Nigeria is aggressively looking for ways of increasing her revenue in order to reduce the funding gap that has always plagued the country’s budget systems in more recent years. In this interview with financial journalists in Washington D.C, USA the Finance Minister, Zainab Ahmed, on the sidelines of the IMF/World Bank meeting explained the Federal Government’s efforts to fund the N10.33 trillion budget for 2020. Okey Onyenweaku was there and now presents excerpts from the session:
2020 revenue target
The fact that our revenue is underperforming is not an excuse to bring down the revenue that is required to fund the national budget. In 2018, revenue performance was 55 per cent. Half year 2019, the performance moved up slightly to 58 per cent, but that is not an excuse to reduce revenue because it means that we are all sanctioning underperformance. We have to push the agencies and push ourselves to be able to achieve those targets. Those targets are not set by the Ministry of Finance or Ministry of Budget and National Planning. The agencies proposed those targets.
We sit down and interrogate them on the targets. For example, NNPC has a production capacity of 2.5 million barrels per day. In 2019, they wanted a target of 2.5 million barrels per day. We insisted on being prudent and we scaled it down to 2.3 million. The performance is 1.98m effectively, including 100,000 barrels that is used to settle cash calls, but the capacity is there; so why are we not looking at what we can do to make sure that the capacity utilisation is attained? Why do we want to reduce it because we are underperforming? We are lucky that crude oil price in 2018 outperformed the budget because we budgeted $60 per barrel and we ended up with an average of $67 per barrel. If we had poor oil prices, then that 55 per cent revenue performance would not have been achieved. So what we have to do collectively is to make sure that the agencies that have the responsibility to generate revenue actually generate this revenue. We don’t create these revenue numbers; agencies propose them to us. We interrogate the numbers, ask them to justify, even to be prudent, we discount before it goes into the national budget.
Efforts to enhance revenue in 2020 budget
We agree with the IMF that we need to look at how to improve governance and not just the NNPC but across all of government because poor governance results in underperformance. We have introduced new measures to enhance our monitoring of the revenue generating agencies, including monthly reconciliation exercises where all the agencies bring in their data and we reconcile.
The gaps that used to exist are gradually closing. Mr. President has said that target will be set, even for ministers as wells as heads of agencies and that when targets are met there will be commendations and when they are not met there would be consequences. What was missing in the past was that that there no consequences. So if an agency underperforms, there were no consequence, but now there will be consequences and we will be pushing to make sure we provide all the support that the agencies require to enable them perform.
On the IMF call for comprehensive reform
Before the presidency of President Buhari, oil revenue was 60 per cent of the national budget. Now it is down to 32/33 per cent in the 2020 budget and that is indicating that non-oil revenue is contributing more than oil revenue. Also, the Gross Domestic Product contribution of oil revenue is now just about eight per cent so our economy is actually diversified. What we need to do is to enhance the various value chains in different sectors to make sure that their contribution to GDP is enhanced and it is insignificant.
It is not true that we are heavily exposed to debt from China. We have a wide portfolio of debt right now as our domestic debt is about 57 per cent with foreign debt making up the difference. We will continue to find different instruments to elongate the period for the tenures of our debt.
Our target is to move the total portfolio to an average of 10 years tenor. There are projects specifically China gives us loan to build, such as a rail, or major infrastructure such as the renovation of the airport. I think there is also some kind of a negative message going on that we are tied down to China. We are not. Rail is being built in Nigeria. Is China going to take this rail out of Nigeria? The airports that have been renovated will soon be concessioned. They have given us loans and part of their conditions is to say this loan must be implemented by companies that are Chinese companies and we don’t see anything wrong with that. All we have to do is to make sure that Chinese companies have the capacity to deliver the projects and we have seen that the rails that are being deployed are very high-quality projects. So, let’s looks at what is in the interest of Nigeria not just what people are saying.
Why the DG of the Nigeria Bureau of Statistics is at the meetings
Well, every economy that works well must have reliable data based on which planning can be made so that decision makers are taking decisions based on data that is reliable. The NBS has proven over time that it has a capacity to generate reliable data to the extent that the Brentwood institutions; the World Bank and the IMF, use NBS data to generate their reports. They also engage NBS to do some of their own surveys and they use that for different purposes. So the quality of NBS data has improved over time and we have found it very useful in taking decisions.
The purpose of the annual meetings of the World Bank and IMF is to hold statutory meetings of the board of these two Brentwood institutions to discuss global issues that affect us all. We have sessions that we call early warning sessions, where treats to the global economy are discussed in a way and manner that is dispassionate and together, we try to find solutions.
Nigeria leads the IMF group where we represent 23 African countries and also other African countries in that meeting, and what we try to do is to put the issues of the African continent on the global agenda.
On the side of the World Bank, there is a development committee where African countries are represented and currently South Africa leads in that and we change our positions every two years. But this time South Africa is unable to attend so Nigeria is also representing the African countries on the development committee meetings. Specifically, apart from the statutory meetings we have some special discussions that we ensue. The few of them that are important to us in Nigeria is one; am participating in the governor’s corner meeting where I will be discussing on domestic revenue mobilisation. There will be other finance ministers a few that are selected, that will be participating in the same panel. There is also a debt transparency panel that is being chaired by the World Bank president, where I will also be speaking as a panelist and there is a panel on human capital development and jobs creation where I will also be participating.
What we hope to achieve as a country, is to be able to directly interface with the heads of these Brentwood institutions along with other multilateral institutions, like Islamic Development Bank, Deutsche Bank that are here and several other agencies including credit agencies to discuss issues that affect Nigeria, and the challenges that we have. What they have in terms of resources, both funds as well as skills that we can harness to support us.
The $2.5 billion facility
There is a proposed $1.5 to $3 billion facility for the power sector development programme in Nigeria, and this will include development of the transmission network, development of the distribution network as well as removing the challenges that we have now currently within the electricity sector. We are going to have full meeting to discuss the Power Sector Recovery Programme. Back home we have been working a great deal with the World Bank to design how this programme will be implemented.
So, we have an opportunity now to have a direct meeting with the leadership of the bank to tell them the plan that we have and how much we need. So, the funding could be as much as $3 billion. We are pushing for it to be provided in phases, maybe phase one would be $1.5 billion and phase two will be another $1.5 billion.
2020 budget and taxation
Budgets of countries are supposed to be based on taxes that the country is able to generate. It is an anomaly for us in Nigeria that our budgets have not been focusing on revenue. What we are trying to do in 2020 is to harness the full potential of revenue mobilisation. The only increase in taxes in 2020 budget is just VAT.
Everything else is just maximizing the potentials of existing tax streams that we have and we hope that we will be able to do this to be able to move our tax to GDP ratio from the current seven to eight per cent of GDP to 15 per cent. We can only develop in a manner that is sustainable when we are using tax revenues to fund our national and sub-national budgets.
It is an anomaly that we are depending largely on oil and gas revenue, which is a resource that is finite. It is going to go out of existence before you know it. So, we have to develop the domestic tax base. The main focus will be on expanding the tax base ensuring enforcement of the existing laws and then blocking leakages.
Proposed 7.5 per cent in VAT
We have sent the Finance Bill to the National Assembly. The Finance Bill has several proposals; one of them is the increase of the VAT from five per cent to 7.5 per cent. We believe that the National Assembly will do justice to this Finance Bill. Our target is to ensure that the Finance Bill is passed within the same period that the budget is passed because it will enhance our capacity to be able to fund our 2020 budget.
Non -oil sector
Recall earlier in January this year, we launched the Strategic Revenue Group Initiative which is an initiative that was put together by all of the revenue generating agencies in the country led by the Ministry of Finance. Our objective is to be able to harness the existing revenue streams that we have by ensuring that enforcement is effective to expand the tax base and also to identify new revenue streams that we can add to expand the revenue base.
In expanding the revenue base, we have proposed the increase of VAT but there are also other revenue streams that we are looking at and some of them include introduction of excise duties on carbonated drinks but there is a process to doing these things. Any tax that you are introducing will involve a lot of consultations and also amendments of some laws or introduction of new regulations. There are several cost cutting measures also in the Strategic Revenue Growth Initiative (SRGI) and also a number of costs cutting initiatives such as innovation and automation as well as capacity building of our people.
No. We needed to close the border because we are not getting cooperation from our neighboring countries. We have over the years committed to some alliances, bilateral agreements and our neighbors are not respecting those bilateral agreements. And at this time when the president has signed Nigeria up to the AfCFTA, it becomes more important for us to make sure everybody complies with the commitments that are made. The practices that our neighbors engage in are hurting our economy and our local businesses and we have to make sure that it stops. That is the purpose of closure of the border and not generating revenue. The revenues that are generated are a consequence but that is not the objective, it is just to ensure compliance of the commitments that we made between ourselves and our neighboring countries.
Timeline to re-open the border
The timeline would be when the neighboring countries commit to complying with the commitments we signed. We hope that at some point, there would be discussions at the level of presidents where we would extract strong commitments from our neighbors.
Reforms around debt
Again, Nigeria does not have a debt problem. What we have is a revenue problem. Our revenue to GDP is still one of the lowest among the countries that are comparable to us at less than 20 per cent of GDP. What the World Bank and IMF recommend is up to 50 per cent of GDP for debt of countries our size. We are not there yet, so the problem we have is a revenue problem.
The underperformance of revenue is causing significant strain on our ability to service debt, to service government day-to-day expenditure. That is why all the work we are doing in the ministry of finance and other economic ministry is to concentrate on driving the increase in revenue.
Checking inflationary pressures
11.2 per cent is not a high inflation rate. Remember that in January 2017 inflation was 18 per cent and whenever there is any shock within the economy, like the border closure, the market reacts so you have inflation but it will be moderate and it will stabilise within a short period of time.