Nigeria’s Economy Still Vulnerable to Oil Shocks, Says IMF



  • Predicts 2% GDP growth in 2018
  • FIRS rakes in record N2.5trn in 6 months

By Obinna Chima in Lagos and Ndubuisi Francis in Abuja

The International Monetary Fund (IMF) has stated that despite the relief higher oil prices and short-term portfolio inflows have provided to Nigeria’s economy, the country remains vulnerable to oil price and production shocks.

A team from the multilateral institution made these observations after a visit to Nigeria, just as the Federal Inland Revenue Service (FIRS) said that it grossed a total of N2, 529,615,174,601.25 from various taxes between January and June 2018.

The IMF team led by Senior Resident Representative and Mission Chief for Nigeria, Amine Mati, visited Nigeria between June 27 and July 9, 2018 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation with top government officials.

The mission in a statement yesterday urged the federal government to take urgent action “on a coherent set of policies to reduce vulnerabilities and increase growth over the medium term remains.”

It predicted that growth would pick up to about 2 percent in 2018, weighed down by lower than expected oil production and relatively weak agriculture growth.

Specifically, the multilateral organisation noted that although “higher oil prices and portfolio flows, have helped strengthen fiscal and external buffers, the outlook for 2018 remains challenging, as private sector lending remains low while foreign exchange inflows are mostly short-term.”

Precisely, the IMF recommended specific and sustainable measures to increase the currently low tax revenue – including through avoiding new tax exemptions – and ensuring budget targets are adhered to even in an election year.

According to the IMF, this process should be supported by keeping monetary policy tight through appropriate monetary policy tools that will help contain inflationary pressures and support a move towards a uniform market-determined exchange rate.

It pointed out that moving ahead with structural reforms was needed to invigorate inclusive growth, particularly in the power sector where it noted that faster progress would be needed to ensure financing shortfalls in the sector are met in a sustainable manner.

The statement added: “Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures, but the recovery remains challenging. International reserves remained stable at about $47 billion, supported by some convergence in existing foreign exchange windows, and despite some reversal of foreign inflows since April.

“Inflation declined to its lowest level in more than two years. Real Gross Domestic Product (GDP) expanded by two percent in the first quarter of 2018 compared to the first quarter of last year.

“However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.

“Corporate tax collection efforts improved but revenue shortfalls and the late adoption of the 2018 budget impede its implementation.”

However, the Washington-based institution noted that revenue from higher oil prices in Nigeria was limited by net losses from retail fuel sales while non-oil revenue has remained below expectations, with yields from tax administration measures – including the Voluntary Asset Income Declaration Scheme (VAID) and increased tax audits – yet to fully materialise.

It stated that current public spending in Nigeria had remained in line with expectations, stating that carryover from 2017 to 2018, helped increase capital spending in the first four months of 2018, despite delayed approval of the 2018 budget.

It added: “Lower yields have kept interest payments within the budgeted envelope, but the federal government’s interest-to-revenue ratio is expected to absorb more than half of revenues this year.

“Reforms to improve the business environment are progressing, including through identification of priority investment projects and the adoption of the Company and Allied Matters Act (CAMA) – a legislative landmark for private sector development.

“The implementation of the Power Sector Recovery Plan is advancing through a mini-grid policy and regulations on eligible customers and meter asset providers.

“Under current policies, the outlook remains challenging. Growth would pick up to about two per cent in 2018, weighed down by lower than expected oil production and relatively weak agriculture growth.

“The fiscal deficit would narrow slightly, with higher oil revenues offsetting increased spending, including those planned in a supplementary budget. Inflation would pick up in the second half of 2018 as base effects dissipate and higher spending and supply constraints in agriculture put pressure on prices. “Increased oil exports would keep the current account in surplus, helping stabilise gross international reserves even if the current pace of foreign portfolio outflows continues.”

FIRS Nets N2.5trn in 6 Months

Meanwhile, the Federal Inland Revenue Service (FIRS) grossed a total of N2, 529,615,174,601.25 from various taxes between January and June 2018.

The N2,529,615,174,601.25 is an increase of N746,107,323,247.26, a 42 per cent rise when compared to the N1,783,507,851,353.99 total tax revenue realised in the corresponding period in 2017.

The amount indicates that the Service had realised 75 per cent of its total target for the year, which is an improvement in the corresponding period of 2017.

Director, Information at the Ministry of Finance, Hassan Dodo disclosed in a statement that a report on the revenue performance by the agency, submitted to the Minister of Finance, Mrs. Kemi Adeosun, confirmed that the N2,529,615,174,601.25 has an increase of N746,107,323,247.26, representing 42 per cent, when compared to the N1,783,507,851,353.99 total tax revenue realized in the corresponding period in 2017.

An analysis of the total amount showed that N1,168,627,365,306.67 was collected as Petroleum Profit Tax (PPT) as against N636,170,585,753.57, resulting in a variance of N532,456,779,553.10.

From the Company Income Tax (CIT), the FIRS realised a total of N680,093,730,362.25, which was N128,151,996,465.68 more than the N551,941,733,896.57 in the previous year.

The Value Added Tax (VAT) yielded a total of N536,525,540,228.39 in the period under review, which was N68,841,756,240.06 more than the N467,683,783,988.33 realized in 2017.

The Education Tax brought in N77,191,051,329.11 compared to the N58,868,372,910.79 in 2017, showing an increase of N18,322,678,418.32

The revenue from Stamp Duties was N7,492,592,658.35, which was N2,346,472,953.70 higher than what was realised in 2017 from Stamp Duties which was a total of N5,146,119,704.65.

The FIRS said it realised N1,006,543,151.07 from capital Gains Tax , an analysis of which showed that the amount was N64,916,270.95 more than the N 941,626,880.12 in 2017.

From NITDEF, a total of N9,249,618,573.91 was realised, resulting in an increase of N736,357,883.29 when compared to the total of N8,513,260,690.62 in 2017.

The Consolidated Tax Revenue for January to June 2018 was 49,428,732,991.50; an amount that was higher than the N54,242,367,529.34 by a total of N4,813,634,537.84.

With continuous revenue generation strategies, the FIRS expressed optimism that its efforts will have significant outcome, particularly in increasing revenue for 2018.