Thursday, 7 January 2016

IMF boss Lagarde's 3-R charge to Nigerian leaders.

Nigeria may have almost been brought to its knees by the dwindling oil prices and threats to other sources of revenue. For the country to overcome these challenges, the Federal Government may need to heed the advice of the Managing Director of the International Monetary Fund (IMF), Christine Lagarde.

Lagarde yesterday asked the Federal Government to take very tough economic decisions, including removal of fuel subsidy and increasing Value Added Tax (VAT). She also urged a more serious effort to check corruption as well as again cautioned against borrowing.

In her address during a meeting with the Senate leadership, the IMF boss tasked the nation’s leaders to demonstrate what she called the three Rs, “Resolve, Resilience and Restraint,‎” in order to conquer the challenges ahead.

Lagarde gave a pass mark to Nigeria’s banking sector, describing it as strong and reliable but warned that stringent measures needed to be put in place to re-position the economy.

Stressing the need to remove fuel subsidy, ‎Lagarde said: “The move by the government to remove the fuel subsidy is good. Those people who need the subsidy can receive cash transfer. Fuel subsidies are hard to defend. Subsidies are no longer good. But I hear that it will hurt the poor. Forty per cent of fuel subsidies in rich countries go to rich families. The people do not really need the subsidy. Look at the number of people who stay at stations trying to buy fuel.”

She canvassed increased efforts to generate revenue through taxation, pointing out that Nigeria’s VAT was one of the lowest in the world.

She said: ‎”The new reality of low oil prices and low oil revenues means that the fiscal challenge facing government is no longer about how to divide the proceeds of Nigeria’s oil wealth, but what needs to be done so that Nigeria can deliver to its people the public services they deserve in education, health or infrastructure. This means that hard decisions will need to be taken on revenue, expenditure, debt, and investment going forward. My policy refrain is this: ‎By stepping up revenue mobilisation. The first step is to broaden the tax base and reduce leakages by improving compliance and enhancing collection efficiency.

“At the same time, public finances can be bolstered further to meet the huge expenditure needs. For example, the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS member-countries, so some increase should be considered.‎”

Pointing out the dangers in increasing the country’s debt profile, Lagarde lamented that the nation’s debt was already producing serious economic effects on the nation’s treasury.

“Nigeria’s debt is relatively low at about 12 per cent of GDP, but it weighs heavily on the public purse. Already, about 35 kobo of every naira collected by the Federal Government is used to service outstanding public debt.”

Urging serious restraint on spending scarce revenue, the IMF chief said that could be done “by focusing on the quality and efficiency of every naira spent. This is critically important. As more people pay taxes there will, rightly, be increasing pressure to demonstrate that those tax payments are producing improvements in public service delivery.

‘‘Let me give you examples of what I mean: On capital expenditure, the focus must be on power, integrated transport roads, rail, air, and ports- and housing while for recurrent expenditure, efforts should be made to streamline the cost of government and improve efficiency of public service delivery across the federal and sub-national governments. Transfers and tax expenditures should also be addressed. For example, continuing the move already begun by the government in the 2016 budget to eliminate resources allocated to fuel subsidies would allow more targeted spending, including on innovative social programmes for the most needy.”

According to her, times are really going to be tough in terms of development as “there is a small acceleration expected in 2016. Growth in the last 10 years has slowed down in Sub-Saharan African countries. Oil prices will remain low for a long time. Oil-producing countries must factor this in and model their economic policies towards this direction. Nigeria is facing mounting pressure. There will continue to be abundant supply of oil, but low demand. It is very unlikely that we will see any rise anytime soon.”

Lagarde harped on the effect of the Boko Haram attacks on Nigeria saying: “Private sector investments will be affected. Interest rate will continue to rise. Sub-Saharan African countries are facing immense pressure as a result of this. I can feel the hardship and pains as a result of activities of Boko Haram. The resources spent in trying to fight insurgency are supposed to be spent on infrastructure. Whatever happens in Nigeria will affect our neighbours because of the trading relationship.”

On how to address the challenges that would arise, the IMF chief told the lawmakers: “There must be a fundamental change in the way government operates. It is not about how to divide proceeds from oil wealth. It is about how to deliver to Nigerians the basic services they deserve. Hard decisions must be made. As the National Assembly considers the 2016 budget, these are the issues they should consider.”

She advised the government to adopt a flexible monetary policy that would better serve the interest of Nigerians. On the need to build regional cooperation among West African countries, the IMF boss noted that whatever affects Nigeria directly or indirectly affects other countries within the sub region.

“This is always a moment I cherish. My first visit to Nigeria was in late 2011. At that time, Nigeria was emerging from the global economic crisis. Nigeria is the prime destination in Africa. Nigeria has gone through democratic transition which is a good thing. When investors know that transitions can happen successfully, they have more confidence.

“The richness of Nigeria has to do with the population. Nigeria is a huge market and people who are prepared to put their money here looks at the population. Oil prices have fallen sharply. The geopolitical tensions have increased. These things are happening at a time the country needed to lift the standard of living of Nigerians. Nigerians are known for their courage and doggedness. Nigeria cannot waste time. There is no time at all.”

On the need to increase the tempo of the war against corruption, Lagarde asked the National Assembly to come up with laws to better tackle the problems of graft.

“Corruption not only corrodes public trust, but it also destroys confidence and diminishes the potential for strong economic growth. At the global level, it is estimated that the cost of corruption is equivalent to more than 5 percent of world GDP1, with over US$ 1 trillion paid in bribes each year.

“Here in Nigeria, important initiatives to discourage graft are underway and should be applauded. Much more can—and needs to be—done. Fighting corruption is a multi-year, multi-generational struggle that must be won.”‎

The IMF boss also enumerated steps to be taken by the Nigerian government‎ to achieve inclusive and sustainable growth‎ even as she acknowledged that “Nigeria is already, in many ways, a 21st-century economy.”

She reflected on “the boom in mobile communications in a country where more than 140 million cell phones are in use, nearly one for each Nigerian; the vibrant, home-grown Nollywood film industry that has become the world’s second-largest and employs about one million people who create films that are winning audiences across the continent and beyond as well as the growing number of innovative startups—from fashion to software development—that are promoting Brand Nigeria.

“Indeed, the growth in services to about half of Nigeria’s output is a testament to the transformation that has begun, and which needs to continue.”

She recommended investment in quality infrastructure, a more efficient banking sector and improved governance. “For example, Nigeria could be exporting tomato paste—a staple of Nigerian cuisine—on a large scale, but it imports about half of what it needs. This is why Nigeria needs to build more roads and better rail networks, so that more farmers can bring their crops to market.

“Likewise, more investment is needed in energy infrastructure in a country where too many businesses and households regard their backup generators as their main power source.

“The second priority is to build resilience by fostering a sound banking system. This will help channel more savings into productive investments, especially in quality infrastructure.

“To be sure, Nigeria’s banks are generally well-capitalised and more resilient than during the downturn of 2008-09. But they are beginning to feel the impact of the growing vulnerabilities in the corporate sector. This means rising non-performing loans, which will need to be carefully monitored and managed.‎”

In his remarks, the Senate President, Dr. Bukola Saraki, told the IMF boss that the National Assembly was willing to partner the global financial body to come up with policies that would benefit Nigeria and Nigerians.

Speaking to journalists shortly after a brief meeting with the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele and the Banker’s Committee in Abuja, Lagarde called on the financial authorities to channel more resources to grow the real sector as well as the Small and Medium Scale Enterprises (SMEs).

Lagarde disclosed that the IMF had fruitful discussions with representatives of the banking industry with a resolve to work together in sustaining the sector, make it more viable and capable of meeting the years of the people.

“This morning I have been with the CBN governor, I have also been having a series of meeting with the representatives of the banking industry and we have assured ourselves of a strategic defence on how to sustain the banking sector. We also have discussed how the financial sector can help contribute in financing the economy and support small and medium scale business and the development of Nigeria” she stated.

The IMF managing director also disclosed that discussions were held on how the bureau de change market could better be improved for greater productivity and service to the nation. Responding, Emefiele commended the IMF boss for visiting Nigeria and the apex bank, adding that at the meeting, the CBN and the IMF had very fruitful discussion on how best to support the real sector and SMEs in the country.

“Indeed, the banks themselves have promised to do better in this regard, notwithstanding some of the challenges we are presently facing” he remarked.

Also, the IMF has donated $750,000 (N1.5m) to ‘’Mother Theresa Children Home’’ situated in the Gwarippa area of Abuja. The orphanage with over 250 pupils from across the country offers various forms of assistance to vulnerable children in the areas of feeding, caring and education and was established over five years ago.

Speaking during the visit to the orphanage, the IMF boss said she was deeply touched by the assistance being rendered to the less-privileged children in the society by the founders. She called on the Nigerian government to invest more in the youths.

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