• We will protect the interest of the common man
As part of the measures to help Nigeria navigate the current revenue shortfall arising from declining oil prices and save the country from future shocks, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said the finance ministry and the economic management team are working on several scenarios, which include reviewing the nation’s policies on investment incentives, and waivers and exemptions to stem the tide of abuses.
The finance minister made this know on Thursday in her keynote speech at the Securities and Exchange Commission’s (SEC) 4th Annual Capital Market Committee Retreat holding in Abuja.
Other measures she disclosed include reducing oil price expectations; increasing the nation’s non-oil revenue as a percentage of gross domestic product (GDP) to $3 billion in three years; cutting certain recurrent spending such as the purchase of administrative equipment, overseas travel and training; and implementing some cuts in capital expenditure in the 2015 budget.
As part of the renewed focus on increasing tax revenues to mitigate the impact of the fall in oil prices, she said the Federal Inland Revenue Service (FIRS), working with Mckinsey, has been mandated to increase its target, adding that the agency has already made progress in reaching the target of N75 billion, over and above the regular collection target.
She stated that her first measure was to make up her mind that panic would not solve the problem, stressing that no nation manages economic crisis successfully with panic.
According to her, “Panic is not a strategy. We are managing the situation to keep the economy on a stable sustainable course and we will not listen to those who want us to throw up our hands in despair and give up.
“Our scenario-based approach to managing the impact of the oil price drop is proactive and comprehensive. Even if the price drops to 60 dollars we are ready.
“As a central part of our strategy, we have revised our oil price expectations over the short to medium-term. We have lowered our benchmark oil price assumption to $73 per barrel after some careful analysis of the possible future direction of oil prices as well as the soft floor price for shale oil, which is estimated at about $75 per barrel.
“But let me clearly state that we are not taking a point-estimate position as regards the future price of oil. We fully recognise that oil prices may fall lower or even rebound.”
Prices, she added, could fall to $70 a barrel, $65 or even $60, adding that prices could also rebound to $75 to $85 a barrel.
“What we did was to work within a range of $60 to $85 thought possible by analysts, put a package of measures around an estimate at the mid-point of that range, that is $73, and then built additional measures for scenarios at $70, $65 and $60 a barrel.
“The best way to manage uncertainty is to take a scenario-based approach to be ready for alternatives that may occur. This is what we have done, so panic is not a strategy.
“What is necessary is a systematic and focused approach. This is what we have. Our fiscal measures comprise both revenue and expenditure effort,” she explained.
On the revenue side, she said a lot of work was already underway prior to the fall in price to improve non-oil revenue generation.
“This was sequel to our rebasing exercise which demonstrated a large $510 billion GDP with a diverse non-oil base. The efforts of the FIRS supported by McKinsey & Co is focused on strengthening tax administration and thereby plugging leakages and loopholes.
“For example, only 25 per cent of our SMEs are registered taxpayers. Remedying that will broaden the tax base. Our auditors complete three to five audits a year compared to 50 a year in Angola.
“Speeding up audits will help improve tax collections and anomalies. Correcting for these loopholes is on target to bring in an estimated N75 billion above the 2014 FIRS revenue target.
“We believe that given the impressive performance and the now visible larger economic base, FIRS can do a lot more. Consequently, we have raised the 2015 budget threshold to N160 billion above the 2014 target,” the minister said.
She added that the cuts in capital expenditure in the 2015 budget will be done in a way that they are pro-poor and pro-average Nigerian.
She said: “Focus will be on priority sectors of infrastructure, health, education and security, as well as growth stimulating and job creating sectors like agriculture, housing and creative industries.
“The common man is a priority in our strategy for the fall in oil price. His interests are a priority. That is why even in implementing cuts in the capital budget for 2015, the areas that are of most benefit to the common man, critical infrastructure projects like the Lagos-Ibadan Expressway, the Second River Niger Bridge, rail and power projects, etc, which will create jobs and enhance the comfort of our people will go on.
“This pro-common man focus can also be seen in the safety nets, which is a major priority for the president. The projection is for two to three million families across Nigeria to benefit from a conditional cash transfer scheme to encourage school attendance, improve health and nutrition, reduce infant and maternal mortality, etc.
“Anything that affects the poor, the young and vulnerable, we will prioritise it,” the minister said.
Meanwhile, the International Monetary Fund (IMF) has praised the measures introduced by the Central Bank of Nigeria (CBN) to cushion the effects of fall in oil price on the country’s economy, describing it as a move in the right direction, Daily Post reported on Thursday.
“In a combination of actions, most recently the communiqué after the Central Bank of Nigeria’s monetary policy committee meeting of November 24-25, the authorities have announced a set of policies aimed at mitigating the impact of the recent significant fall in global oil prices on the economy,” says the IMF chief mission for Nigeria, Gene Leon.
“These include: adjusting the exchange rate, resubmitting the medium term expenditure framework to the National Assembly with proposed tax and expenditure measures to achieve the deficit target consistent with a lower budget oil price, and tightening monetary policy.
“We are supportive of and welcome these actions, which we view as complementary and moving in the right direction.
“Of course, the global situation remains fluid and the key issue is being ready to manage downside risks and for the authorities to be prepared, based on assessments of credible scenarios, to consider additional measures, as necessary,” he pointed out.