Rewane, Ahmed Propose Policy Options to Tackle Fiscal Crisis

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· Recommend subsidy removal, fiscal repositioning
· Blame crisis on sub-optimal growth, poor investment flow

Gboyega Akinsanmi

Experts in fiscal policy and macroeconomics have recommended alternative policy options to address fiscal crisis arising from the widening gap between public revenue and expenditure.

The experts also, identified poor investment flow and sub-optimal as more fundamental problems currently confronting the Nigerian economy, which according to them, can worsen unemployment and low productivity, among others.

The Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck J. Rewane; President, Nigeria’s Manufacturers Association (MAN), Alhaji Mansur Ahmed, among others, expressed concern about the economy in separate interviews with THISDAY yesterday.

The Director-General of the Budget Office of the Federation had at a public consultative forum on the 2020-2022 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) in Abuja confirmed that the federal government could only generate N2 trillion between January and June.

Within the period under review, however, the Director-General of the Budget Office of the Federation, Mr. Ben Akabueze had revealed that the federal government alone expended about N3.3 trillion compared with 2 trillion generated.
He disclosed that an aggregate of N4 trillion revenue was collected in 2018 with expenditure of N7.4 trillion, including N1.7 trillion capital budget within the period. However, he claimed, the remaining half of the year would be better in terms of revenue performance.
In separate phone conversation, the experts suggested alternative policy options the federal government could adopt to rejig the economy, ranging from removal of fuel subsidy, consolidated fiscal positioning, creating enabling environment for private investment flows and expansion of tax net.

Rewane, an economist explained the root causes of the fiscal crisis, which according to him, was partly structural and partly unstructural.

He argued that the federal government only “needs revenue to meet its expenditure,” which he said, would not necessarily retard the growth of the GDP if the private investments were normal and steady.

He explained that if the GDP “is performing at 1.9 percent when the population growth is about 3 percent and the growth target is about 6 percent, then the economic growth will be affected. We need to deal with critical issues.”

With this illustration, he explained that there “will be a level of gross capital formation, which is lower than normal and which we need to deal with. We need to separate structural problems from peripheral problems.”

Rewane, therefore, pointed out that the more fundamental problem had to do with the fact that the investors “are not bringing in more monies.”

He argued that even when the revenue “declines and the government cannot spend, the economy can still grow if private investments are steady.

“Fiscal crisis is simply about budget. It is about the government revenue and expenditures. Much more fundamental is when we have more revenue and our economy is not growing like Japan, we have a problem.”

He noted that the country “needs growth. It is growth that we want. We are not getting that. To do that, we need gross capital formation. We need investment growth. We need fiscal consolidated positioning. Fiscal crisis is just a manifestation of the fundamental problem the economy is facing.”

He, specifically, faulted efforts directed at addressing a part of the challenges confronting the economy, which according to him, might not yield desired outcome, thereby canvassing the need “to look the problem holistically.

“If the economy is growing sub-optimally, there will be all sorts of things. Things are very clear. First, there will be unemployment. Also, there will be low productivity. There will be reduction in government revenues.

“The problem we have today is because of sub-optimal growth. Private investments are not coming in. And that growth is because activities are concentrated in one or two areas, which are not job elastic,” he said.

Mansur Ahmed, an Executive Director at Dangote Group warned that the proposal to increase value added tax (VAT) to 7.5 percent was an appropriate measure to address the fiscal challenges facing the country.

Ahmed argued that this was not the time “to increase any tax whatsoever. The purchasing power of the people is very poor. People do not have much money in their hands. They are struggling. Food prices are rising.

“To increase VAT in particular is to increase the cost of foodstuff. Once government increases VAT, everything goes round. We believe the federal government has to generate more revenue. But we believe this is not the way to raise revenue at the moment.”

He, therefore, recommended the need “to bring into the tax net those who are not in the tax net. The Federal Inland Revenue Services (FIRS) has established the fact that we can widen the tax net quite considerably. We believe that effort should be sustained.

“People who are liable to pay taxes should be made to pay. To increase the tax rate is not appropriate at this time. For manufacturers, it will mean fuller warehouses because demand will fall. That may even affect employment,” the MAN president said.

He, also, suggested the need to remove fuel subsidy, arguing that the subsidy “is not getting to the right beneficiaries. The federal government can significantly reduce it or remove it all together. That is the kind of funds government needs to invest in social sectors – education, health and even infrastructure.

“If government can eliminate fuel subsidy, it will provide money in government coffers that can help address economic situations right now. It is an area that can have positive impact on the domestic economy,” he explained.