Christine Lagarde, CEO, IMF |
The
announcement of the IMF chief’s visit had readily stoked suspicions of loan
negotiations and invariably, evoked memories of its alleged unsavoury strings
of conditionalities. This prejudice or reality is not only associated with IMF,
but inclusive of the World Bank Group, among others.
Perhaps by
premonition, observation and/or investigation, Lagarde, at the point of where
some Nigerians were eagerly expecting a confirmation of their suspicion- the
loan deal, together with its “terms and conditions”, said: “Let me make it clear that I am not here (in Nigeria) nor is
my team in this country to negotiate a loan with conditionality. We are not
into programme negotiations and frankly at this point in time, given the
determination and resilience
displayed by the President and his team, I don’t see why an IMF programme will
be needed.”
This really
doused the tension for many, but for others, the visit still has debt
undertones. Perhaps too, it is pertinent to ask: Has Nigeria’s challenges so
far, been with IMF debt and conditionalities or a brazen non-implementation of
borrowed funds? Even with the already borrowed funds aside the IMF, debt
servicing bill reached over N900 billion in 2015 and projected to hit a record
high of N1.4 trillion in 2016. Nigerians are still “searching” for the
whereabouts of these borrowed billions of dollars.
“Discipline
is going to be needed, of course. Implementation is going to be key
for the objectives and the
ambitions to serve the country well, in order for it to be actually
sustainable,” Lagarde added.
Granted, the
promises of the current administration under President Muhammadu Buhari are ambitious, laudable and also achievable
with leadership will coming into reality, which time will eventually tell.
While it is a welcome development to have capital expenditure projection for
2016 at 30 per cent of the total budget, representing about 200 per cent growth
over 2015, one would have loved to see the recurrent expenditure package fall
below the 70 per cent level. This situation keeps Lagarde’s admonition on
fiscal discipline on point.
But speaking
on sustainable path to end the nation’s plummeting revenue profile, she recommended
the widening of the tax base, while augmenting compliance and collection
efficiency. Her basis for the recommendation as the custodian of economic data
of the global economies stemmed from the fact that Nigeria’s current Value
Added Tax rate in relation to peers within the ECOWAS community is the lowest.
A financial
analyst and Head of Investment Research at Afrinvest Securities Limited, Ayodeji Eboh, said: “While we reason along the viability of an upward adjustment
of VAT, which is a consumption tax, we believe this should be done only after
exhausting the option to enhance compliance and collection mechanism to broaden
the current tax base.”
The case
against enhancing compliance and collection is not new. It is the challenge of
giving the process “teeth”- legal backing and framework to ensure smooth
implementation. We will not forget it in a hurry the well-dressed Austerity
Measure of the immediate past Minister of Finance, Dr. Ngozi Okonjo-Iweala, under the administration of former
Prseident Goodluck Jonathan. One of the features is the luxury goods tax (Jet,
high-end vehicles, exotic wine, choice property, among others).
This
proposal, without being immodest, was more of celebrity speech, officious in
intent, and a grandstanding. It was really done to help the burgeoning mass
reeling under the pains of inequality “swallow” easily the bitter pills of
mismanaged public finances. After the mere announcement, there was no other
strong mention of the proposal in the form of bills to the National Assembly to
ensure give it parliamentary enactment.
Even the
Chartered Institute of Taxation of Nigeria, at it 2015 yearly tax conference,
told the former Minister of State, Finance, Ambassador Bashir Yuguda, the challenges confronting taxation
development in the country.
Former
President of CITN, Chief Mark Chidolue
Dike, who itemized the challenges, said: “Nigeria
has for decades, been over-relying on oil to drive its economy. Following the
massive decline in global oil prices and the damage it has done to the Nigerian
economy and the 2015 budget in particular, it is imperative now for the
incoming administration to seriously explore other viable means of saving the
economy from total collapse.”
A guest at
the event and an Associate Professor at the Faculty of Law, University of
Lagos, Dr. Abiola Sanni, in a paper entitled
“Recent Developments in the Nigerian Tax System”, noted that stakeholders have
long called for instituting a yearly review of tax laws to assess performance,
which has not gone down well with the political class.
According to
him, in the last three years, the need to expand tax net and improve the
collection strategy has been beckoning, but the combination of non and
inadequate legislative backing have impeded the move.
“The
currently proposed tax on various luxury items as part of the palliative
measures to government’s revenue shortfall, which is yet to receive necessary
tax law amendments is yet another setback,” he
said.
But the
analysts at Afrinvest added: “We align with the
position of the IMF on the need to build resilience by making careful decision
on borrowing. With a budget proposal to invest borrowing solely into capital
spending, most especially in power, infrastructure, housing and transportation,
we believe the Presidency is on the right track. However, effort must be put in
place to ensure that implementation is given a special attention to deliver the
‘Change Agenda’ of the government.
“Lenders
(especially in the Eurobond market) would likely demand a higher risk premium
if macroeconomic risks persist. In the domestic capital market, higher demand
for funds by Federal Government can be absorbed although marginal rates at the
monthly bond auctions would trend higher relative to the low rates since
October on the back of improved liquidity in the financial system.”
But the most
controversial, which now seemed to have received the attention of the nation’s
monetary authority, was the IMF’s position on the management of the naira. She
told the National Assembly members that the IMF does not support foreign
exchange restrictions and if there is need, it should be temporary. The
lawmakers have reciprocated through a call on CBN to relax rules. Surely, CBN
is working out new modalities.
The IMF’s
position was not surprising given the pressure on the currency from the
parallel market, which locally, has amplified the calls for further devaluation
of the naira. Lagarde advocated for more flexibility in the management of the
local unit in order to stem the rout on the naira as the capacity of the CBN to
defend the naira wanes, with the depleting external reserves.
Thus,
analysts raised the speculation that the CBN would review its position on the
pricing of the naira sooner, as global perception has been mixed into several
considerations. CBN, on Monday, has taken the first step with major policy
shift in the Bureau De Change segment as it has suspended the weekly
intervention. It also permitted commercial banks in the country to begin
accepting cash deposits of foreign exchange from their customers.
It has also
reiterated an order of priority, which include the provision of foreign
exchange to matured Letters of Credit from commercial banks; importations of
petroleum products; critical raw materials, plants, and equipment; and payments
for school fees, basic travel allowance and personal travel allowance, and
related expenses. (Source: Guardian)
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