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Friday, January 21, 2022

Zainab Ahmed’s Economic Policy Actions In The First Year

The policy execution drive of Mrs. Zainab Ahmed, Honourable Minister of Finance, Budget and National Planning, has within this one year into the second tenure of Buhari -led administration, just as it has over the years, consistently helped to take the economy through the frightening months of COVID-19, and also looked to set it on a path to steady growth. But for the impact of the pandemic, perhaps this period ought to be a good time to review Ahmed’s economic policy execution drive.

The budget process, for example, was completed within a period of two months and successfully reversed the budgetary cycle to Jan. – Dec. 54.9 percent overall revenue outturn was achieved (66 percent for oil, 31 percent for non-oil) as at Q2’2020. Also achieved was 90.4 percent recurrent expenditure, 86.9 percent debt service, 31 percent capital expenditure) as at Q2’2020. The increase in minimum wage was funded, and there was continued monthly reconciliation and revenue performance monitoring by Presidential Revenue Monitoring and Reconciliation Committee (PRMRC).

The successor mid-term and long-term plans (the Medium-Term National Development Plan (MTNDP) 2021-2025 and the Long -Term Plan Agenda 2050) that succeeded vision 2020 and the ERGP had commenced respectively. The development of the macro economic framework for the proposed Medium-Term Plan as well as the Perspective Plan had also commenced. The 2020-2023 MTEF which has been passed by the NASS was prepared.  The monitoring and evaluation (M&E) mechanisms was institutionalised by finalising matrix and targets to each ministerial key performance indicators (KPIs). The key MDAs have established performance matrix to track and measure the presidential deliverables (2019 – 2023) to ensure improved service delivery. To enhance the quality of data, this administration has approved the establishment of a Geo-Reference Infrastructure and Demographic Data for Development (GRID3). This is aimed at providing high resolution data for sustainable planning.

This administration has achieved the passage of the Finance Act 2019 at a record time before the 2020 budget, and a return of the Budget cycle to January – December.  According to the Honourable Minister, “Through the Finance Act, we have achieved the following: Value added tax (VAT) rate increase from 5 percent to 7.5 percent, which was implemented in Feb. 2020; introduction of a N25million threshold for small and medium enterprises (SMEs) for eligibility for VAT collection; reduced of tax rates for SMEs (0 percent and 20 percent respectively); administering of the Finance Act 2019; automation of import duty exemption certificate (IDEC) and vehicle registration (V-REG); and automation of the collection of stamp duty.

The government has provided N802.82 billion as new domestic borrowing to part-finance the deficit in the 2019 Appropriation Act. The funds were mainly deployed to capital projects like roads, bridges etc. As part of the economic development plan of the government, N100 billion sukuk bonds was raised in 2018 and provided N1,319,986 billion, out of the total borrowing of N1,564 billion in the 2020 Appropriation Act, to part-finance the budget deficit.

For COVID-19 Response and fiscal stimulus, the federal government provided debt relief to states to relieve them of debt service obligations for 2020, developed a N2.2 trillion economic stimulus plan to help cushion the effects of COVID-19, provided N500 billion for COVID-19 Crisis Intervention Fund; N263.63 billion of which will be drawn from federal government special accounts, N186.37 billion from Federation Special Accounts and the balance of N50 billion is expected as grants and donations, reviewed 2020 Budget based on the current realities (oil price shock and COVID-19 pandemic) as well as funded the Presidential Task Force on COVID-19 response, mobilised funding from domestic and external sources for the implementation of 2020 budget (Raised domestic revenue for the budget deficit but as a result of weakness of the foreign market, and converted foreign borrowing to local currency in other to cushion the effect of the oil price shock and COVID-19 pandemic).

On Sunday July 5, 2020, the Nigerian Content Development and Monitoring Board (NCDMB) issued a press statement announcing an additional $150 million for its Nigerian Content Intervention Fund (NCIF), which it launched in 2017 with $200 million, under the management of the Bank of Industry. $50million of the new $150million is going into a new Fund being set up to support specifically for Women in Oil and Gas.

The National Sovereign Investment Agency (NSIA) invested over US$22.5million in the development, construction and operationalisation of three tertiary healthcare facilities in Lagos, Kano and Abia States. Combined, the three centres are to provide training for over 200 healthcare professionals and facilitate the delivery of high quality, affordable and accessible healthcare services to Nigerians. The centres are meant to save an estimated US$1billion in foreign exchange that Nigerian’s expend on medical tourism annually.

The government provided palliatives to taxpayers in addition to other palliatives contained in the Finance Act, 2019, which will help stimulate the economy post-COVID. Some of these include: Late returns penalty (LRP) was waived for taxpayers who pay early and file later; allowing supporting documents to be emailed to the dedicated email addresses or submitted later to the tax offices by those who are not able to use the email facility; remittance of VAT on or before 21st of every month was extended to the last day of the month; and taxpayers facing challenges in sourcing for forex to offset their tax liabilities were given the option of paying in Naira at the prevailing investors and exporters (I and E) forex window rate on the day of payment.

Oil revenues have been highly affected by the twin shock events, i.e. crash in oil prices and dampened economic activities and consumption from the COVID-19 pandemic which have adversely affected non-oil taxes. As at March 2020, oil revenue performance was at 70 percent while non-oil performance stood at 60 percent. The erratic oil market makes prediction difficult, heightening the vulnerabilities around oil revenues.

The government relaunched the strategic revenue growth initiative (SRGI) with MDAs (portfolio owners) charged with responsibility of establishing Project Implementation Units (PIUs), and completed the opportunity sizing of incremental revenue with clear identification of potential revenue expected of each source.

However, a deep dive into oil revenue streams show some good results from reforms (VAT and Stamp duty), which include: Achieving 54.9 percent overall revenue outturn (66 percent oil, 31 percent non-oil Q2,2020); the stamp duty which increased by 40 percent from N3,386,648,663.85 in Q1, 2019 to N4,750,893,578.48 in Q1, 2020; and VAT also increased by 27 percent at the customs level and 13 percent at the non-import level.

The federal government reviewed tax expenditures and exemptions by reducing sectors eligible for pioneer status incentives under the industrial development income tax relief Act (‘IDITRA’), as well as auto policy incentives and import duty exemptions. It restructured Social Investment Programme (SIP) by: Suspending further intakes into the N-Power scheme of the SIP for a period; transitioning youths currently under N-Power into CBN’s Anchor Borrowers’ programme; and conducting a review of the SIP to implement measures to increase efficiency.

The government has worked with the international community of donors, nations, multilateral organisations, etc. to raise concessionary resources for the nation, including COVID-19 response. In the light of this, it signed a total of $2,534,880,717.6 as follows: African Development Bank (AfDB) – $278,093,093; IFAD – $89,100,000; World Bank IDA – $1,573,248,600; AFD – $201,911,909,23; and China-Exim Bank – $392,526,218.37.

In the petroleum sector, the government implemented the price modulation mechanism, which removes one of Nigeria’s major fiscal strain; embark on reduction of approved N457.50 billion petroleum motor spirit (PMS) under-recovery to Zero, following the transition to the PMS price modulation process to be driven by underlying international oil and gas prices in the global markets; and provided the sovereign guarantee for Ajaokuta-Kaduna-Kano (AKK) pipeline, which will drive industrialisation across the country. Between December, 2018 and May, 2020, a total of N1,138.785 billion had been paid to oil marketing companies, exporters and contractors, through the issuance of promissory notes to stabilise the sector and settle the inherited obligations of previous administrations.

The government in the power sector completed negotiations with the World Bank on power sector reform program for result financing (awaiting board approval), with the program meant to stabilise the power sector and eliminate fiscal risks from the tariff shortfall. It successfully established a 99 percent owned special purpose vehicle (SPV) by the Ministry of Finance, Budget and National Planning for the Solar Homes Systems (SHS), including a consumer financing plan that will boost access to energy and will in turn stimulate economic growth. It commenced least cost dispatch of power, which will optimise tariffs amidst improved supply to consumers.

Presidential Fertilizer Initiative (PFI) program has focused on the delivery of commercially significant quantities of affordable and high-quality fertilizer to Nigerian farmers. Since its commencement in December 2016, about 22 million bags of fertilizer have been delivered at a unit price of N5,500 per bag, compared to pre-PFI market price of about N12,000 per bag. The blending industry has been revived, with a total of 31 blending plants now participating in the PFI, creating a significant number of direct and indirect jobs across the value chain.

The government created the Presidential Infrastructure Development Fund (PIDF) which is being managed by NSIA for the development of four roads and one critical power infrastructure projects namely: Lagos-Ibadan Expressway, Second Niger Bridge Project, Abuja-Kano Road, Mambila Hydro-Power Project, and East West Road. The projects, worth over N2.5 trillion, will stimulate economic activities across the country especially in the areas the infrastructures are situated.

The recently repatriated fund of US$311 million from the United States (US) will be invested directly in three PIDF projects to accelerate completion.

On infrastructure financing, the government provided N802.82 billion as new domestic borrowing to part-finance the deficit in the 2019 Appropriation Act, which were mainly deployed to capital projects, ranging from roads, bridges, etc. It deployed the bulk of the proceeds of the N100 billion Sukuk raised in 2018 towards the rehabilitation and repairs of 28 road projects across the six geopolitical zones of the country. Considering road infrastructure development and Refurbishment Investment Tax Credit Scheme (RITCS), the federal government developed the RITCS which was signed via an Executive Order no7 by Mr. President to utilise tax expenditures, refundable by way of tax credits, to finance the construction of critical roads infrastructure through a public private partnership (PPP) mechanism. Under this scheme, the pilot is being led by the following: Dangote Industries Ltd; Lafarge Africa Plc; and Unilever Nigeria Plc. The investors are meant to invest in 19 eligible road projects, totalling 794.4km which have been prioritised in 11 States across each of the six geo-political zones.

Regarding Nigeria Integrated Infrastructure Master Plan (NIIMP), the government has revised the 2015 NIMP and is coordinating the different stakeholders involved (CBN, NBS, BNP (MFBNP)) to address the impediments to the assumptions and models.

The government has ensured the expansion of integrated personnel payment information system (IPPIS) to cover the para-military, armed forces as well as federal universities and other academic institutions. It has deployed Bank Verification Number (BVN) system to serve as the verification mechanism for all payment of salaries through the system. This has considerably led to detection of fraudulent names in the payroll.

As at May 2018, the Treasury Single Account (TSA) system had been implemented in about 92 percent of MDAs, which has improved transparency and accountability in the management of all federal government receipts by providing a consolidated view of Government’s cash flow. The MDAs bank accounts that had been scattered in over 20,000 bank accounts is now consolidated in the TSA at CBN which has ensured an average savings of N4billion on monthly basis of bank charges.

***On the public finance management (PFM) automation, the government deployed GIFMIS to produce online and real-time reports on budget preparation, budget execution, accounting and reporting of financial transactions in the MDAs, it also introduced e-auction to boost the integrity of Customs auction processes. The government deployed asset tracking and management to ensure that all federal government assets are easy to identify, locate, access and evaluate all its moveable and immoveable assets on real-time basis, and automated the IDEC and V-REG processes which will reduce process turn-around time from 60 days to 11 days.

Government launched the Open Treasury Portal (OTP) in January 2020, and the OTP has enhanced transparency through the daily publication of receipts and payments of amounts in excess of N5 million transactions in the MDAs. The daily payment reports indicate the beneficiary, purpose of payment and the amount above the N5 million threshold.

In an effort to execute all this, there are lessons learnt such as the need for fiscal buffers (provision for rainy days) for future shocks, high risks of oil revenue dependent budgets, exposure of the magnitude of abuses and smuggling activities from the unplanned increase in Customs revenues, urgent need for infrastructure upgrade for revenue generating agencies, loss of revenue and worsen internal security situation, and poor regulatory skills among headquarters staff.

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Yunusa Tanko Abdullahi
S.A Media and Communications to the Honourable Minister of Finance, Budget and National Planning


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