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Fiscal challenges reign as ministers’ appointments remain ‘mystery’

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That the country is currently facing multiple challenges is not in denial.These challenges range from high unemployment rate, economic growth, infrastructure deficit, inflation, impaired revenue earnings capacity, to questionable pattern of budget implementation, which has not really added to the stock of capital investment.

These macroeconomic issues have been and are currently assailing the country’s quest for development.Amid these myriads of economic distortions, the Federal Government appears not to be in a hurry to halt the headwinds that are mostly associated with poor policy choices and sometimes, outright inaction.

It is indeed difficult to believe government’s claims of sincerity, when it is obvious that since 2014 when the oil price volatility began, leading to a sharp fall in its revenue to 3.1 per cent of Gross Domestic Product (GDP) in 2018, compared with the record high of five per cent in 2013, policy inactions have continued to create avoidable headwinds.

Also, with expenditure outpacing revenues at 5.4 per cent of GDP, the government has accumulated N3.9 trillion in debt from the domestic and external debt markets to partly plug its fiscal deficit of N8.2 trillion between 2016 and 2018.“In addition, the Federal Government received N5.6 trillion in monetary financing from the CBN, which is more than half its total deficits. This support has breached the constitutional threshold of five per cent of the prior year’s revenues by N5.2 trillion.“With the cost of servicing debt and recurrent expenditure at 60.8 per cent and 146.9 per cent of revenues respectively, this strategy is unsustainable.

The Federal Government needs a strong revenue boost and cost containment strategies to improve its finances and enhance its contribution to economic growth,” analysts at Afrinvest Securities Limited, said in their weekly market update.Increased efforts must be made to galvanise domestic investment as well as Foreign Direct Investment (FDI), given that the current revenue profile of government is weak and about N35 trillion yearly capital investment over 10 years is required to  reverse the negative trends in unemployment and poverty. In this case, urgency is the watchword.

The President of the Association of Issuing Houses of Nigeria (AIHN), Chuka Eseka, had identified four areas that government would need to step up its key reforms, which are capable of eliciting private sector’s reciprocity, as well as that of the investing community in general.These, he said, include policy reforms that promote market economics, leading to the mobilization of active economic agents; the liberalization of the oil and gas sector; deliberate efforts aimed at power sector optimization; and enabling environment for the realisation of the private sector-led infrastructure development.
 

The question is: who will lead the way for the reforms? Surely, the ministers will. But where are they? Certainly, the recurring delays and uncertainty in clear policy choices are not helping Nigeria’s economy.The analysts at Afrinvest Securities Limited, observed: “The direction of Nigeria’s fiscal policy over the medium-term still hangs on a balance as ministers are yet to resume. While delay is costly, a more pressing concern would be seeing the government sustaining the policies of the past four years.”

Could there any convincing evidence of concern for the economy by the leadership than stepping up efforts to stem a tide that has ravaged the system for five years? After spending about five months in office without the appointment of ministers in 2015, with attendant consequences, including facilitating the recession of 2016, President Muhammadu Buhari has already taken 68 days without forming a cabinet in 2019.
 
The economic and financial market watchers are already worried about what would be the direction of the fiscal policy in his second term, especially when the ministerial list featured few “returnees”, who were not fantastic and the majority of his political allies, with no known pedigree in economic management.

An economist, Emma Nwagbo, said that what this administration should be communicating by words and action is urgency, correction of past mistakes and inspiring body language.“Even the ministerial list is disappointing. It is all political and not an iota of consideration for the economy. Still, having wasted time to bring up the nominations, which South Africa did in 96 hours and Boris Johnson of United Kingdom did in record time too, why is assigning the portfolio taking another ritual?

“The 2019 budget has been signed since May, yet this government is not concerned about who will drive the implementations in various ministries. Why would there not be cautious investment, especially foreign investors in the country?”, he retorted.

The strategies to boost revenues in the first term of President Buhari was short of expectations. Starting from the whistle-blower policy, which helped in recovering looted funds, with its consequent controversy and the Voluntary Asset and Income Declaration Scheme (VAIDs) that supported a broader tax net, but had N30 billion in receipts despite a target of N305 billion. So far, government’s revenue to GDP only improved to 3.1 per cent in 2018 from a low of 2.3 per cent in 2017.

“To achieve revenue targets, we believe there is a need for comprehensive fiscal reform. This would include action plans to improve the tax system and administration in a bid to drive efficiency by reducing costs and boosting collection.“In addition, more transparency and accountability would be required by the citizens to encourage tax payments. The Value Added Tax (VAT) increase being mulled given Nigeria’s lower VAT rate of five per cent when compared to peers, represents a quick fix.

“However, this would not be a silver bullet as total VAT receipts for the entire country is weak at 0.8 per cent of GDP in 2018. Similarly, as two cities – Lagos and Abuja – account for 75 per cent of the VAT receipts, the FG should work on bringing more businesses into the VAT net rather than imposing more taxes on current taxpayers.

“In Lagos, for instance, consumers already pay twice the national rate of five per cent as consumption taxes. Increasing VAT collection would require lower taxes and costs in the formal economy, as well as providing conditions that enable faster business growth.

In our view, this would take time, hence revenues are likely to remain weak for an extended time”, the analysts said.
According to them, reining in spending will also not come easy as the government’s wage bill is likely to increase significantly over the next two years due to the implementation of the new minimum wage which is 67 per cent higher at N30,000.00/month.The bigger challenge is that public sector wages often rise almost evenly across the board once a new minimum wage takes effect. For context, the wage bill more than doubled between 2010 and 2012 after the last revision to minimum wage.

“Although we expect the increase in wages to be less aggressive upon implementation, it would still put considerable pressure on the fragile finances. We believe the Federal Government needs to rein in overhead costs, which are more discretionary, to partly offset the new wage increase. “Improving the fiscal position would be tougher than expected. But our outlook is not entirely gloomy as we see quick wins. Government spending on energy subsidies continue to be steep, denying it and states of much needed resources.“We estimate a 22.9 percent expansion in FG’s revenues over 2018 levels with the removal of petrol subsidies and the adoption of a market reflective exchange rate alone.

“Ultimately, the passing of the PIB and the review of petrol and electricity prices are necessary to drive improvements in the energy sectors as well as to support an improved fiscal position for governments,” they added.For the AIHN boss, government must be decisive this time and close out on key policy issues affecting the functioning of the economy, which will act as a boost for the capital market to invest in intellectual capital and develop solutions for funding key national priority sectors such as power, transportation and telecommunications to achieve the transformational and catalytic economic benefits.

He noted that the country’s population and population growth is a recognition of a significant threat to Nigeria’s medium-term economic prosperity, which can be handled by key policy reforms and urgently.“We are fast running out of time and must ensure that Nigeria is put on the part of sustainable six per cent-plus annual inclusive GBP growth to lift Nigerians out of poverty or else face uncontrollable consequences,” he said.


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