The Central Bank of Nigeria (CBN) and the Ministry of Finance are collaborating to ensure that the Gross Domestic Product (GDP) growth of 0.55 per cent which brought the country out of recession is sustained. Raising the government’s revenue base through taxation and sustaining banking sector stability through strong regulations are key in keeping the economy on track. Finance Minister Mrs Kemi Adeosun and CBN Governor Godwin Emefiele used the 2017 International Monetary Fund (IMF)/World Bank Annual Meetings in Washington D.C to take the message of tax reforms and banking sector stability to the global market. SIMEON EBULU and COLLINS NWEZE, just back from the meeting, report.
The Nigerian economy finally pulled out of recession in the second quarter with 0.55 per cent Gross Domestic Product (GDP) growth which many pundits described as fragile.
The Ministry of Finance and the Central Bank of Nigeria (CBN) are taking new measures to deepen the growth in the economy. At this year’s International Monetary Fund (IMF)/World Bank Annual Meetings in Washington D.C, both institutions discussed with international investors on the need to invest in the economy.
Finance Minister Kemi Adeosun hold several bilateral meetings with foreign investors and the rating agencies on developments in the Nigerian economy.
The minister discussed the need to enhance the capacity of the International Bank for Reconstruction and Development (IBRD) and International Finance Corporation (IFC) to meet their obligations of supporting the financing needs of clients and preventing a slowdown in lending. Mrs Adeosun said the institutions were also advised to stop retrenchment from riskier markets and avoid decline in equity commitments at this critical time when the institutions are required to step up their support.
She said the World Bank Group management was urged to come up with a comprehensive package that will make the global lender ‘a bigger and better bank’.
“At the meetings where I spoke on behalf of Angola, Nigeria and South Africa, I urged the international community particularly the Bretton Wood Institutions to change the narrative on Africa which always portray the continent as Low Income Countries. Indeed, there are some Middle Income Countries represented by this constituency and so there is the need for the bank to deploy instruments, policies and programmes that will address the peculiar needs of these countries,” she said.
Diaspora loans
Also speaking, Emefiele said the apex bank is trying to encourage Nigerians in Diaspora to keep remitting funds to their people at home, and also invest in the country, saying Nigerians in Diaspora do not have any other place they can call home but Nigeria. Nigerians in Diaspora remit $21 billion yearly to the local economy.
“We will put in place policies that will continue to encourage them. We are working on how we can actually link credit bureau arrangement to the foreign borrowing arrangement so that once there is a link between Nigeria and the foreign credit system, it will be easy for them to even borrow from Nigeria,” he promised.
The CBN chief said the apex bank is also working out plans to ensure that Nigerians in Diaspora get some form of attachments to the credit system that they have abroad, either in the United States (U.S) or United Kingdom (UK). That, he said, will make it easy for them to access credit and begin to build their businesses, so that when they retire, they retire back into Nigeria, and they do not retire in Diaspora.
Forex stability
Emefiele said current fundamentals show there is a lot of stability in the foreign exchange market. He explained that with exchange rate having come down from high to the level it is now, fluctuating between N359/N365 to a dollar, is a good development compared to where it was coming from.
He said that as the foreign reserves get stronger, and economic fundamentals get stronger, there is no doubt that the naira will get stronger and there will be more appreciation in the currency.
Emefiele said the banking system remains stable, and is facing no threats. He said the CBN will continue to focus on the banking system to ensure there is no significant destabilisation, because anything that destablises the banking system will have adverse impact on the economy.
He said: “We are keeping our eyes on the banking system to ensure there are no significant threats that will alter the strategic health of the banking system, to the point where we have to think about things that will create problems for the economy.
“What we are doing is that no bank should fail in our jurisdiction, whether you are small. What we are trying to do is to make sure we have strong prudentials that will continue to guide them be it capital. That will ensure that the banks remain strategically healthy, to be able to perform the responsibility and roles they are to play in the economy to achieve growth and development.
“There is a lot of attention on the banking system again, to the point that we are saying that there are certain banks in certain jurisdiction that are too big to fail, and indeed in every jurisdiction. From our view, we are saying no bank should fail in our environment, whether you are big or small. What we would continue to do is to see to it that we put in place strong prudentials that will continue to guide them.”
He said the CBN would put in place structures to continue to strengthen and ensure banks remain strategically healthy to be able to perform the roles and responsibilities they are supposed to play in an economy so as to achieve growth and development in that economy.
The luxury tax planned by the Federal Government is being finalised now, because it cuts across the ECOWAS. There are legal processes you must go through, including the customs union to actually vary the specific taxes.
Taxation
On taxation, Adeosun said revenues are needed to provide public services and the burden of taxation must be borne by those whose income allows them to bear it.
“So, those with higher income should bear greater part of the burden. The problem with Nigeria is that most of our taxpayers are at the lower level. The man on the streets passing traffic, his tax is deducted at source. Why will we not allow billionaires to proportionately pay their taxes? I think we need a mind-set change on taxation in Nigeria. So far, we are encouraged by the response of those companies and individuals to this tax amnesty,” she added.
Speaking further, she said government’s tax amnesty policy was on track. “We’re on track. We expect that at the end of the timeline, everybody will rush and we will raise significant money. We have every reason to believe that this tax mobilisation effort will work and hopefully bring long-term money,” she said.
IMF’s Director of African Department, Abebe Selassie, said Nigeria needs new policy on taxation given its very low level of revenue mobilisation capabilities. He said the Fund is already providing tax guidance to the country. He insisted that whatever decision Nigeria takes on tax reforms, has to be backed by the National Assembly.
Selassie said the Ministry of Finance has identified quite a few steps that can be taken by way of tax administration, improving tax administration, making sure that people are paying the taxes that they meant to be paid.
“Whatever decision the Federal Government takes on adjusting the tax policy, it has to consult the National Assembly. The IMF has provided a lot of support, technical assistance support and policy advice in this area.
“But our guess is that there also is going to be need for tax policy changes for Nigeria, which has a very, very low level of revenue mobilisation to improve that. These resources are needed to help strengthen the infrastructure environment in Nigeria, to help invest in the many schools that have to be built and improve health delivery.
“Now, in terms of designing tax policy changes there is a way to do it, and indeed we advise countries and provide technical assistance on how to do this in a way that is progressive. So, you know, the taxes are collected from people that are rich, the richer segments of society rather than the poor. So, there is a lot of technical work that can be done to do that.”
The IMFF Director said the decision ultimately on these tax policy changes will be the government’s and it’s of course parliament that will ultimately take the decision, but we’ve been providing a lot of support, technical assistance support and policy advice in this area.
“And again, I cannot stress, the key, again, remains that, you know, Nigeria, we feel needs to do a lot more investments both in infrastructure, and in human capital investment,” he said.
Selassie said developing plans and models or reform strategies that are specific to Nigeria’s specific needs at this venture are important.
“On agriculture, given how big the size of the Nigerian economy is and given the potential that it has including an agriculture as it’s used to in the past, it is a sector that should be doing much better. On the macro side, I think what is needed in Nigeria at this moment are mobilising more revenues. I think that is important to help the government invest more in health and education and building infrastructure that is going to be important for other sectors like agriculture, manufacturing to take off,” he said.
According to him, without energy, it’s difficult to have higher productivity activities to take place in agriculture.
“Addressing the energy issue, requires a lot more public investment and so, the revenue mobilisation angle being important. But on the fiscal side, there is also a need to further improve the allocation of foreign exchange systems, there has been a strong improvement in that. But I think just creating liquid and deep foreign exchange markets, financing the reforms that have been taking place in the last couple of months is going to be important,” he said.
The economic growth in sub-Saharan Africa is recovering at a modest pace, and is projected to pick up to 2.4 per cent in 2017 from 1.3 per cent in 2016, according to the new Africa’s Pulse, a bi-annual analysis of the state of African economies conducted by the World Bank.This is below the April forecast of 2.6 per cent.
World Bank Chief Economist for Africa, Albert Zeufack said that in the second quarter of this year, Nigeria pulled out of a five-quarter recession and South Africa emerged from two consecutive quarters of negative growth. Improving global conditions, including rising energy and metals prices and increased capital inflows, have helped support the recovery in regional growth. However, the report warns that the pace of the recovery remains sluggish and will be insufficient to lift per capita income in 2017.
He said growth continues to be multispeed across the region. In non-resource intensive countries such as Ethiopia and Senegal, growth remains broadly stable supported by infrastructure investments and increased crop production. In metal exporting countries, an increase in output and investment in the mining sector amid rising metals prices has enabled a rebound in activity.
Headline inflation slowed across the region in 2017 amid stable exchange rates and slowing food price inflation due to higher food production. Fiscal deficits have narrowed, but continue to be high, as fiscal adjustment measures remain partial. As a result, government debt remains elevated. Across the region, additional efforts are needed to address revenue shortfalls and contain spending to improve fiscal balances.
