The Managing Director of the International Monetary Fund, IMF, Christine Lagarde has asked Nigeria and Nigerians to brace up for harder times, following the massive fall in the price of oil globally, just as she said that the country since inception recorded the slowest pace of growth in the year 2015. Lagarde, who called for increase in Value Added Tax, VAT, stressed that it has become imperative for the federal government to broaden the country’s tax base against the backdrop that Nigeria has the lowest VAT rate in the African continent. According to her, “the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members—so some increase should be considered.”
Although the IMF Managing Director was careful not to endorse the devaluation of naira against major international currencies, she, however, urged the federal government to adopt a flexible monetary policy that will better serve the interest of Nigerians. Speaking, wednesday, at the National Assembly complex in Abuja during a meeting with Senate President Bukola Saraki and other senators, the IMF boss who called on the federal government to reduce cost of governance, said that the contentious fuel subsidy must be removed to allow government spend on infrastructure, housing, education, health, among others. She, however, cautioned Nigeria against obtaining loans, noting that it was at the moment affecting the country and subsequent borrowing could hurt the nation’s economy in the long run.
She said: “On recurrent expenditure, efforts should be made to streamline the cost of government and improve efficiency of public service delivery across the federal and sub-national governments. Transfers and tax expenditures should also be addressed. For example, continuing the move already begun by the government in the 2016 budget to eliminate resources allocated to fuel subsidies would allow more targeted spending, including on innovative social programmes for the most needy. Indeed fuel subsidies are hard to defend.“Not only do they harm the planet, but they rarely help the poor. IMF research shows that more than 40 per cent of fuel price subsidies in developing countries accrue to the richest 20 per cent of households, while only 7 per cent of the benefits go to the poorest 20 per cent. The move by the government to remove 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 in stations trying to buy fuel.
“There is a small acceleration expected in 2016. Growth in the last 10 years has slowed down in Sub-Saharan African countries. Oil prices will remain low and low for a long time. Oil producing countries must factor this in and model their economic policies towards this direction. Nigeria is facing mounting pressure. There will continue to be abundant supply of oil, but low demands. It is very unlikely that we will see any rise anytime soon. Private sector investments will be affected. Higher interest rate will continue to rise. Sub-Saharan African countries are facing immense pressure as a result of this. I can feel the hardship and pains as a result of activities of Boko Haram. The resources spent in trying to fight insurgency are supposed to be spent on infrastructure.
“Whatever happens in Nigeria will affect our neighbours because of the trading relationship. There must be a fundamental change in the way government operates. It is not about how to divide proceeds from oil wealth. It is about how to deliver to Nigerians the basic services they deserve. Hard decisions must be made. As the National Assembly considers the 2016 budget, these are the issues they consider. Moreover, the experience here in Nigeria of administering fuel subsidies suggests that it is time for a change—think of the regular accusations of corruption, and think of the many Nigerians who spend hours in queues trying to get gas (fuel) so that they can go about their everyday business. At the same time, we should not forget the huge challenges facing Nigeria’s state and local governments. These sub-national governments—which account for the bulk of social spending—have only limited tools to manage the impact of declining oil revenues. My message here is to manage better the smaller purse, while building capacity to increase internally generated revenue.”