MPC Member Urges FG to Amend Fiscal Responsibility Act

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By Obinna Chima

A member of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC), Prof. Mike Obadan, has advised the federal government to amend the Fiscal Responsibility Act (FRA) 2007.

He suggested that Section 22(1) and (2) of the FRA that requires Ministries Departments and Agencies (MDAs) to deposit at least 25 per cent of their revenue into the Consolidated Revenue Fund (CRF) be amended.

Obadan, in his personal statement at the last MPC meeting, a copy of which was posted on the CBN’s website yesterday, said his suggestion if implemented, would ensure an effective method of determining remittances by MDAs to the CRF.

He stated that in the present environment of weakened economic activities and provision of tax reliefs by the government to SMEs to bolster economic activities, the space for enhanced non-oil revenue has been limited.

“However, one area of reform that the government needs to look into seriously relates to remittances from the operating surpluses of government departments and agencies, which at present are underestimated by the agencies.

“The government should initiate actions to amend the FRA 2007 to provide for an effective method of determining remittances by MDAs to the CRF.

“To this end, one suggestion is to amend Section 22(1) and (2) of the FRA to require MDAs to deposit at least 25 percent of their revenue into the CRF instead of 80 per cent of their operating surplus which they arbitrarily determine.

“This will improve the availability of funds for financing government activities and reduce fiscal deficits and massive borrowings.

“Secondly, the reforms to reduce fiscal deficits must especially be on public expenditure. This is one key driver of the high cost of governance which stakeholders have continued to decry,” he said.

According to the economist, inefficient spending and high cost of governance should be addressed by the government.

Obadan noted that the interventions and measures by both the fiscal authority and the CBN to contain the coronavirus pandemic, stimulate economic recovery as well as avert recession were encouraging under the circumstance of serious financial resource constraint.

In her contribution, the Deputy Governor, Financial System Stability Department, CBN, Mrs. Aisha Ahmad, said a total of 22 commercial banks had submitted requests to restructure 35,639 loans for their individual and corporate customers whose economic activities had been disrupted by the COVID-19 pandemic.

The number of banks that submitted applications for such request as at May was 17 and the number of loans then was 32,000.

Ahmad said the financial system remained resilient albeit with regulatory support.

“As at July 20, 2020, 22 banks submitted requests to restructure 35,639 loans of businesses impacted by the pandemic, representing 41.92 per cent of the total industry loan portfolio.

“This has partly reflected in improved industry risk profile, as non-performing loans ratio declined from 6.6 per cent in April 2020, to 6.4 per cent in June 2020.

“Net interest margin remains robust despite lower interest income, perhaps due to much lower industry interest expense, as market deposit rates continue to decline,” she added.

According to the deputy governor, the Loan-to-Deposit Ratio (LDR), Global Standing Instruction, streamlining of access to open market operations securities and other complementary measures have been strong tailwinds, which have strengthened intermediation via increased lending to the key sectors such as manufacturing, agriculture and consumer markets.

“Gross credit grew by an additional N300 billion from N18.6 trillion to N18.9 trillion between end-April and end-June 2020, respectively) and lower market lending rates, which have insulated the financial system from the worst impact of the pandemic,” she said.

On his part, the Deputy Governor, Economic Policy Directorate, Dr. Kingsley Obiora, said the economic fallout from
COVID-19 had proven to be more pernicious than initially foreseen, adding that the transformation of Nigeria’s economy will continue to face significant resistance due to the situation in the global market.

“The recent improvement in global financial conditions has provided a window for aggressive monetary policies, as exemplified by certain emerging market central banks even embarking on their own forms of quantitative easing,” he added.

Another MPC member, Prof. Adeola Adenikinju, said a stress test was recently conducted on the banking industry, which confirmed “a resilient sector that is able to survive the effects of COVID-19 pandemic and volatility in the oil market.”