At the recently held PricewaterhouseCooper’s (PWC’s) executive session in Lagos on the Nigerian Finance Bill, 2019 and tax strategy, the question bordering on what to expect in terms of fiscal direction as the duration for the Federal Government’s policies such as the Economic Recovery and Growth Plan (ERGP), Vision 2020, among others, is coming to an end came up.
The question to which Mrs. Zainab Shamsuna Ahmed, Honourable Minister of Finance, Budget and National Planning, responded accordingly also hinted that plans have already started for Agenda 2040. The long-term plan for the nation- vision 2020 and the medium-term plan- the ERGP are both coming to an end in 2020.
The ministry has initiated the process to develop a new long-term plan that some economists and developmental pundits recommend 2050 as the time horizon and not 2040, according to her. LShe had also hinted that there is a national planning committee that has the mandate to recommend the horizon and thrust of this plan.
“What we and other stakeholders have observed is that Nigeria is good at developing very good plans. The challenge is with implementation and results attainment. In cognizance of this, the new process will commence with a review of the expiring plans, and the new plans will be results focused. Another imperative is to ensure inclusive growth, and this makes our sub-nationals critical.
” This means that we need to design a plan that strengthens sub-national coordination,” she said.
On the fiscal direction, she stated: “The plan will continue to focus on revenue diversification in line with an economic diversification drive. The focus will be on ensuring domestic resource mobilization, especially from non-oil to ensure we have enough fiscal space to invest in key socio-economic growth levers and enabling business environment for businesses as we desire a private sector led vibrant economy. We want a system that is built on domestic revenues that stems proportionately from a well-diversified economy that is driven by a thriving, formalized private sector. We also want to create a fiscal system with enough fiscal buffers for rainy days.”
The ERGP that was a 4-year plan was launched in 2017 to restore growth, invest in Nigerians and build a competitive economy. The main thrust that is to take Nigeria out of recession and correct some of the weaknesses inherit in the country’s economy.
Ahmed noted that the economy has recorded nine consecutive quarters of GDP growth. Annual growth increased from 0.82 percent in 2017 to 1.93 percent in 2018, and 2.02 percent in the first half of 2019. “The continuous recovery reflects our economy’s resilience and gives credence to the effectiveness of our economic policies thus far. We look to develop a new mid-term plan which is the Economic Acceleration Growth Plan to accelerate our growth rate to outperform the country’s population growth in order to successfully alleviate poverty,” she further hinted.
The question about what is being done to ensure that the fiscal authorities become more effective and to ensure better coordination with monetary and others was thrown up. Responding, the Honourable Minister noted the President’s inauguration of a Presidential Economic Advisory Council (PEAC), into which she was co-opted, with renowned and seasoned economists, adding that other ministers will be invited as need be.
The President also recently appointed a Special Advisor to the President (SAP) on Finance and the Economy – Dr. Sarah Alade – that has vast experience in monetary and fiscal policy and will be a permanent interface between the PEAC and the Ministry of Finance, Budget and National Planning.
In the Ministry, an economic delivery unit (EDU) will be set up to implement the recommendations of the PEAC and other recommendations that EDU identify to help grow and sustain the economy, according her.Should Nigerians prepare for an increase in VAT rate beyond 7.5 percent in the near future and how soon?
This is another question to which Mrs. Ahmed addressed. “We are trying to move away from having static tax laws. This means that we will be observing our economic performance, global competitiveness, the economic and fiscal situation, enabling business environment and on an annual basis develop a finance bill that will accompany the budget. But for now, there are no plans to increase in view,” she said.
Whether there are plans to reduce corporate income tax (CIT) rate across board as contained in the National Tax Policy (NTP) and also make Nigeria internationally competitive given that most countries have lower interest rates, Mrs. Ahmed said: “The Nigerian tax laws are progressive while ensuring a competitive and enabling business environment.
“For now, there are no plans to make universal reductions but for the MSME sector.”
Of course, Nigeria’s debt burden is rising, especially debt servicing cost. But whether Nigeria has a debt crisis, revenue crisis, or both and how the challenges could be addressed did not escape the Honourable Minister’s response. According to her, the growing Finance and the budget deficits increased by deliberate government policy (as stated in the Economic Recovery and Growth Plan).
“We do not have a debt problem but a revenue problem. The public debt to Gross Domestic Product (GDP) ratio as at June 30, 2019 was 18.99 percent. Our debt service to revenue for 2015, 2016, 2017 and 2018 were 38 percent, 59 percent, 57 percent and 51 percent, respectively. However, this is being addressed through the implementation of the debt management strategy, and the various reforms and initiatives, which are aimed at shoring up government’s revenues. These include improving on non-oil revenue, through the strategic revenue growth initiative and the revenue performance targets for government owned enterprises (GOEs).”
The relatively high ratios of debt service to revenues are due to the growing debt stock, high domestic interest rates and low Federal Government revenues. This, shed noted, is within the World Bank/IMF limit of 55 percent for countries in Nigeria’s peer group, as well as the West African Monetary Zone (WAMZ) Convergence Threshold of 70 percent. The borrowing, in her views, is to augment for the revenue shortfall needed to invest in infrastructure for job creation and economic growth; Continue with the initiatives and reforms aimed at increasing revenue which are expected to improve debt sustainability, reduce the debt service to revenue ratio and, over time, reduce the government’s borrowing needs, and continue with project-tied borrowing that is visibly linked to infrastructure projects. “We are also rebalancing our debt as follows: 60:40 domestic: foreign ratio; 75:25 long-term: short-term domestic debt; 10 years average tenor of portfolio.