Nigeria would not turn to near zero-interest rate International Monetary Fund (IMF) loans, even though it could snap its fingers to land one; after all, the country’s home-grown policies are similar to the Washington lender’s conditionality, according to Kemi Adeosun, finance minister.
“What the IMF does, is that they give you programmes of reforms. However, we are already doing as much reform as any IMF programme will impose on us,” Adeosun said in an interview on CNBC Africa, on Tuesday.
“So, my questions are what an IMF programme will bring that we are not already doing. What measures will be introduced that are not in place already?” Adeosun asked.
“A deep domestic capital market” and the international capital market are enough to meet government’s revenue needs, she said.
Public revenues have plunged by more than half in Africa’s largest economy, after low oil prices and below trend production levels trimmed petrodollars, which account for 70 percent of public revenue.
Faced with its worst economic crisis in 25 years, the country plans to spend N7.3 trillion this year, to grease the economy, but low revenues have created a deficit of N2.3 trillion to be plugged through borrowing.
IMF loans have often been put forward as a cost-effective way to raise long term funds for infrastructural spending but the country’s economy managers are not convinced.
Kalu Idika Kalu, a respected economist and two-time Nigerian finance minister has also lent his weight to the usefulness of an IMF loan recently.
“For us, the IMF is the last lender of resort when you have a balance of payment problem. Nigeria doesn’t have a balance of payment problem per say, it has a fiscal problem instead, which is that its major revenue source, oil, has lost so much value,” the minister said.
Nigeria’s balance of payment has been negative since oil prices began a lengthy collapse in mid-2014, which then put a strain on finances, according to the Central Bank data.
“I am not saying the IMF is bad, but I’m saying right now, we don’t see the need. We feel since this is a mess Nigerians created one way or the other, we must also solve it ourselves,” the minister added.
To the minister’s credit, however, efforts to grow the country’s tax to GDP and plug revenue leakages have every appearance of an IMF conditionality.
Nigeria’s tax to GDP is one of the lowest globally at less than 5 percent, according to BusinessDay data, and it compares poorly with a sub-Saharan average of 18 percent and South-Africa’s 26 percent.
Analysts however say Abuja is a long way off from securing an IMF loan, when recurrent expenditure accounts for 70 percent of total public spending, government is often reluctant to remove subsidies and shamefully distorts market principles in resource allocation.
“Nigeria can never be willing to take IMF loans because government officials know that the lender’s conditionality will tighten the belt of everyone from the executive to the legislature,” a source familiar with the matter said on condition of anonymity.
“An IMF loan is cheaper than debt raised in the international capital market but I’m not sure Nigeria is ready to subject itself to rigorous scrutiny.”
African peers Egypt and Ghana are currently on IMF programmes.
Part of the conditionality the countries had to meet was cut public spending, remove unpopular subsidies and raise taxes.
Both countries have been able to sway investor confidence with the IMF deal. Ghana’s $800 million was oversubscribed last year, while Egypt has raised close to $4 billion after the deal.
“I am not so thrilled about the recent $1 billion Eurobond because I feel it’s too expensive at 7 percent and we should have sought developmental loans like a World Bank relief instead,” said Taiwo Oyedele head of Tax at consulting firm, PriceWaterhouseCoopers.
“If we are truly implementing IMF-like reforms, we would not have sold the bond at that cost and would have attracted significant foreign inflows like Egypt for example,” said Oyedele.
Foreign importation to Nigeria fell to a nine-year low of $5.1 billion in 2016 from around $9 billion a year before, as investors flee the country on foreign exchange risks.
Despite the prevailing economic headwinds, the country targets 7 percent growth in 2020 according to its Economic Recovery and Growth Plan, which Adeosun says is still being “fine-tuned.”
After gorging itself on petro-dollars for decades, the country is now working out a painful shift away from its over dependence on crude oil revenues.
The minister said non-oil revenue is improving steadily but has been difficult.
“In terms of oil, production is back up and we are very grateful for that, the oil price is also favourable but not stable and I think we should be very careful how we are getting excited about rising oil prices,” the minister said.
“Increasing non-oil revenue is one of the most difficult things to do. It is where a lot of energy is being exerted. So far, the Federal Inland Revenue Service (FIRS) has enrolled about 825,000 new taxpayers or tax payers. There is a lot going around tax mobilisation.”
Nigeria plans to earn N4.9 trillion in 2018, according budget estimates. This is 28.9 percent higher in naira terms, than 2016’s N3.8 trillion estimate.
To achieve this, the country must earn N411.66 billion monthly.
Nigeria’s revenue is derived from oil, non-oil and independent sources.
The country revised down its independent revenue projection for FY 2017, which at N807 billion is almost half that projected for 2016. Non-oil revenues, largely comprising Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies are estimated to contribute N1.373 trillion, 5 percent lower than 2016’s forecast.
However, it expects a 140% increase in oil revenue projections to N2 trillion in 2017, from N820 billion in 2016.
