Nigeria’s problem not debts but revenue — Ahmed
How far have you gone with the proposed 7.5 per cent VAT increase? We have sent a Finance Bill to the National Assembly and it has several proposals. One of them is the increase in VAT from 5 per cent to 7.5 per cent and we believe the National Assembly will do justice to the finance bill. Our target is to ensure that the finance bill is passed within the same period that the budget is passed and we feel it will enhance our capacity to be able to fund the 2020 budget.
The IMF has repeatedly called for the development of the non-oil sector and you also have consistently posited that we just have to diversify our sources of revenue. What are the strategies you have now to address this problem, especially with the 2020 budget?
In January this year, we launched the Strategic Revenue Growth Initiative which was put together by all the revenue generating agencies in the country led by the Ministry of Finance. Our objective is to be able to harness the existing revenue streams that we have by 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.
In expanding the revenue base, we have proposed increase in VAT but there are also 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 in 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 with all the agencies to ensure that collaboration is strengthened and that the agencies are complementing each other as opposed to where everybody is working in silos. We have also defined how we can improve on the monitoring of the performance of the revenue generating agencies, especially the government owned enterprises. We have now in place a rigorous monthly reconciliation of revenue and that has ensured that the leakages are minimised.
There are several cost cutting measures in the SRGI.
The IMF has warned about the country's debt and also advised a sort of debt restructuring for Nigeria. What measures will Nigeria be embarking upon to manage its debt?
Nigeria does not have a debt problem. What we have is a revenue problem. Our revenue to GDP is still one of the lowest among countries that are comparable to us. It’s about 19 per cent of GDP and what the World Bank and IMF recommended is about 50 per cent of GDP for countries that are our size. We are not there yet. What we have is a revenue problem. The underperformance of our revenue is causing a significant strain in our ability to service debt and to service government’s day to day recurrent expenditure and that is why all the work we are doing at the Ministry of Finance is concentrating on driving the increase in revenue.
We've seen inflation rise to 11.2 percent. IMF also predicted that inflation will rise further to at least 11.7 percent in the near term. What are we doing to keep inflation in check?
11.2 percent 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 so you have inflation but will moderate and stabilise within a short period of time.
A lot of people have said our revenue target for 2020 is rather too ambitious. So how do you intend to achieve it? In recent times you've not been meeting revenue targets?
The fact that our revenue is underperforming is not an excuse to bring down our revenue that is required to fund the national budget. In 2018, our revenue performed at the level of 58 percent. Half year 2019, our performance moved up slightly to 58 percent. But that is not an excuse to reduce the revenue. Because it means we are all sanctioning under performance. So we have to push the agencies. We have to push ourselves to meet those targets.
Those targets are not designed by the Ministry of Finance, Budget and National Planning, the agencies proposed those targets. But we sit with them and interrogate 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 and scaled it down 2.3 million. And the performance is 1.98 effectively including 100,000 per day that is used to settle cash call earnings but the
capacity is there. So why should we not be looking at what we have to do to make sure the capacity utilisation is attained. Why do we want to reduce it, because we are underperforming?
We are lucky that crude oil in 2018, outperformed the budget because we budgeted $60 per barrel and we ended up with an average of $67 per barrel. If we had lowered prices, the 55 percent performance wouldn't have been achieved. What we have to do collectively as a people is
The agencies proposed those numbers. We interrogate them and ask them to justify them. To be prudent we even discount what they proposed before it goes into the national budget.
Speaking about NNPC, IMF said it will be better to look into the governance of the corporation and other state-owned enterprises to improve revenue generation. What steps are you taking to make sure these agencies are accountable and utilize our revenue streams in the best ways possible?
We agree with the IMF that we need to look at how we can improve governance not just in the NNPC or the other government-owned enterprises, but across all of government because poor governance results in underperformance; whether it is revenue or other performance indicators. What we have done is that we have introduced new measures to enhance the monitoring of our revenue generating agencies. We have also introduced monthly reconciliation exercises where the agencies bring their data and we reconcile the data. We have seen gaps that used to exist close gradually.
So what we have to do is continue to push the bar to make sure that our revenue performance is enhanced. And Mr. President has said that targets will be set even for ministers and heads of agencies. And that when targets are met, there will be commendation and when they are not met, there will be consequences. So what was missing in the past was that there were no consequences.
So we will be pushing to make sure we provide all the support that the agencies require to make them perform.
We have continued to depend mainly on oil for our revenue. The IMF has
advised comprehensive reforms on how we maximise our potentials in the non-oil sectors. So going forward, what are the plans for diversified revenue streams?
Let's give credit to where it is due. Before the presidency of Muhammadu Buhari, oil revenue was 60 percent of the national budget. Now it is down to 32 or 33 percent in the 2020 budget and that is indicating that non-oil revenue is contributing more than oil revenue. Also, the gross domestic product of oil revenue is now just about 8 percent. So our economy is actually diversified. What we need to do is to enhance the various value chains in the different sectors to make sure their contributions to GDP is enhanced and increased significantly.
IMF also raised issues around debts that haven't passed through the Paris Club. The fund is worried that those debts may not have been properly structured and may present repayment problems in the long terms. Should we be worried about the structure of debts to China considering that we are heavily exposed to China?
It is not true that we are heavily exposed to China in our debts. We have a wide portfolio of debts. Right now our domestic debt is about 57 percent and foreign debt is the difference. And we will continue to find different instruments to elongate the tenures of our debt. Our target is to move the total portfolio to an average of 10 years tenure. For the loans that we have from China, they are project specific loans. So China gives us a loan to build the rail, build major infrastructure such as renovation of our airports.
I think there is also some kind of negative message going out there saying we are tied down to China. We are not. The rail is being built in Nigeria, is China going to take the rail out of Nigeria? The airports that have been renovated, they will soon be concessioned.
They have given us soft loans as the rates are very low, and part of their condition is that the loans must be implemented by their companies, and we don't see anything wrong with that. All we need do is to make sure the Chinese companies have the capacity to deliver the projects. We have seen that the rail that are being delivered are high quality projects. So let's look at what is in the interest of Nigeria, not just what other people outside of Nigeria are saying.