Thursday, 4 April 2019

No More Subsidy


The International Monetary Fund (IMF) has reiterated its call for the Federal Government to end fuel subsidies, saying that this, coupled with efforts to strengthen social safety nets, "would help reduce the poverty gap and free up additional fiscal space."


In a press release issued yesterday on the conclusion of the IMF Article IV Consultation with Nigeria, the Fund also stated that it was imperative for the Federal Government to secure oil revenues through, "reforms of state owned enterprises and measures to improve the governance of the oil sector."


While noting that the Nigerian economy is recover ing, the Fund, however, urged the government to intensify its reform efforts, saying that: "Under current policies, the outlook remains muted."


The IMF stated: "Executive Directors welcomed Nigeria's ongoing economic recovery, accompanied by reduced inflation and strengthened reserve buffers. They noted, however, that the medium-term outlook remains muted, with risks tilted to the downside. In addition, long standing structural and policy challenges need to be tackled more decisively to reduce vulnerabilities, raise per capitagrowth, and bring down poverty. Directors, therefore, urged the authorities to redouble their reform efforts, and supported their intention to accelerateimplementation of their Economic Recovery and Growth Plan.


Continuing, it said: "Bold reform efforts, following the election cycle, could boost confidence and investments, especially given relatively conservative baseline projections. On the downside, additional delays in reform implementation, a persistent fall in oil prices, reduced oil production, increased security tensions, or tighter global financial market conditions could undermine growth, provoke a market sell-off, and put additional pressure on reserves and/or theexchange rate."


According to the statement, the IMF also said that despite the decline in Non-Performing Loans (NPLs) and improved prudential banking ratios, "undercapitalized banks continue to weigh on financial sector performance," adding that the authorities should create a credible timeline to recapitalise weak banks in the country and also for phasing out the Asset ManagementCorporation of Nigeria(AMCON).


As the statement puts it: "Directors welcomed the decline in non-performing loans and the improved prudential banking ratios, but noted that restructured loans and undercapitalized banks continue to weigh on financial sector performance.


"They suggested strengthening capital buffers and risk-based supervision, conducting an asset quality review, avoiding regulatory forbearance, and revamping the banking resolution framework. Directors also recommended establishing a credible time bound recapitalization plan for weak banks and a timeline for phasing out the state backed asset management company, AMCON."


Furthermore, the IMF Directors, according to the statement, welcomed the Federal Government's tax reform plan to increase non-oil revenue, including through tax policy and administration measures.


"They stressed the importance of strengthening domestic revenue mobilization, including through additional excises, a comprehensive VAT reform,   and elimination of tax incentives.
"Directors highlighted the importance of shifting theexpenditure mix toward priority areas. They welcomed, in thiscontext, the significant increase in public investment, but underlined the need for greater investment efficiency," the statement said.
Similarly, the IMF Directors expressed support for restrictive monetary policy, saying it is appropriate for the Nigerian economy at this time.

"With inflation still above the Central Bank's target, directors generally considered that a tight monetary policy stance is appropriate," they stated.
They urged the Central Bank of Nigeria (CBN) to enhance transparency and communication and to improve the monetary policy framework, including using more of traditional methods such as raising the Monetary Policy Rate (MPR) or Cash ReserveRequirements (CRR).

They, however, advised the CBN to end its direct intervention in the economy and focus on its price stability mandate.
It would be recalled that during her visit to Nigeria in 2016, the Managing Director of the IMF, Christine Lagarde, had asked the Federal Government to take very tough economic decisions, including removal of fuel subsidy and increasing VAT.


Stressing the need to remove fuel subsidy, Lagarde said at the time that: "The move by the government to remove the fuel subsidy is good. Those people who need the subsidy can receive cash transfer. Fuel subsidies are hard to defend. Subsidies are no longer good. But I hear that it will hurt the poor. Forty per cent of fuel subsidies in rich countries go to rich families. The people do not really need the subsidy. Look at the number of people who stay at stations trying to buy fuel

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