By Foster Obi
International Monetary Fund has said that the US$3.4 billion loan given to Nigeria in April under the Rapid Financing Instrument (RFI) is repayable in 5years. The IMF said in its Facksheet that the RFI is a loan which repayment starts in the third year.
According to the Organisation, the RFI currently costs 1 percent in annual interest which is about one tenth of the current risk premium on Nigeria’s sovereign bond and unlike the IMF’s standard financial package, there are no ex post conditions attached to this emergency loan.
“However, a member country requesting RFI assistance is required to cooperate with the IMF to solve its balance of payments difficulties, and to describe the general economic policies that it proposes to follow,” the Fund said.
To help alleviate the impact of the COVID-19 pandemic and the sharp fall in oil prices, Nigeria requested emergency assistance of about US$3.4 billion equivalent to 100 percent of its quota under the IMF’s RFI. The financial support approved by the IMF Executive Board on April 28, 2020 is expected to provide critical support to shore up Nigeria’s heath care sector, and shield jobs and businesses from the shock of the COVID-19 crisis. It will also help limit the decline in international reserves.
On measures to ensure RFI money is used for its intended purpose, IMF said t to enhance transparency and governance, the Nigerian authorities committed to undertake an independent audit of crisis-mitigation spending and related procurement processes, and to publish procurement plans and notices for all emergency-response activities, including the names of awarded companies and beneficial owners.
“Special budget lines are to be created to record all crisis emergency response measures, which are published daily on Nigeria’s treasury online portal. These measures will not only ensure financial assistance received as part of the COVID-19 response is used for its intended purposes, but also significantly strengthen the oversight of the entire budget used for the government’s crisis response.”
The IMF this year approved its largest COVID-19 emergency financing package so far—a US$3.4 billion Rapid Financing Instrument (RFI) for Nigeria. Nigeria was just hit hard by the coronavirus, particularly because of the associated plunge in the price of oil, Nigeria’s top export commodity
The RFI provides rapid and low-access financial assistance to member countries facing an urgent balance of payments need, without the need to have a full-fledged program in place. It can provide support to meet a broad range of urgent needs, including those arising from commodity price shocks, natural disasters, conflict and post-conflict situations, and emergencies resulting from fragility. As a single, flexible, mechanism with a broad coverage, the RFI replaced the IMF’s previous policy that covered Emergency Natural Disaster Assistance (ENDA) and Emergency Post-Conflict Assistance (EPCA).
The RFI is available to all member countries, although member countries eligible for the Poverty Reduction and Growth Trust are more likely to use the similar concessional Rapid Credit Facility (RCF). The RFI is designed for situations where a full-fledged economic program is either not necessary or feasible. The former situation may arise when the shock is transitory and limited in nature, while the latter may arise when the member’s policy design or implementation capacity is limited, including due to the urgent nature of the balance of payments need or to fragilities.
Experts are of the opinion that Nigerian authorities should do well to properly ensure the usage of the loan in order not to put any incoming government in loan bondage.
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