Our Medium-term Plan is Based on Increasing Revenue

0

Nigeria’s economy has been riding in a stormy weather for several months. Things came to a head in the second quarter of 2016, when the economy slipped into recession and since then, it has been struggling to swim out of the murky waters. While there are estimations by local and international analysts, International Monetary Fund and even government on the time, when the economy would exit the recession, the federal government has continued to implement an expansionary budget to spend its way out of recession. In this Interview with Kunle Aderinokun, Minister of Finance, Kemi Adeosun, explains that the spending from the expansionary budget provides stimulus to the economy, says the fiscal and monetary objectives of the government are moving in the same direction for growth and sustainability, addresses the concerns on the nation’s rising debt, and sheds more light on the Paris Club refunds and issues arising from the TSA initiative

Now that the budget has been signed by the Acting President Yemi Osinbajo, what are the plans for implementing it to the letter, especially when we’re half way into the year for a budget that would have ordinarily taken effect from January 1? How will the release meet the projects planned for the current fiscal year that had been begging for funding?

The signing of the budget is a significant event as it allows us to continue to provide stimulus spending to the economy in a manner that will not only allow us to exit the recession, but put us on the path to growth. I am confident that implementation will be strong; most projects are a continuation and finalisation of ongoing work, therefore, the delays in impact that were caused by the procurement process last year, should not occur. In terms of capital releases, ministers are being asked to prioritise projects according to the Economic Recovery and Growth Plan objectives and focus on project completion.

In terms of funding, we did very well last year, releasing over N1.2 trillion of the capital budget across all areas and the impact on aggregate demand has been strong. We have been able to pump funds into the economy and meet some long overdue infrastructural objectives. Now, we need to sustain that momentum and ensure that there is a multiplier effect, trickling down to the lives of ordinary Nigerians in a tangible way.

For last year’s budget, what is the level of implementation of the capital allocation?

We released and cash-backed over N1.2 trillion in capital releases to MDAs and we funded some very critical sectors like Power, Works and Housing N307,411,749,682, Transport and Aviation N143,121,925,241, Defence and Security N171,900,597,013. These are major sectors of the economy which will drive business growth. These sectors also employ thousands of people. Indeed, recently, I was talking to a major contractor, who said that before this administration came into office, their last payment was received in 2013 and they had laid off thousands of staff as a result. However, many of those people have now been re-engaged. The wider impact of these investments will be consolidated upon this year.

How optimistic is the federal government in getting funding from the multilateral institutions and other development partners for the budget and its deficit, given that some of them gave conditions in securing the loans, which include having in place an economic framework? Has the Economic Recovery and Growth Plan been accepted by the development partners?

We have always worked with the multilateral institutions and they have indicated strong support for us and the reforms we are driving to reposition the economy. For example, we are working with The World Bank on the Power Sector recovery plan, they sent down their most senior global power experts and we spent two useful days in Abuja. More recently was a meeting in Washington DC, which included myself, the Minister for Power works and Housing and the Senate and House Chairmen on Power. The World Bank has agreed to fund the power sector over a number of years and this is significant. We also have World Bank funding for our social intervention programme for work ongoing in the North-east as well as support for our state governments.

Equally, we are working with the African Development Bank on a number of areas, including agriculture and the recently-launched Development Bank of Nigeria. So, we have a good working relationship and they are all supportive of what Nigeria is doing in economic terms. When you mention conditions, you must remember that we needed time to develop an economic plan that was aligned to our own objectives for the economy. That work has now been done with the launch of the Economic Recovery and Growth Plan, which has been very well received.

There had been clamour for harmonisation of the fiscal and monetary policies by local and international economic analysts, market watchers and other stakeholders when it became obvious that there was a lacuna between the two, some months ago. Is there any harmony between the two now? How is the federal government improving on it?

What needs to be appreciated is that what Nigeria has been through and to some extent, is going through, is a shock – the dramatic drop in the price of the major foreign exchange earner in an economy, where there is an over-dependence on a single commodity. Where there are inadequate fiscal buffers in terms of reserves, such shocks result in painful dislocations. I think there were differences in policy approach but the objectives remained the same between the monetary and fiscal authorities at the Central Bank and Ministry of Finance, respectively. More recently, we have seen greater harmonisation, especially in the implementation of the foreign exchange policy by CBN and we trust that this will continue. On the macro framework, we have set out our fiscal objectives and the whole nation is pulling in the same direction, making Nigeria grow and sustainably.

What is the update on spending of the Paris Club refund? Has the federal government been effectively monitoring application of the refund by the states for payment of salaries because there had been reports and allegations of diversion of the funds by some states?

The Paris Club refunds have been unnecessarily controversial and this is rather unfortunate as it detracts from a very noble initiative by Mr. President. This refund relates to claims made by the state governments since 2005, when they alleged that the debt forgiveness was partially funded by over-deductions from the states.

To fully understand his objectives, we must go back. You will recall, that the President Muhammadu Buhari-led administration, inherited a situation where 22 states were unable to pay salaries and this was creating a drag on the economy and major suffering for people. As you know, in many areas, the state government is the largest single employer of labour and consequently, the primary driver of the economy. So, the situation was very, very serious. Also, recall that in the last three years since the oil price decline began, allocations to state governments contracted by up to 40 per cent but unlike the Federal Government, they could not borrow to meet the gap. Mr. President has been very considerate, first in the restructuring of debts undertaken by the Central Bank of Nigeria in July 2015. More recently, Mr. President approved the conditional Budget Support Facility and the Paris Club Refunds.

The overall aim of these interventions was to stabilise the states by providing immediate financial relief during a challenging economic situation in order to enable them meet their core financial obligations. Specifically, you will recall that we introduced a 22-point Fiscal Sustainability Plan that required improved transparency, accountability and other reforms. Now, you see many states clearing ghost workers from their payroll, publishing their budgets and financial statements. These were conditions for the disbursement of the facility and have improved financial management permanently

Now, back to the Paris Club refunds, as I said, the controversy is unfortunate. Many states had pre-existing contracts with consultants, which needed to be resolved and this was a matter for the governors. However, from our monitoring of the states, they adhered to the conditions imposed, which included that 50 per cent of the amount received must be used to meet salary and pension obligations. We recently published the actual figures state by state and this has also helped to provide greater clarity on the use of funds. Overall, I think that many states are realising that the days of ‘come and share’ are over. Some are really doing well in looking inwards many are trying to drive growth within their own states.

Nigeria’s domestic debt and external debt rose by 40.71 per cent and 45.98 per cent respectively, within two years and there had been fears over the sustainability of the debt because huge funds are being committed to servicing it, which is eating deep into the treasury. Are we not in trouble?

Not at all! It is important that we all understand the overall strategy. When we came in, Nigeria was in trouble, there was no strategy to deal with our problems. We had missed the opportunity presented by some of the highest oil prices ever. During that period of high oil prices, Nigeria experienced a rising debt profile, that was a period when we should have been worried about debt. In fact, we should have been alarmed. When income was high, we had no reason to borrow especially when we were spending just 10 per cent on capital. We increased our debt level from N6.5 trillion in 2011 to N10.9 trillion in 2015 and at the same time, reserves declined from US$45.6 billion to US$29.8 billion. That wasted opportunity created the ingredients for slow growth and recession.

We looked closely at the situation and realised that in the short term, we needed to spend our way out of trouble, so we set an expansionary budget to provide stimulus spending. This has been successfully applied in many nations to reverse the downward trend by providing counter cyclical intervention. This entailed increasing borrowings to fund capital expenditure and increase aggregate demand to turn the economy around. That was the short-term and very urgent imperative.

Our medium-term plan is based strongly on increasing revenue mobilisation. This is important because the preferred alternative to borrowing to fund our investments is to raise revenue to do so. Increasing our revenue is not something that can be attained instantly. For example, in some cases like tax collection we needed data, we needed to sign some treaties and we needed tax policy reforms. We have been working hard on these measures. We recently started training our Community Tax Liasion Officers who will educate citizens and enroll more taxpayers. There are just 14 million taxpayers in Nigeria, it is not sustainable, and even those who are paying, are not all paying what they should pay. Next week, we are launching a major programme in tax compliance which we expect will raise significant funds and drive higher long-term tax revenues.

In other areas, we needed to work on blocking the leakages. You will recall that we started with auditing the revenue generating agencies, and identified over N450 billion in outstanding and recoverable operating surpluses. Then, we issued new circulars, outlawing certain expenses that we deemed wasteful. The recent issuance of the Executive Order on the budgets of agencies is about generating revenue to support our reforms. By insisting that agencies submit their budgets for review, we have been able to strip out wasteful spending and this will increase operating surpluses that are paid into the Consolidated Revenue Fund. Already, we are seeing the impact of our reforms. Some agencies like JAMB had not been making returns because they were spending all that they generated but just last week, Jamb paid in over N5 billion in operating surplus. This is a function of our tighter focus on revenue. Such reforms are permanent and we are just getting started, many agencies have been told to revise their draft budgets to align with our objectives. Our focus on revenue is total. Revenue generation is not as rapid as raising debt but it is permanent. Increased revenue will ensure sustainability, will prevent us falling into a debt trap and will reduce our debt service to revenue ratio.

The International Monetary Fund and economic analysts, both local and international have stressed the fact that the revenue to GDP ratio of Nigeria’s debt is low but agreed that we’re still in the comfort zone of the debt to GDP ratio? How will the federal government balance the two?

As I said, our decision to focus on debt initially was due to the urgency of our situation, we could have waited to generate revenue but this would have prolonged the recession. Our medium-term focus is on revenue and we have started in earnest. The high debt service to revenue issue is a short-term one, and we have a strategy to address it. It is now about implementation of that strategy and we have already started.

The TSA policy had been largely criticised. While some sections of the economy regarded it as a laudable policy, which has come to instill transparency and accountability, some others described it as a policy, which was introduced to cause liquidity squeeze and stifle the economy. In your fair assessment of the policy, has it been successful? Is there any aspect of the policy that could be improved upon?

The Treasury Single Account is a fundamental reform that was necessary to give the Federal Government better visibility and improve the management of its cash position. By closing thousands of accounts and merging them, the Federal Government has been able to save billions of naira in bank charges. An additional benefit is that there is greater visibility of the true revenues of government and this has enhanced accountability.

Those who have criticised the policy seem unaware that there are virtually no major economies where the federal government is the biggest customer of privately owned banks. Banks are the engine of the economy channeling funds from savers to borrowers. Already, government is the largest borrower, which means if government is also a depositor, it is borrowing back its own money. In the short-term, TSA may seem painful but in the long term, banks will adjust by driving financial inclusion by bringing in unbanked sections of the population and by lending more to the private sector.

Like any new policy, there is always room for improvement and we will continue to fine-tune the policy as we go along.

There are still issues with the whistleblower initiative because there are reports that whistleblowers are losing their jobs; there was even a case somebody in the foreign affairs ministry who was prematurely retired after whistleblowing but was recommended for re-instatement, the decision that has not been respected by the ministry after two months. However, we know that the Whistleblower Bill has been passed into law. Has the implementation not commenced? If not, what is delaying its enforcement?

The Whistleblower Policy is another new initiative of this administration and it is one of the tools in our fight against corruption and waste. So far, it has worked well but with any new policy as previously mentioned, there is a need for constant refinement. For example, we had to work and legally define, ‘Who is a whistleblower?’, What happens when two people provide the same information, How do we safeguard the system against malicious reporting? How do we pay the whistleblowers without compromising their identity. So, in response, we have had to develop a legal agreement, which is executed between the information provider and the Attorney General of the Federation and it is designed to protect both parties.

It also places responsibility on the information provider for false or malicious information, which can lead to prosecution.

On the payment process, we had to set up a structure to prevent the use of bank details of whistleblowers to trace their identity, which might have put them at risk.

Overall, I think that the Whistleblower Initiative has worked well. It is hard to comment on individual cases such as the one you mentioned since I don’t have the full details but by its nature, this is a contentious area and disputes are inevitable.

However, we will keep looking at the bigger picture which is the deterrent effect, preventing looting and also helping in our recovery efforts. We continue to learn as we go, currently, we are reaching out to the Australian government for some technical support since they have a very well established and successful unit. We are going to work out what we can learn from them.