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Minister of Finance, Dr. Ngozi Okonjo-Iweala (Photo source: The PUNCH)
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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 Abuja while
addressing journalists on the Federal Government’s response to the crisis in
Abuja on Sunday.
The measures which will see Nigerians
paying tax on luxury goods, comes 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.
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 seat 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 shocks, 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 and that will help us address these shocks.
“We are not talking about (cutting) salaries and
benefits. We are talking of trainings 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 US$5 per barrel reduction in the 2015
budget benchmark price for oil from US$78 to US$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 US$73
dollars per barrel to the National Assembly compared to the earlier proposed
benchmark of US$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.”
US$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 US$4.1bn (N656bn) in
the Excess Crude Account, the government would be withdrawing US$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 (US$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 victimize 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 US$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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