of Central Bank of Nigeria, Godwin Emefiele, and addressed to the IMF Managing Director, Kristalina Georgieva, indicated that the Federal Government made a number of promises to the fund in order to secure the financial assistance.
One of the promises, or commitments, which the government made in a bid to assure the executive board of the IMF of its readiness to reposition the Nigerian economy after the pandemic, is that Nigerians would pay full cost-reflective tariff for power in 2021.
The Federal Government also told the IMF it intends to cap electricity tariff shortfalls to N380bn in 2020.
“We are also advancing in our power sector reforms – with technical assistance and financial support from the World Bank – including through capping electricity tariff shortfalls this year to N380bn and moving to full cost-reflective tariffs in 2021,” the Federal Government said in the letter.
On January 4, the Nigerian Electricity Regulatory Commission approved an increase in electricity tariff for the 11 electricity distribution companies in Nigeria.
It, however, could not implement the tariff increase after labour unions, lawmakers and other Nigerians kicked against the move, which would have commenced on April 1, 2020.
Although the NERC-reviewed tariff was not cost-reflective enough as required by power distributors, it showed that Nigerians would definitely pay more for electricity if it had been implemented.
This, therefore, implies that once the government enforces the payment of full cost-reflective tariff, in line with the promise to the IMF, power users might pay far higher than what was projected in NERC’s recent tariff review.
The commission had explained that its directive on the January 2020 tariff regime for different Discos superseded the earlier one issued on the subject matter.
According to details of the review published by the commission in January, for the Abuja Electricity Distribution Company, residential customers in R3 category who were paying N27.20 per unit would have been paying N47.09, had the regime started on April 1, 2020.
The customers would have paid N19.89 more per unit.
The NERC review also showed that for Ikeja Electricity Distribution Company, customers on the R3 category who were paying N26.50 per unit would have paid N36.92 per unit from April 1.
The new rate amounted to an additional N10.02 per unit.
In the same vein, going by the NERC’s stalled tariff plan, Enugu Electricity Distribution Company residential (R3) customers who were paying N27.11 per unit in 2015 would have paid N48.12 per unit from April 1, 2020.
The new rates were, however, put on hold after customers kicked vehemently against the development.
But going by the Federal Government’s promise to the IMF, an implementation of cost-reflective tariffs in 2021 means that Nigerians would pay even much higher for power than the rates which NERC had planned to charge from April 1.
Also, in the Letter of Intent, which was dated April 21, the Federal Government also hinted at further increment in Value Added Tax as part of plan to increase its revenue to 15 per cent of Gross Domestic Product.
The planned revenue drive also includes hike of excise fees and removal of tax exemptions.
“First and foremost, we will revert to our government’s planned medium-term fiscal consolidation path – which includes increasing revenue to 15 per cent of GDP through further VAT reforms, rise in excises, and removal of tax exemptions – once the crisis passes,” the letter said.
The Federal Government also assured the IMF that it was working to reduce its budget deficit to under three per cent of GDP in line with the Fiscal Responsibility Act.
The Federal Government also assured the fund that it was committed to eliminating recourse to central bank financing of budget deficits by 2025.
The International Monetary Fund (IMF), on Tuesday, approved US$3.4 billion emergency financial assistance for Nigeria to fight coronavirus.
The Executive Board approved Nigeria’s request under the Rapid Financing Instrument (RFI).
The IMF explained that the near-term economic impact of COVID-19 is expected to be severe, while already high downside risks have increased.
It noted that even before the COVID-19 outbreak, Nigeria’s economy was facing headwinds from rising external vulnerabilities and falling per capita GDP levels.
The world body added that the pandemic – along with the sharp fall in oil prices – has magnified the vulnerabilities, leading to a historic decline in growth and large financing needs.
The IMF said it remains closely engaged with the Nigerian authorities and stands ready to provide policy advice and further support, as needed.
Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, in a statement said: “The COVID-19 outbreak – magnified by the sharp fall in international oil prices and reduced global demand for oil products – is severely impacting economic activity in Nigeria.
“These shocks have created large external and financing needs for 2020. Additional declines in oil prices and more protracted containment measures would seriously affect the real and financial sectors and strain the country’s financing.
“The authorities’ immediate actions to respond to the crisis are welcome. The short-term focus on fiscal accommodation would allow for higher health spending and help alleviate the impact of the crisis on households and businesses. Steps taken toward a more unified and flexible exchange rate are also important and unification of the exchange rate should be expedited.
“Once the COVID-19 crisis passes, the focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending. Implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, remains crucial to boost growth over the medium term.”
As the COVID-19 pandemic continues to inflict high and rising human costs worldwide, the International Monetary Fund (IMF) has projected a contraction in the global economy by -3 per cent this year.
The cumulative loss to global GDP over 2020 and 2021 from the crisis could be around $9 trillion, greater than the economies of Japan and Germany combined.
For the sub-Saharan African region, the IMF, in its latest World Economic Outlook report, projected a contraction of -1.6 per cent, with Nigeria topping the chart with a negative growth of -3.4 per cent, indicating a looming recession for a country that is just recovering from one.
Indeed, the negative growth is hinged on plummeting oil prices and food inflation, even as the latest report deviates from the IMF’s earlier projection of 2.5 per cent growth for 2020 and 2021.
Finance Minister Zainab Ahmed had warned that Nigeria could fall into its second recession in five years if drastic actions were not taken to cushion the economic blow. She estimated this week that the economy could shrink as much as 3.4 per cent this year without a massive stimulus plan that includes billions in Central Bank, Federal Government and international support.
The warning came as the IMF began considering Nigeria’s emergency request for $3.4 billion in funding and the World Bank, from which the country has sought up to $2.5 billion, released $82 million to strengthen the country’s healthcare infrastructure.
According to the IMF, effective policies are essential to forestall outcomes which may be much worse than during the 2008-09 financial crisis, even though Nigeria might be repeating the 2016 recession chronicles, having failed to do anything different in terms of diversification and building buffers for moments like this.
If necessary measures to reduce the contagion and protect lives are taken, the IMF noted that a short-term toll on economic activity is expected and would aid the country’s recovery by 2.5 per cent in 2021. It said that in a baseline scenario (assuming that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound), the global economy is projected to grow by 5.8 per cent in 2021 as economic activity normalizes, helped by policy support.
Already, President Muhammadu Buhari, on Monday, while extending the lockdown, directed the Ministers of Industry, Trade and Investment, Communication and Digital Economy, Science and Technology, Transportation, Aviation, Interior, Health, Works and Housing, Labour and Employment and Education to jointly develop a comprehensive policy for a “Nigerian economy functioning with COVID-19.”
The IMF said: “The risks for even more severe outcomes, however, are substantial. Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health.
“Because the economic fallout is acute in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses domestically.
“And internationally, strong multilateral cooperation is essential to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channelling aid to countries with weak health care systems.
“Economic policies will also need to cushion the impact of the decline in activity on people, firms, and the financial system; reduce persistent scarring effects from the unavoidable severe slowdown, and ensure that the economic recovery can begin quickly once the pandemic fades.”
On its part, the Lagos Chamber of Commerce and Industry (LCCI) stated that now is the time for economic managers to set an agenda for the nation’s post-pandemic economy.
“Businesses have been grounded by the lockdown; supply chains disrupted, and aggregate demand depressed. Investment assumptions have collapsed across sectors. Businesses are faced with a force majeure and the shocks are profound and unprecedented. The mortality of SMEs is set to heighten as they have the tenuous capacity to absorb shocks, especially of a scale that we are currently witnessing,” it said.
According to the chamber’s Director-General, Dr Muda Yusuf, through digital platforms have become more vibrant, they are not enough to generate the desired momentum of economic activities, as interactions and connectivity among economic agents are at the lowest ebb.
To save the economy from collapse, the LCCI urged the salvaging of investments across all levels – micro, small, medium and large enterprises.
“Without investment, we cannot have jobs; aggregate demand would remain weak; government revenue would be in jeopardy as tax revenue plummets, and economic sustainability will be at risk. This underscores the imperative of an urgent rescue package for business, to enable investors to ride out the storms,” it added.
Some of the proposed measures include tax breaks and concessions for investors, fiscal policy palliatives for the real sector, commercial banks loan facilities, aviation sector palliatives and deregulation of the downstream sector.
Team Lead, Centre for Social Justice (CSJ) and Developmental Law expert, Eze Onyekpere, advocated full deregulation of the downstream sector as well as the patronage of locally produced goods.
According to him, the current situation offers the Federal Government an opportunity to implement certain reforms like the passage of the Petroleum Industry Bill.
On his part, the Director-General of the Nigeria Employers’ Consultative Association (NECA), Timothy Olawale, said in the short term, Nigeria needs greater fiscal space to boost the health infrastructure in order to contain the spread of COVID-19, support the sectors mostly hit and stimulate domestic consumption, while the Central Bank should cut interest rates and channel liquidity to firms and households.
“There is a need to provide a series of economic policy options to target households and businesses. With the current challenges in generating revenue to sustaining the national budget, due to the drop in the price of crude oil globally, we believe that the Federal Ministry of Finance should push better for debt relief as part of the measure to get the economy back to business as usual as soon as possible.
“Key sectors that would be most affected, like hospitality, tourism, aviation, entertainment should be provided specific stimulus packages to bounce back from the rubble, to guarantee the functioning of the essential sectors.
“For workers who lost their jobs as a result of the pandemic, Federal Government should provide emergency income grant as palliative”, he added.
IMF Managing Director, Kristalina Georgieva, on Friday, named a former Nigerian finance minister, Dr. Ngozi Okonjo-Iweala, among a group of prominent individuals appointed to serve as her new External Advisory Group.A statement posted on the IMF website said the group, comprising individuals with high-level policy, market, and private sector experience, would provide insights to enhance the Fund’s ability to serve its membership.
Other members of the group are Mr. Tharman Shanmugaratnam, Senior Minister of Singapore and Chairman of the Monetary Authority of Singapore; Ms. Kristin Forbes, Professor, Massachusetts Institute of Technology, and Mr. Kevin Rudd, former Prime Minister of Australia.Also in the team are Lord Mark Malloch Brown, former United Nations Deputy Secretary-General; Mr. Feike Sijbesima, Honorary Chair, DSM; Former CEO, Royal DSM, Mr. Raghuram Rajan, Professor, University of Chicago, and Ms. Ana Botín, Group Executive Chairman, Santander.
The group also include Ms. Carmen Reinhart, Professor, Harvard University; Mr. Mohamed A. El-Erian, Chief Economic Adviser, Allianz; Mr. Scott Minerd, Chief Investment Officer, Guggenheim Investments, and Ms. Nyaradzayi Gumbonzvanda, Chair of ActionAid International.The group is expected to provide perspectives from around the globe on key developments and policy issues, including policy responses to the exceptional challenges the world now faces due to COVID-19 and its economic impact.
Announcing the establishment of the group, Georgieva said, “Even before the spread of COVID-19 and the dramatic health, economic, and financial disruptions it has brought, IMF members confronted a rapidly evolving world and complex policy issues.“To serve our membership well in this context, we need top-notch input and expertise from the widest range of sources, inside and outside the Fund.
“Toward this end, I am proud that an exceptional and diverse group of eminent individuals with high-level policy, market, and private sector experience has agreed to serve on my External Advisory Group.
“Today we had a dynamic discussion to gain their insights, and to receive informal reactions to our ideas and approaches.”The External Advisory Group will meet a few times a year with the IMF’s Managing Director, Deputy Managing Directors, and a sub-set of IMF department Directors.