The Federal Government of Nigeria is bent on ensuring that the Draft Finance Bill, which accompanied the 2020 executive budget proposal submitted by President Muhammadu Buhari to the National Assembly on October 8, 2019, complement existing Securities and Exchange Commission (SEC) regulations for securities lending transactions on the Nigerian Stock Exchange (NSE).
The Bill which includes five strategic objectives is aimed at achieving incremental but necessary changes to the country’s tax and fiscal laws. Among the strategic objectives are, according to Zainab Ahmed, Honourable Minister of Finance, Budget and National Planning, who gave a Keynote Remarks at the recently held BusinessDay Investment and Capital market Conference: ‘Market Recovery, Innovation and Regulation in Nigeria’ in Abuja, the introduction of tax incentives for investments in infrastructure and capital markets, and also the tax rules to complement existing sec regulations for securities lending transactions on the NSE.
Shedding some light on the tax laws, she disclosed: “On tax laws, we reconstituted the National Tax Policy Implementation Committee (NTPIC) to review various tax laws and produce a single draft Finance Bill 2019 to support FGN’s 2020 budget.
“This strategic objective recognises the crucial relationship between fiscal policy, the regulatory environment and the strong capital market we all seek to ensure in Nigeria. We plan that, going forward, the annual budget will always be accompanied by finance bills to enable the realisation of revenue projections. Future finance bills will therefore also provide us with additional opportunities to incrementally improve the fiscal policy and regulatory/legal environment in order to further strengthen our domestic capital market, and ultimately ensure sustained and inclusive growth and development,” she stated.
Highlighting the priorities and economic agenda of the Ministry, Ahmed said: “Integral to achieving our collective goals under the 11 priority areas is the need for a significant push towards mobilising domestic revenues, increased coordination and alignment of fiscal, macroeconomic, monetary, and trade policies, and the prudent management of emerging fiscal risks. She noted how it is well established that the above factors are important as Nigeria looks to strengthen, further enable, and to ensure continued innovation in the domestic capital market.
On the five priorities areas of the Ministry, Ahmed expressed Government’s position focusing on enhancing revenue generation, collection and monitoring particularly through (a) continued implementation of the strategic revenue growth initiatives (SRGI); (b) the ongoing reconciliation and monitoring of revenues by the Presidential Revenue Monitoring and Reconciliation Committee; (c) the review of current tax laws and development targeted at fiscal policy reforms to coincide with the annual budget cycle; and (d) the deployment of innovative information communication technology (ICT) solutions such as the Ministry’s ‘Project Lighthouse’ aimed at leveraging and mining big data to enhance revenue tracking for informed decision-making.
Accelerating fiscal consolidation by optimising priority capital and recurrent expenditure is another leg of the priorities. In particular, social inclusion has been prioritised through the $500billion social investment programme, which has been implemented in the last four annual budgets and will be continued under the 2020 budget. “Additionally, we continue prioritising human capital investments, with spending in the health and education sectors being optimised at both the federal and subnational levels. We are also increasing investments in critical infrastructure, in part through the implementation of crucial initiatives such as the road infrastructure tax credit scheme and the family homes fund.”
Optimising management of both domestic and global fiscal risks has also made part of the priorities for which she said: “We are implementing a debt management strategy aimed at achieving an optimal debt balance, through (a) the increase of oil and non-oil revenues, (b) the continued use of diversified borrowing instruments, including Sukuk and green bonds, (c) a continued focus on concessional loans and lower cost external debt. Such reforms will ensure that our borrowing remains fiscally sustainable.”
Apart from talking about increased coordination of fiscal, macroeconomic, monetary and trade policies, she also considered integrating annual budgets and medium-term fiscal strategies into rolling medium and long-term national plans on which she stated that with discussions between the Executive and the National Assembly currently ongoing regarding the 2020 budget proposal, Nigeria is well on its way to ensuring a stable January to December budget cycle. “An important next step will be to transition our 2017-2020 economic recovery and growth plan to a successive long-term vision 2040 plan. To this end, I am currently working with the Honourable Minister of State Budget and National Planning to prepare a medium-term economic growth acceleration plan for 2021-2024 as a successor to the Economic recovery growth plan (ERGP)”.
Aside from talking at the Nigeria’s use of innovative debt instruments, on which she posited that the country is also innovating in the use of debt instruments, including Sukuk bonds, and Green Bonds, she also noted that Nigeria issued Sukuk bonds in 2017 and 2018 to finance critical road infrastructure projects. Specifically, “in September 2017, government issued a Sukuk bond of N100 billion, with proceeds to fund 25 road projects by Federal Ministry of Power, works and Housing (FMPWH) across six geo-political zones, and in December 2018, a 7-year Sukuk bond of N100bn was issued, with proceeds to fund 28 road projects across six geo-political zones. The offer attracted significant interest from a wide range of retail and institutional investors with a total subscription of N132.20 billion, which represents a subscription rate of 132.2 percent.”
In December 2017, Nigeria became the third country in the world and the first emerging market sovereign to issue a Sovereign Green bond (N10.69 billion) for the financing of solar powered lighting for security on university campuses across the country, as well as solar powered electricity for small households. A second sovereign green bond was issued in June 2019, in the amount of N15 billion. The total value of subscriptions received was N32.93 billion, representing 220 % of the N15 billion offered.
The green bonds issued thus far “have been used to provide off-grid renewable energy in seven federal universities in different geopolitical zones of the country, and to generate and distribute off-grid renewable energy resource in underserved and rural communities. This has resulted in emission reductions of up to 41,888.04 metric tons in the last two years, creating green jobs and planting trees in over 2,000 hectares of land across Nigeria. In 2020, we plan to issue a third green bond, with which we intend to triple Nigeria’s greenhouse gas (GHG) emission reductions, stimulate economic growth and drive investment in social programmes such as education and health.”
The government is currently exploring the use of so-called ‘jollof bonds’ to fund infrastructure. To this end, during the recently concluded 2019 annual meetings of the International Monetary Fund (IMF) and World Bank, “we met with United Kingdom (UK) authorities to advance discussions regarding their commitment to support our infrastructure financing through the possible issuance of jollof bonds. Already, a working group is being set up to work on Naira denominated, internationally traded bonds. The Central Bank of Nigeria (CBN) is leading this effort. We will explore all options on this at the next UK investment summit in January 2020.
