Calls for growth friendly fiscal adjust, ambitious tax policy measures
By Babajide Komolafe & Nkiruka Nnorom
At the backdrop of several statistical releases by the National Bureau of Statistics, NBS, in recent times indicating a sustained recovery of the economy from recession, the International Monetary Fund, IMF, has warned that the recovery path was fragile while the banking sector is threatened by increasing Non-Performing Loans, NPL.
Consequently, the Fund,in a statement yesterday titled: “IMF Executive Board Concludes 2018 Article IV Consultation with Nigeria”, warned of possible relapse of the economy back to recession while urging the country to implement a more robust economic recovery plan. It also advised Central Bank of Nigeria, CBN, to contain the NPL pressure on the banks.
The Fund called on the federal government to implement growth-friendly fiscal adjustment and ambitious tax policy measures in order to address multiple challenges which threaten Nigeria’s recovery from economic recession, and aggravate the country’s vulnerability to drop in price of crude oil.
The IMF stated: “Directors commended the central bank’s tightening bias in 2017, which should continue until inflation is within the single digit target range. They recommended continued strengthening of the monetary policy framework and its transparency, with a number of Directors urging consideration of a higher monetary policy rate, a symmetric application of reserve requirements, and no direct central bank financing of the economy.
Directors commended the recent foreign exchange measures and recent efforts to strengthen external buffers to mitigate risks from capital flow reversals. They welcomed the authorities’ commitment to unify the exchange rate and urged additional actions to remove remaining restrictions and multiple exchange rate practices.
Directors commended the recent foreign exchange measures and recent efforts to strengthen external buffers to mitigate risks from capital flow reversals. They welcomed the authorities’
Directors stressed that rising banking sector risks should be contained. They welcomed the central bank’s commitment to help increase capital buffers by stopping dividend payments by weak banks. They called for an asset quality review to identify any potential capital need.
They noted that an enhanced risk-based banking supervision, strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks.
Challenges to growth
“Directors welcomed Nigeria’s exit from recession and the strong recovery in foreign exchange reserves, helped by rising oil prices and new foreign exchange measures. They commended the progress in implementing the Economic Recovery and Growth Plan, including the start of a convergence in foreign exchange windows, tight monetary policy, improvements in tax administration, and significant strides in improving the business environment.
“Directors noted, however, that important challenges remain, as growth in the non-oil, non-agricultural sector has not picked up; inflation remains high and sticky; unemployment is rising; and poverty is high. To address these vulnerabilities, they stressed that comprehensive and coherent policy actions remain urgent.
“Directors emphasized the need for a growth-friendly fiscal adjustment, which frontloads non-oil revenue mobilization and rationalizes current expenditure to reduce the ratio of interest payments to revenue to a more sustainable level and create space for priority social and infrastructure spending. In addition to ongoing efforts to improve tax administration,
“Directors underlined the need for more ambitious tax policy measures, including through reforming the value-added tax, increasing excises, and rationalizing tax incentives. The
implementation of an automatic fuel price-setting mechanism, sound cash and debt management, improved transparency in the oil sector, increased monitoring of the fiscal position of state and local governments, and substantially scaled-up social safety nets should support the adjustment.”