For a look at another response in the sub-region to COVID-19, we have read the statement following the meetings of the monetary policy committee (MPC) in Ghana last month and in March. Given the different size and structure of the economies, not forgetting the degree of passthrough from monetary policy, we do not pretend there should be a direct read-across from Nigeria. There is, however, some common ground when we re-read the communique of 28 May following the meeting of Nigeria’s MPC and the CBN governor’s remarks in a speech on turning the COVID ‘tragedy into an opportunity’ in mid-April.
Ghana’s MPC did not change its policy rate of 14.50% in May whereas Nigeria’s came up with the surprising rate cut of 100bps to 12.50%. However, in common with its Nigerian counterpart, it noted that the banks had trimmed their lending rates and offered moratoria on loan repayments.
Ghana has been more constrained in its fiscal response than Nigeria. Judging that the government could not boost its borrowing from the domestic capital market without a sharp increase in interest rates, the Bank of Ghana raised the ceiling on its own holdings of government debt. It purchased the entire issue of a GHC5.5bn (US$95m) COVID-19 relief bond. Nigeria’s Debt Management Office (DMO), in contrast, now has to meet its funding target for 2020 of NGN1.60trn wholly domestically, rather than the previous NGN750bn, and is confident that the local market can absorb the additional paper without much of a hit to borrowing costs. Pension funds and other domestic buyers have far more clout than Ghana’s.
Ghana was able to shore up its external balance sheet significantly ahead of the outbreak of the virus. Both countries have accessed the IMF’s quick-disbursing facilities to tackle the impact of COVID-19 to the maximum 100 per cent of their quota with the Fund. Ghana also tapped the Eurobond market for US$3bn in early February, a route Nigeria might well have taken had it not been for the exercise of harmonizing its fiscal and calendar years. The offer was more than four times oversubscribed. Ghana went further by agreeing a US$1bn repo facility with the US Federal Reserve, initially for a period of six months.
Both central banks have given broader support to the economy. The Bank of Ghana has provided liquidity support to ARB Apex Bank, as well as cutting the primary reserve ratio for savings and loans companies, microfinance operations, and rural and community banks. The CBN’s strategy has been more a series of direct credit interventions in favour of manufacturing, equipment purchases, households and SMEs. This is an extension of its development finance role. It is driven by the agenda of reinforcing food security, and domestic healthcare and education. The CBN governor noted in his speech that many governments had imposed export and other controls to defend domestic production and resources during the pandemic and argued that Nigeria should have a similar mindset.
Finally, we come to the growth of digital payments during the pandemic. In Ghana the volume of such payments is said to have increased by 81 per cent in Q1 2020, the result principally of the short lockdown in the country as well as virus-related fears in the population but aided by the short-term waiving of fees on interbank and other mobile money transfers. The CBN amended its guidelines for electronic payment channels in a circular dated 29 May. Both central banks view the expansion of mobile money as a route to tackling financial exclusion (and increasing tax revenue at the same time).
Head Macroeconomic and Fixed Income Research, FBNQuest