By Emeka Anaeto and Babajide Komolafe, Reporting from Washington DC
The 2017 annual meeting of the International Monetary Fund (IMF) and the World Bank, in Washington, United States of America was concluded yesterday with a charge on nations to focus more on investment in human capital, curb public debt and strengthen banking regulation in order to strengthen the improvement in global economic growth.
The Minister of Finance, Mrs Kemi Adeosun and the Governor, Central Bank of Nigeria, (CBN), Mr. Godwin Emefiele briefed the Nigerian media delegation on highlights of meetings with members of the international financial community. The duo also responded to concerns about the nation’s public debt, and the major thrust of the meetings which is investment.
The IMF advocated for change in tax policy in Nigeria, what is the federal government doing in this regard, and also what is the update on the proposed introduction of taxes on luxury items?
ADEOSUN: The luxury tax planned by the Federal Government is being finalized now, because it cuts across the ECOWAS. There is a legal process you must go through, including the customs union to actually vary the specific taxes.
It is no news that Nigeria’s tax is six per cent to GDP. Another country with such low tax base is Saudi Arabia, in fact they don’t have a tax system. They just introduced the VAT for the first time. The problem we have in the country is not just that the system needs to be overhauled, it is also that people are not complying and this is because there is no consequence.
We have just started with VAIDS as a measure to tackle that and the response is impressive. In fact, people have started declaring and I have had a number of approaches from high net worth people asking me to speak on their behalf to state governors to allow them time to comply because their personal taxes are payable to state governments.
I have encouraged every governor that everyone who comes to declare should be given enough time to pay up. This is because the amount of tax that they would have to pay is big. We are doing this because we don’t want a situation where people who want to pay would lead to stifling economic activity. If someone comes quickly and willingly want to pay, we have to show reasonableness by acceding to their request.
But the IMF said that taxing the rich will not lead to increased revenue?
ADEOSUN: Whether taxing the rich will increase public revenue or not, it is all about public revenue to which they are obligated for public services. In any tax system, the burden must be borne by anybody whose income allows to them to bear it so those with higher income should by definition, bear a greater part of the burden.
The problem currently is that those at the lower level are the ones paying. If the man in the traffic control, with little income will pay at source, why would we not pursue the billionaire or the trillionaire to pay out of their income. We need to change the mindset in the country with regards to tax system. So far we are encouraged by the responses of companies’ to this tax amnesty.
In these meetings, I have been able to speak to a number of ministers like the Indonesia and Argentina that have completed theirs, to exchange progress report. From their response, we are on track and they predicted that towards the end there would be rush. They have raised significant amount of money.
You recently said that the FG will commence accelerated borrowing but this is at variance with the position of IMF, that countries should began to reduce their public debts.
ADEOSUN: Why do we have to borrow. If you think back to the problem we face, our principal source of revenue plummeted by up to 85 per cent, so we had no choice.
You either cut public infrastructure massively, which should have led to massive job losses or you borrow in the short-term, until you begin to generate revenue.
We felt that laying off thousands of people was not the best way to stimulate growth. Also, when we came into office, about 27 states could not pay salary. If we had allowed that situation to persist, we would have been in depression by now. So, we took the view as a government that the best thing to do was to stimulate growth and spend our way out of trouble, get the state governments to pay salaries, make sure federal government pays and invest in capital infrastructure.
Once growth is restored, you begin to systematically reduce your dependence on borrowing. Now, we are talking about tax and what we are saying is that people should be aware of their responsibilities to their nation.
The solution to borrowing in Nigeria is that we must pay tax. If you pay the taxes properly, there is no need to borrow. Of course, there is the responsibility on the part of government to be more responsible and efficient. We are really focusing on this. We are trying to find ways to cut cost.
Fundamentally, we must invest. We don’t have the power we need, we don’t have the roads yet and there is a lot of money required to fund these projects. If we are able to move our tax to GDP from just six per cent, where it is now, to 10 per cent, it would significantly reduce the amount we need to borrow.
And that would have a wider effect on the economy, reduce borrowing and bring down interest rate. It will also create head room for the private sector to borrow, because they are currently being crowded out.
There also concerns about state governments’ acquisition of foreign loans?
ADEOSUN: Any state government has to come to us to get an approval to borrow. We perform Debt Sustainability Analysis and if the repayment is more than 40 per cent of their revenue, we turn it down.
So, when people are talking of how many loans we are approving, they don’t talk about how many loans we are turning down. Many do not go through and we are constantly monitoring state governments to ensure that the debt that they take on is sustainable.
The problem with some of the states that have debt problems are legacy issues that were there before they came in. But since, we came in, we have been very strict, trying to make sure states do not borrow more than they can service.
Nigeria’s debt to GDP ratio is one of the lowest. We are at 19 per cent, but most advanced countries have over 100 per cent. I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rails, the roads and power so as to generate economic activities, jobs, revenue, which would be used to pay back the debt. But I assure you that this government is very prudent around debt. We don’t borrow recklessly and we have no intention of bequeathing unserviceable debts on Nigerians.
We are working with the National Assembly to refinance some of our treasury bills. What we are trying to do is that as treasury bills mature, we refine them.
The issue of reducing the gender gap by investing in women, and also empowering the youths are major highlights of this annual meeting. What will you be recommending to the government in this regard?
ADEOSUN: As you know, investing in women is the best investment any country can make. The impact on GDP will be massive. Go to any university in the world, they will tell you that when you invest in women, the GDP multiplies. Let’s make opportunities available for our women. Many women do not have access to finance, they do not have land titles, and we really need to invest in our women.
That also brings me to the question of what are we doing to the youths and employment. YouWin project, we are just about to appoint a fund manager. We will not just give them money, we also will nurture them and make them to grow.
The IMF and the World Bank commended the achievement in the forex market. What should we expect going forward as regards the value of the naira?
EMEFIELE: It is easier to put it this way that the fundamentals currently we see shows that there is a lot of stability in the FX market and having come down from those kinds of high levels, to where we are right now that the currency is just fluctuating between N359 and N365, we think it is a good level compared to where we are coming from. But we think it is important that as reserves get more, as the economic fundamentals get stronger, there is no doubt that the naira will get stronger, and we are going to see some more appreciation in the currency.
The IMF highlighted three threats to the ongoing economic recovery, and this includes banking system fragilities. Do you agree that we have banking system fragility?
EMEFIELE: Talking about threats in the banking system and that the IMF said there were some banking system fragilities, I don’t think that is accurate. What I know was said is that central banks should focus on banking system very attentively to ensure that there is no significant destabilisation because anything that destabilises the banking system naturally destabilises and adversely impacts on the economy.
And what we are doing, we are keeping our eyes on the banking system to ensure that are no significant threats that would alter the strategic health of the banking industry to the point where we begin to think about some threats that will destabilise the system and therefore create problems for the economy.
There is report that Nigeria received $36 billion remittance from Nigerians in Dispora. What are the efforts to encourage them to increase this inflow?
EMEFIELE: I have been talking about the fact that I have been looking for this $36 billion, unfortunately I have not been able to see it.
But the point is that we are trying to encourage our brothers in Diaspora to keep remitting funds to take care of daddy and mummy and also invest in Nigeria because they do not have any other place they can call home. Nigeria remains theirs and we would ensure we put in place policies that would encourage them.
We are working on how to actually link our credit bureau arrangement with foreign borrowing arrangement so that once there is a linkage between Nigeria and the foreign credit system, it is easy for them to even borrow from Nigeria and also get some form of attachment to the credit that they have abroad either in the United States or the United Kingdom.
With that, it should be easy for them to access credit, and then begin to build their businesses so that they can retire into Nigeria rather than retire abroad.
The need for central banks to focus more on banking regulation and the issue of ‘too big to fail’ banks dominated some of the discussions during the meetings. What is the effort of CBN in this regard?
EMEFIELE: There is a lot of attention on the banking system again, to the point that we are saying that there are certain banks in certain jurisdiction that are too big to fail, and indeed in every jurisdiction.
From our view, we are saying no bank should fail in our environment, whether you are big or whether you are small, and what we would continue to do is to see to it that we put in place strong prudential that will continue to guide them.
Is it capital? Is it liquidity ? All these we would put in place to continue to strengthen, to ensure the banks remain strategically healthy to be able to perform the roles and responsibilities they are supposed to play in an economy so as to achieve growth and development in that economy
What is the CBN doing about agric lending?
EMEFIELE: It’s been very clear what we are doing in the area of agriculture funding. What we are doing actually is supporting the Federal Ministry of Agriculture in its effort to see to it that when there are farmers, or there are people who want to do farming, we should open the channel for them to access funds and be able to go into agriculture.
And it is not just about supporting agric, it is about helping our country. The selfish approach here is that we want to see to it that we encourage Nigerians to go into farming, so that those items that we currently import, which we can grow locally, which we can produce locally, that we produce them locally to feed our people, and by so doing we reduce the propensity to import, and therefore save on our foreign reserve, that we would continue to do
What is the role of CBN in empowering the youths and women?
EMEFIELE: On the issue of youth empowerment, the Minister has already addressed the issue about the YouWin. We would continue to support initiatives from any part of the country to see to it that we really support attempts to empower our youths, create jobs for them. They are entitled to either be employed or given opportunities to be entrepreneurs so that they can even employ other people and also help to engender economic growth and development.
In terms of support for women, off course I am man, but I need to say there is a need to support women. In our Micro, Small and Medium Enterprises Funds (MSMEs) of N220 billion, 60 percent is reserved for women but we are not even seeing the women coming.