Amaechi Ogbonna and Juliana Taiwo Obalonye Washington DC
Nigeria’s Finance Minister, and head of the nation’s delegation to the 2019 annual meetings of the International Monetary Fund(IMF) and World Bank, Mrs Zainab Ahmed, in this interaction with journalists on the sidelines at the ongoing IMF/World Bank Annual Meetings in Washington DC, spoke on Federal Government’s new revenue streams and what is being done to improve collections from its agencies .
She also gave reasons why Nigeria’s borders with neighboring countries were closed and government’s plan towards the newly signed African Continental Free Trade Agreement (AfCFTA) among other issues.
Excepts:
Purpose of attending the IMF/World Bank Annual Meetings in Washington DC
Let me start by saying the meetings of the World Bank and the IMF is to discuss global issues that affects us all. We have a session called early warning session where threats to global economy prices are discussed in a manner that is dispassionate and together we try to find solutions. Nigeria leads the IMF C group where, we represent the 33 African countries and also other African countries in that meeting.
And what we try to do is to put those issues of the African continent on the global agenda.
On the side of the World Bank, there is a development control meeting, where African countries are represented and currently South Africa leads that. We change our positions every two years but this time South Africa is unable to attend and so Nigeria is representing the African countries on the global committees.
Specifically, we have some special discussions that will ensue, three of them that are important to us in Nigeria are one, Governors corner meeting where I will be discussing on domestic revenue mobilisation, there will be other select finance Ministers from other countries. There is also a debt transparency panel that is being chaired by the World Bank President where I will also be speaking as a panelist. There is also human capital development and jobs creation panel where I will also be participating.
What we hope to achieve as a country is to be able to directly interface with the heads of these Brentwood institutions and other multilateral institutions like the Islamic Development Bank and several other agencies including credit agencies, to discuss issues that affect Nigeria, the challenges that we have, what they have in terms of resources both funds as well as skills that we can harness to support it.
$2.5 billion facility from the World Bank
There is a proposed $1.5 to $3 billion facility for the power sector development programme in Nigeria which will include the development of the transmission and distribution networks as well as removing the challenges that we have now within the electricity sector.
So, we are going to have a full meeting to discuss the power sector recovery Programme. Back home, we have been working a great deal with the World Bank to design how this programme will be implemented. So we have opportunity now to have a direct meeting with both leadership of the bank to tell them the plans that we have and how much we would be needing in one to five years. So the funding could be as much as $3 billion and we are going to push for it to be provided in phases. Phase one will be $1.5 billion and phase two will be another $1.5 billion.
How government intends to achieve target of raising enough tax with slow pace of economic growth
Budget of countries are supposed to be based on taxes that the country is able to generate. It is an anomaly for us in Nigeria that our budget has not been focusing on revenues. What we are trying to do in the 2020 budget is to harness the full potential of revenue mobilization within our country. The only increase in taxes in the 2020 budget is just VAT. Everything else is just maximizing the potential of existing tax range that we have. And we hope that we will be able to do this in order to move our tax to GDP ratio from the current 7 to 8 per cent of GDP to 15 percent. We can only develop in a manner that is sustainable when we are using our tax revenues to fund our national and sub-national budget.
It is an anomaly that we are depending largely on oil and gas revenue which is a resource that is finite. It is going to go out of existence before you know it. So we have to develop the domestic taxes. The main focus will be on expanding the tax base, ensuring enforcement of the existing laws and then blocking leakages.
Decision to raise VAT to 7.5 per cent
We have sent the Finance Bill to the National Assembly. The bill has several proposals and one of them is the increase of VAT from 5 per cent to 7.5 per cent. We believe that the National Assembly will do justice to this bill. Our hope is that the bill will be passed within the same period that the budget will be passed because it will enhance our capacity to be able to fund the 2020 budget.
IMF advice on increased non-oil sector revenue in 2020
Recall that in January this year , we launched the Strategic Revenue Growth Initiative (SRGI), which was put together by all of the revenue generating agencies in the country led by the Ministry of Finance. Our objective is to be able to harness the existing streams that we have and ensuring that enforcement is effective to expand the tax base and also to identify new revenue streams that we can add to expand the revenue base.
So, in expanding the revenue bases we have proposed, we increased VAT and other revenue streams that we are looking at. And some of them include introduction of excise duties on carbonated drinks. But there is a process to doing these things. Any tax that you are introducing will involve a lot of consultations and also amendments of some laws or introduction of new regulations. We are also working together with all the agencies to ensure that collaboration are strengthened and that the work of the agencies are complementing each other as opposed to the past where everybody is working in silos. We also decided how we can improve the monitoring performance of the revenue generating agencies, especially the government owned enterprise.
We have now in place a rigorous monthly reconciliation of revenues and that is ensuring that the leakages are minimized. There are several cost cutting measures in the SRGI and a number of cost cutting measures initiatives such as innovation and automation as well as capacity building for our people.
Border closure and government revenue expectations
No. We needed to close the borders because we are not getting cooperation from our neigbouring countries. We have over the years committed to some alliances which included bilateral agreements but our neigbours are not respecting those bilateral agreements and at this time when the President has signed Nigeria up to the African Continental Free Trade Agreement (AfCFTA), it becomes more important for us to make sure that everybody compiles with the commitments that are made.
The practice that our neigbours are engaged in are hurting our economy, and local businesses and we have to make sure that, that stops. That is the purpose for the closure of the border and not about generating revenue. That revenues are generated is the consequence but that is not the objective. It is just to ensure compliance of the commitments that we made between ourselves and our neigbouring countries.
Timeline to reopen the borders as it is hurting genuine businesses
The timeline will be when the neigbouring countries commit to comply with the commitments that we signed. We hope that at some point there will be discussions at the level of Presidents where we will extract some commitments from our neigbours.
Efforts to restructure Nigeria’s rising debts
Again, Nigeria does not have a debt problem. What we have is a revenue problem. Our revenue to GDP is still one of the lowest amongst countries that are comparable to us at less than 20 per cent.
That is about 19 per cent of GDP. What the World Bank and IMF recommend is up to about 50 percent of GDP for debts of countries our size and we are not there. So the problem we have is a revenue problem.
The performance of revenue is causing significant strain in our ability to service debts and to service government’s day to day recurrent expenditures. That is why all the work we are doing in the Ministry of Finance and other Ministries are concentrated on driving the increase in revenues.
Inflation rising again
That is an excellent question. 11.2 per cent is not a high inflation rate. Remember that in January 2017, inflation rate was 18 percent. And whenever there is any shock within the economy like the border closure, the market reacts and so you have inflation but it will moderate and it will stabilize within a short period of time.
How to attain 2020 revenue targets
You see, the fact that our revenue is under performing is not an excuse to bring down the revenue that is required to fund the national budget. In 2018, the revenue performed at the rate of 55 percent, half year 2019, the performance moved up slightly to 58 percent. But that is not an excuse for you to reduce the revenue because it means we are all sanctioning under performance. We have to push the agencies, we have to push ourselves to be able to meet those targets. Those targets are not designed by the Ministry of Finance, Budget and National Planning. The agencies actually proposed those targets and we sit down with them, we meet with them and we interrogated them. For example, NNPC has a production capacity of 2.5 million barrels per day. In 2019, they wanted a target of 2.5 million barrels per day but we insisted to be prudent. We scaled it down to 2.3 barrels per day. And the performance is 1.98 million barrels per day including 100,000 barrels per day that is used to settle cash calls arrears. But the capacity is there, so why should we not be looking at what we have to do to make sure that the capacity utilization is attained? Why do we want to reduce it because we are under performing? We are lucky that crude oil price in 2018 outperformed the budget because we budgeted $60 per barrel and we ended up with an average of about $67 per barrel. Otherwise if we had poor oil price, the 55 per cent performance wouldn’t have been achieved.
So what we have to do collectively as a people is to make sure that the agencies that have the responsibility to generate revenues actually generate those revenues. We don’t create these revenues numbers, the agencies proposed them to us, we interrogate the numbers, we ask them to justify them and if we want to be prudent, we discount the figures before it goes into the national budget.
Achieving better resource utilization in 2020
We agree with the IMF that we need to look at how to improve governance not just in NNPC or government owned enterprises but across all of government. Because, poor governance results in underperformance whether it is revenue or other operational performance indicators. What we have done is that we have introduced new measures to enhance our monitoring of the revenue generating agencies. We have also introduced monthly reconciliation exercises where all the agencies bring their data and we reconcile them. We have seen gaps that use to exist gradually closing. What we have to do is to continue to push the bar to ensure that revenue performance is enhanced.
As Mr. President has said that targets will be set for Ministers as well as heads of agencies and that when targets are met, there will be recommendations and when they are not met, there will be consequences.
So, what was missing in the past was that there were no consequences. So if an agency underperformed, there are no consequences for doing do. But now, there will be consequences and we will be pushing to make sure that we provide all the support that the agencies will require to enable them perform.