A bold move by government to incorporate the informal sector for improved revenue generation and collection, as well as a reduction in cost of governance and plugging of leakages, are steps that can give meaning to the institution of austerity measures and devaluation of the naira, stakeholders say.
Querrying the measures adopted in the midst of a growing economy, currently at six percent, the stakeholders argue that rather than embarking on measures that would further impoverish Nigeria, exploiting non-oil revenue options would yield better results.
“I have never seen any government announcing austerity measures in a growing economy as the economy is not in recession, still cruising at six percent real growth. “The Nigerian fiscal processes have clearly disconnected from economic realities,” said Ayo Teriba, chief executive officer, Economic Associates.
In his published comment, Twin global shocks, dual policy response, and Nigeria’s economic outlook, in the BusinessDay edition of Monday December 8, Teriba further said, “The austerity proposal highlights the inability of government to raise adequate revenue levels required to run the government from Nigeria’s booming non-oil sectors.
“It is better to fix what is wrong with the fiscal process than let the fiscal contraction halt the economic growth.”
Besides, he said, “I do not however see the rationale for hiking the policy rate or raising the cash reserve requirement in addition to devaluation. CBN appears to continue to be transfixed on short-term considerations about financial markets and government finances, to the exclusion of medium-term considerations about the realities of supply-side and demand-side real economic activities.”
The CBN was silent on the domestic aggreagate demand conditions that would be needed to determine whether a rate hike and increased reserve requirement made sense or not at this time, especially in view of the adverse effects that the steep fall in global commodity prices and domestic equity market contraction must have already inflicted on private incomes, spending and employment in Nigeria.”
Bismarck Rewane in the a Bulletin released last week said, “The Federal Government has taken the first step in the right direction. However a blend of fiscal, structural and monetary policy adjustments are required to effectively mitigate the dire effects on the Nigerian macro-economy.”
Raziah Khan, analyst with Standard Chartered Bank, London said, “While Standard Chartered expects the current lows in the oil price to be relatively short-lived, it at least provides Nigeria with the opportunity to cut more wasteful expenditure that in any case did little to bring about transformational growth.”
Giving an analysis ,Teriba said that Oil GDP of about N10 trillion was just about 13 percent of the N80 trillion GDP that Nigeria was believed to have generated in 2013, the remaining N70 trillion, or 87 percent, being non oil GDP.
“So how would a 30 percent drop in the price of oil call for spending cuts? Why should oil that is just 13 percent of GDP account for 70 percent of government revenue, and non oil activities that are 87 percent of GDP account for 30 percent ? The fall in oil price should push Nigeria to raise more non-oil revenue, which is currently about 3.7 percent of GDP and 5 percent of non-oil GDP, compared to abpout 25 percent of GDP in the other African countries with large economies-South Africa, Egypt, Algeria, Angola and Morocco,” he said.
Philippe de Pontet, Africa Director, Eurasia Group, in a note to BusinessDay recently, said “The pre-election political climate makes fiscal and monetary policy adjustments that much harder, though we are beginning to see modest steps in both realms.
The modest fiscal measures proposed by Finance Minister Ngozi Okonjo-Iweala, are a small step in the right direction. While inadequate to the scale of the country’s macroeconomic problems, the fiscal adjustments at least shows that the administration is willing to take some counter measures.”
Government had through the Medium Term Expenditure Framework (MTEF) promised to improve on her tax collection efforts through the efforts of the Federal Inland Revenue Services and McKinsey, in broadening and strengthening the tax net.
Part of the actions excapsulated in the document said, “Government’s policy of restricting the expenditure of government-owned Enterprises to a maximum of 75% of their gross revenue continues to drive FGN Independent Revenue. This implies that 25% of such revenues are benchmarked as Government Revenue. More efforts are being made to ensure improved compliance.
In the medium term, government will continue to curtail inefficiencies in expenditure. More efforts would be geared towards fighting corruption in the public service, for instance, through a defined benefits system now restructured under the Pension Transition Arrangement Department (PTAD) and the enforcement of disciplinary measures for defaulters of the public service rule”.
John Omachonu
