Sunday, 17 January 2016

ANALYSTS’ VIEWS ON LAGARDE’S VISIT TO NIGERIA

Christine Lagarde, CEO, IMF
International Monetary Fund (IMF) engaged, as well as hobnobbed with the leadership of the country at various levels. Yes, “hobnobbed” because she admitted that Nigeria is a great country that made her visit memorable. On the other hand, it was engaging because she made observations and commendations, raised issues and proffered solutions.

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)