ABUJA – About thirty-five kobo of every naira collected by the federal government is used to service outstanding public debt.
Making the assertion yesterday in an interface with Senate President Bukola Saraki and other principal officers, visiting Managing Director of the International Monetary Fund, Christine Lagarde also noted that Nigeria’s debt currently at about 12 percent of Gross Domestic Product (GDP) weighs heavily on the public purse.
“Already, lower oil prices have sharply reduced Nigeria’s export earnings and government revenues; both are likely to remain at depressed levels, reducing the space for policy interventions to address Nigeria’s social and infrastructure needs”, she observed.
The visitor further noted that the new reality of low oil prices and low oil revenues meant that the fiscal challenge facing government was no longer about how to divide the proceeds of Nigeria’s oil wealth, but what needs to be done, so that, the government can deliver to the citizens, the public services they deserve, be it in education, health or infrastructure.
“This means that hard decisions will need to be taken on revenue, expenditure, debt, and investment going forward”, he continued, and urged the National Assembly to do away with subsidies on petroleum products to allow for more targeted spending and innovative social programs for the most needy.
The IMF chief who is on a 4-day working visit to Nigeria also urged the federal government to act with resolve by stepping up revenue mobilization, build resilience by making careful decisions on borrowing and exercise restraint by focusing on the quality and efficiency of every naira spent.
“On capital expenditure, the focus must be on high-impact and high value-added projects. This is why the government is focusing on power, integrated transport (roads, rail, air, and ports), and housing. These can help connect centers of activity across the country and drive growth prospects.
On 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”, Lagarde suggested.
She asserted that fuel subsidies are hard to defend, stressing, “not only do they harm the planet, but they rarely help the poor”
According to Ms Lagarde “IMF research shows that more than 40 per cent of fuel price subsidies in developing countries accrue to the richest 20 per cent of households, while only 7 per cent of the benefits go to the poorest 20 per cent”.
“Moreover, the experience here in Nigeria of administering fuel subsidies suggests that it is time for a change—think of the regular accusations of corruption, and think of the many Nigerians who spend hours in queues trying to get gas so that they can go about their everyday business”, she stressed.
She also observed what she described as “huge challenges facing Nigeria’s state and local governments”, noting that “these sub-national governments—which account for the bulk of social spending—have only limited tools to manage the impact of declining oil revenues”
“My message here is to manage better the smaller purse, while building capacity to increase internally generated revenue.
The IMF can help in that regard by providing technical assistance on public financial management. We did so for the Kaduna State Government. We can explore how to support states’ efforts to undertake budget reform”, she continued.
Moreover, the IMF Managing Director observed that Nigeria’s current Value Added Tax (VAT) rate is among the lowest in the world and well below the rates in other members of Economic Communities of West African States (ECOWAS) and suggested that “some increase should be considered”.
“The first step”, she continued, “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”.
She explained that focusing on the quality and efficiency of every naira spent was critically important, because, as more people pay taxes there will, rightly, be increasing pressure to demonstrate that those tax payments are producing improvements in public service delivery.
She further urged the FG to intensify its fight against corruption, noting, “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 GDP, with over US$ 1 trillion paid in bribes each year.
“My first visit to Africa as IMF Managing Director was in late 2011, and the first country on my itinerary was Nigeria. At that time, Nigeria was emerging from the 2008-09 commodity price collapse and the banking crisis that followed.
Since that visit, Nigeria has been acknowledged as the largest economy in Africa—with a maturing political system. We saw a peaceful general election last year in which, for the first time in Nigeria’s history, there was a democratic transition between two civilian governments. It was a strong sign of Nigeria’s commitment to democracy, to a new Nigeria.
At the same time, the external environment has changed. Oil prices have fallen sharply; global financial conditions have tightened; growth in emerging and developing economies has slowed; and geopolitical tensions have increased.
All this has come at a time when Nigeria is facing an urgent need to address a massive infrastructure deficit and high levels of poverty and inequality.
So, Nigeria faces some tough choices going forward. Nigerians, however, are well known for their resilience and strong belief in their ability to improve their nation and lead others by example. I firmly believe that Nigeria will rise to the challenge and make the decisions that will propel the country to greater prosperity.
As the great Nigerian novelist Chinua Achebe once said: “If you don’t like someone’s story, write your own.” This is exactly what you are doing right now.
And let me assure you that, as you go forward, as you develop your story, the IMF will support your efforts”, she added.
