The decline in the price of crude oil
may have started taking its toll on Nigeria as the Federal
Government on Sunday announced measures aimed at cushioning its impact
on the economy.
The Minister of Finance and the
Co-ordinating Minister for the Economy , Dr Ngozi Okonjo-Iweala,
announced this in Abuja while addressing journalists on the Federal
Government’s response to the crisis.
The measures which will see Nigerians
paying tax on luxury goods, come barely six days after President
Goodluck Jonathan formally announced his intention to contest the
February 14, 2015 election.
Okonjo-Iweala, in company with the
Director-General, Budget Office of the Federation, Dr Bright Okogu; the
Accountant-General of the Federation, Mr. Jonah Otunla; the Acting
Chair, FIRS, Alhaji Kabir Mashi and other top officials, told the
journalists that the nation would be experiencing a challenging time
owing to the global fall in oil prices.
The other measures, according to her, are a reduction in public expenditures and international travels by public servants.
She, however, assured that the Jonathan
Economic Management Team was “on top of the situation” to proffer
measures that would help to ensure that the “common man” did not feel
the impact of the oil price decline. CONTINUE READING...
She recalled that in the last three
years, the Executive in its discussions on the national budgets with the
National Assembly, had consistently advocated prudence and a low budget
benchmark to encourage more savings.
The minister stressed that even though
the drop in oil prices was a serious challenge, it was also an
opportunity for the country to refocus efforts towards the non-oil
sectors in preparation for a future with less oil revenue.
As part of the efforts to reduce
expenditure, she said international travel within the public service
would be severely curtailed, adding however, that critical
infrastructure projects would not be affected because they were key to
economic growth, development and job creation.
She said, “Every country that is well
managed doesn’t just sit and allow a situation to happen to them. If
they are well managed, they prepare the right set of policies to deal
with the situation.
“Those days when we used to be like that
in the ‘80s and 90s are over. In the ‘80s, when we had shock, we didn’t
take measures by ourselves to adjust. We waited for others to come and
tell us how to adjust. But now we have competent teams and our job is
not to sit and wait, but, to craft a set of policies that will help us
to address the shocks.
“We are not talking about (cutting)
salaries and benefits. We are talking of training and travels and these
will be only for critical and essential items which will be pre-approved
by the Head of Service and the Director-General of the Budget Office
and then if someone invites you for overseas course, you can go provided
they pay for your training and your stay and you have to furnish
evidence that they are paying before you will be allowed.
“The purpose of this is to tell you what
we are doing and this team is calm and will be effective and we are
working with the monetary policy authorities and together we will manage
the economy in a transparent manner so that people need not have any
fear.”
She also talked about the report of the
Steven Oronsanye committee, which was set up by government to prune down
ministries and agencies.The committee had recommended that some of the
agencies should be merged.
“We found that a lot of these agencies
are underpinned by law and we discussed with the National Assembly and
they are willing to look at how their laws can be repealed. So this is
also part of our medium term measures,” she said.
Reduction in budget benchmark
She said the Federal Government was
keeping an eye on the development, noting that this was why it come up
with a multi-pronged strategic response to mitigate the adverse effects
of global oil price fall on the economy and reassure investors.
The responses, according to her, are a
mix of measures designed to boost non-oil revenues further, plug
loopholes and waste and cut unnecessary expenditures in order to cope
with the situation.
Giving details of the government’s
responses to the oil price fall, the minister said that after a careful
analysis of the situation, the economic team approved a $5 per barrel
reduction in the 2015 budget benchmark price for oil from $78 to $73 per
barrel.
She said, “As part of the response, the
Medium Term Expenditure Framework and the Budget 2015 proposal to the
National Assembly have been revised.
“Government is now proposing a benchmark
of $73 dollars per barrel to the National Assembly compared to the
earlier proposed benchmark of $78
“Given the nature of the oil market, we needed to see the extent and trend of the oil price in order to take the right measures.
“Panic is not a strategy. It’s important
that our strategies are based on facts and a clear understanding of
both the strengths of the economy and the challenges posed by the drop
in oil prices which is currently at $79 for our premium Bonny Light
Crude.
“The drop in oil prices is a serious
challenge which we must confront as a country. We must be prepared to
make sacrifices where necessary.
“But we should also not forget that we
retain some important advantages such as a broad economic base driven by
the private sector and anchored on sound policies.
“Our strategy is to continue to
strengthen the sectors that drive growth such as agriculture and housing
while reducing waste with a renewed focus on prudence.”
Special tax on luxury goods
She stated that the decline in oil
prices had given additional impetus to the Federal Government’s focus on
increasing non-oil revenues.
In this regard, the collection target
for the Federal Inland Revenue Service, which has been working with
Mckinsey to increase receipts will be revised upwards for next year.
Se said the country had recorded good
success in reaching the initial target set this year of N75bn; noting
that so far N65bn of this had been collected.
For 2015, the minister put the revised target at N160bn above the 2014 base.
Okonjo-Iweala also unveiled plans by
the government to introduce what she called “tax on luxurious goods,”
stating that this was a part of measures aimed at increasing revenue
from non-oil sources.
She said that users of luxurious items,
such as private jets, yachts, alcoholic beverages and expensive cars,
would be required to pay special taxes for such goods.
The minister, who said the government
was still compiling the list of luxurious goods to be taxed under the
new initiative, assured that the proceeds from these items and services
would be used to support the economy from external shocks.
She said, “We all know the definition of
luxury goods, we are still compiling the lists and one of the things we
can tax is champagne, alcoholic beverages, jets, luxury cars- we will
look at the engine capacity, and yachts.
“We are putting the list together but we intend to do a surcharge going forward on these items.
“The principle is that those who are
better off in the society and I hope they won’t mind will be willing to
share a bit more in remitting a little bit more to the treasury than
what they normally do on these things.”
$2bn withdrawal from ECA
Okonjo-Iweala noted that the reduction
in the price of oil might continue but gave assurance that the
government was fully prepared to ensure that the economy was not
worse-off.
To this end, she said from the $4.1bn
(N656bn) in the Excess Crude Account, the government would be
withdrawing $2bn (N320bn) between now and the end of this year to take
care of critical expenditure.
She said, “We will work in such a way
that we won’t deplete the ECA because we have to leave something for
next year but we might go to tap about a half of it ($2bn) or slightly
less than half to be able to meet expenditures that are crystalising at
the moment that we need to make.”
Rejects calls to print more Naira
On calls from some quarters that the
Federal Government should respond to the decline in revenues by
printing more naira to fund projects, the minister said that such
recommendations would be disastrous for the country if implemented.
Okonjo-Iweala , who argued that such
prescriptions ignored the elementary principles of economics, said
“printing money without adequate revenue support will lead to serious
consequences for the country.
“It will spur inflation as the
experiences of Germany in the early part of the last century and more
recently, Argentina and Zimbabwe demonstrate.
“This prescription will victimise the poor and the middle class that it is supposedly protecting.”
She explained that the best way to
protect the interest of the ordinary people was to control inflation as
much as possible, expand the economic base, strengthen the sectors that
drive growth, boost critical infrastructure and create more jobs.
The minister added, “We have already started doing that, the results are already coming but we still have a lot of work to do.
“To show how serious government is about
job creation, President Jonathan will tomorrow, (Monday) November 17
launch the 4th edition of YouWin to support another 1,500 entrepreneurs
along with a private equity fund for entrepreneurs.
“That is an expression of government’s commitment and seriousness to job creation.”
The implementation of the new mortgage
system, including the current processing of over 66,000 applicants for
mortgages, according to her, will go on as planned.
This, she added, would help to ensure
that the country reaps the strong benefits that will come from
unleashing the housing revolution which is attracting serious interest
from local and international investors.
Also, unaffected are public sector wages
as well as key initiatives in education, health and other areas
critical to the country’s human development.
Meanwhile, financial experts have said
that Nigerians should be ready for a harsh economy in the nearest future
as a result of the continued fall in the prices of oil.
The experts, while reacting to the measures adopted by the Federal Government, stated that the decline was only the beginning.
They spoke with our correspondents during separate interviews on Sunday.
A renowned economist and Chief
Executive, Financial Derivatives Company, Mr. Bismark Rewane, stated
that the step by the government was a good start, but wondered if the
measures would actually cushion the impact of the falling oil prices.
He said, “That is a good start. The most
important thing is the fact that the government has come to accept that
it has to do something with respect to the falling oil prices. What we
are seeing now is not a short-term phenomenon. Whether the therapy is
adequate is another issue. But I think it is a good move and it has not
ruled out other moves.
“On the $2bn withdrawal from the ECA, I
don’t think that will make any impact. The reality is that we have to
look at what is important. And what is important is that the Nigerian
government has come to terms to the fact that it has to start austerity.
So it is encouraging and this is the beginning of a number of steps to
be adopted.”
On whether there might be more measures,
Rewane said, “Certainly, this is just the beginning. And I will like to
say that it will be good for Nigeria to accept the reality on ground
presently.”
Also, a former President, Association of
National Accountants of Nigeria, Dr. Samuel Nzekwe, said the
government’s resolve to adopt austerity measures was not surprising.
He said, “About 80 per cent of our
earning is from oil and so it is not a surprise that the government is
adopting austerity measures considering the fact that oil prices are
falling. This is actually the beginning o things to happen. Apart from
imposing tax on luxuries, they should look at how to diversify the
economy by creating enabling environment so that industries can thrive.
“Increasing or taxing more utilities is
not the major solution. The government should now make more efforts to
diversify the economy. They should make concerted efforts to ensure that
the agricultural sector and a few others are working.
“Nigerians may not worry much about the
tax issue because it is expected but this tax should be used wisely. It
should not end in the pockets of a few individuals because since the
country’s earning is mostly from oil, it means a fall in the price of
this commodity will deny Nigeria a lot of income to build roads, power
plants and many other things that will benefit the ordinary Nigerian.”
The All Progressives Congress, through
its National Publicity Secretary, Lai Mohammed, described the proposed
austerity measures as a reflection of the massive corruption inherent in
the Jonathan-led Peoples Democratic Party government .
It argued that it was unfair for the
Federal Government to subject Nigerians to austerity measures after
frittering away the “petrodollars accruable to the country in the last
15 years.”
The APC said, “This country enjoyed high
crude oil prices in the last 15 years. What has the PDP-led Federal
Government done with the money in the last 15 years? They simply
frittered the money away in massive corruption and misgovernment.
“They now want Nigerians to pay for
their corruption and misdirection. Are Nigerians not already under
austerity measure? They only want to impoverish us the more. Their
ultimate aim is to devalue the naira; that’s their ultimate destination
and this is very unfair.
“To make Nigerians, who did not
participate in corruption, to suffer is not fair. What provisions have
they made for the rainy days?”
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