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Co-ordinating Minister for the Economy , Dr Ngozi Okonjo-Iweala
The decline in the price of crude oil may have started taking its toll on Nigeria as the Federal Government on Sunday announced measures aimed at cushioning its impact on the economy.
The Minister of Finance and the Co-ordinating Minister for the Economy , Dr Ngozi Okonjo-Iweala, announced this in Abuja while addressing journalists on the Federal Government’s response to the crisis.
The measures which will see Nigerians paying tax on luxury goods, come barely six days after President Goodluck Jonathan formally announced his intention to contest the February 14, 2015 election.
Okonjo-Iweala, in company with the Director-General, Budget Office of the Federation, Dr Bright Okogu; the Accountant-General of the Federation, Mr. Jonah Otunla; the Acting Chair, FIRS, Alhaji Kabir Mashi and other top officials, told the journalists that the nation would be experiencing a challenging time owing to the global fall in oil prices.
The other measures, according to her, are a reduction in public expenditures and international travels by public servants.
She, however, assured that the Jonathan Economic Management Team was “on top of the situation” to proffer measures that would help to ensure that the “common man” did not feel the impact of the oil price decline.
She recalled that in the last three years, the Executive in its discussions on the national budgets with the National Assembly, had consistently advocated prudence and a low budget benchmark to encourage more savings.
The minister stressed that even though the drop in oil prices was a serious challenge, it was also an opportunity for the country to refocus efforts towards the non-oil sectors in preparation for a future with less oil revenue.
As part of the efforts to reduce expenditure, she said international travel within the public service would be severely curtailed, adding however, that critical infrastructure projects would not be affected because they were key to economic growth, development and job creation.
She said, “Every country that is well managed doesn’t just sit and allow a situation to happen to them. If they are well managed, they prepare the right set of policies to deal with the situation.
“Those days when we used to be like that in the ‘80s and 90s are over. In the ‘80s, when we had shock, we didn’t take measures by ourselves to adjust. We waited for others to come and tell us how to adjust. But now we have competent teams and our job is not to sit and wait, but, to craft a set of policies that will help us to address the shocks.
“We are not talking about (cutting) salaries and benefits. We are talking of training and travels and these will be only for critical and essential items which will be pre-approved by the Head of Service and the Director-General of the Budget Office and then if someone invites you for overseas course, you can go provided they pay for your training and your stay and you have to furnish evidence that they are paying before you will be allowed.
“The purpose of this is to tell you what we are doing and this team is calm and will be effective and we are working with the monetary policy authorities and together we will manage the economy in a transparent manner so that people need not have any fear.”
She also talked about the report of the Steven Oronsanye committee, which was set up by government to prune down ministries and agencies.The committee had recommended that some of the agencies should be merged.
“We found that a lot of these agencies are underpinned by law and we discussed with the National Assembly and they are willing to look at how their laws can be repealed. So this is also part of our medium term measures,” she said.
Reduction in budget benchmark
She said the Federal Government was keeping an eye on the development, noting that this was why it come up with a multi-pronged strategic response to mitigate the adverse effects of global oil price fall on the economy and reassure investors.
The responses, according to her, are a mix of measures designed to boost non-oil revenues further, plug loopholes and waste and cut unnecessary expenditures in order to cope with the situation.
Giving details of the government’s responses to the oil price fall, the minister said that after a careful analysis of the situation, the economic team approved a $5 per barrel reduction in the 2015 budget benchmark price for oil from $78 to $73 per barrel.
She said, “As part of the response, the Medium Term Expenditure Framework and the Budget 2015 proposal to the National Assembly have been revised.
“Government is now proposing a benchmark of $73 dollars per barrel to the National Assembly compared to the earlier proposed benchmark of $78
“Given the nature of the oil market, we needed to see the extent and trend of the oil price in order to take the right measures.
“Panic is not a strategy. It’s important that our strategies are based on facts and a clear understanding of both the strengths of the economy and the challenges posed by the drop in oil prices which is currently at $79 for our premium Bonny Light Crude.
“The drop in oil prices is a serious challenge which we must confront as a country. We must be prepared to make sacrifices where necessary.
“But we should also not forget that we retain some important advantages such as a broad economic base driven by the private sector and anchored on sound policies.
“Our strategy is to continue to strengthen the sectors that drive growth such as agriculture and housing while reducing waste with a renewed focus on prudence.”
Special tax on luxury goods
She stated that the decline in oil prices had given additional impetus to the Federal Government’s focus on increasing non-oil revenues.
In this regard, the collection target for the Federal Inland Revenue Service, which has been working with Mckinsey to increase receipts will be revised upwards for next year.
She said the country had recorded good success in reaching the initial target set this year of N75bn; noting that so far N65bn of this had been collected.
For 2015, the minister put the revised target at N160bn above the 2014 base.
Okonjo-Iweala also unveiled plans by the government to introduce what she called “tax on luxurious goods,” stating that this was a part of measures aimed at increasing revenue from non-oil sources.
She said that users of luxurious items, such as private jets, yachts, alcoholic beverages and expensive cars, would be required to pay special taxes for such goods.
The minister, who said the government was still compiling the list of luxurious goods to be taxed under the new initiative, assured that the proceeds from these items and services would be used to support the economy from external shocks.
She said, “We all know the definition of luxury goods, we are still compiling the lists and one of the things we can tax is champagne, alcoholic beverages, jets, luxury cars- we will look at the engine capacity, and yachts.
“We are putting the list together but we intend to do a surcharge going forward on these items.
“The principle is that those who are better off in the society and I hope they won’t mind will be willing to share a bit more in remitting a little bit more to the treasury than what they normally do on these things.”
$2bn withdrawal from ECA
Okonjo-Iweala noted that the reduction in the price of oil might continue but gave assurance that the government was fully prepared to ensure that the economy was not worse-off.
To this end, she said from the $4.1bn (N656bn) in the Excess Crude Account, the government would be withdrawing $2bn (N320bn) between now and the end of this year to take care of critical expenditure.
She said, “We will work in such a way that we won’t deplete the ECA because we have to leave something for next year but we might go to tap about a half of it ($2bn) or slightly less than half to be able to meet expenditures that are crystalising at the moment that we need to make.”
Rejects calls to print more Naira
On calls from some quarters that the Federal Government should respond to the decline in revenues by printing more naira to fund projects, the minister said that such recommendations would be disastrous for the country if implemented.
Okonjo-Iweala , who argued that such prescriptions ignored the elementary principles of economics, said “printing money without adequate revenue support will lead to serious consequences for the country.
“It will spur inflation as the experiences of Germany in the early part of the last century and more recently, Argentina and Zimbabwe demonstrate.
“This prescription will victimise the poor and the middle class that it is supposedly protecting.”
She explained that the best way to protect the interest of the ordinary people was to control inflation as much as possible, expand the economic base, strengthen the sectors that drive growth, boost critical infrastructure and create more jobs.
The minister added, “We have already started doing that, the results are already coming but we still have a lot of work to do.
“To show how serious government is about job creation, President Jonathan will tomorrow, (Monday) November 17 launch the 4th edition of YouWin to support another 1,500 entrepreneurs along with a private equity fund for entrepreneurs.
“That is an expression of government’s commitment and seriousness to job creation.”
The implementation of the new mortgage system, including the current processing of over 66,000 applicants for mortgages, according to her, will go on as planned.
This, she added, would help to ensure that the country reaps the strong benefits that will come from unleashing the housing revolution which is attracting serious interest from local and international investors.
Also, unaffected are public sector wages as well as key initiatives in education, health and other areas critical to the country’s human development.
Meanwhile, financial experts have said that Nigerians should be ready for a harsh economy in the nearest future as a result of the continued fall in the prices of oil.
The experts, while reacting to the measures adopted by the Federal Government, stated that the decline was only the beginning.
They spoke with our correspondents during separate interviews on Sunday.
A renowned economist and Chief Executive, Financial Derivatives Company, Mr. Bismark Rewane, stated that the step by the government was a good start, but wondered if the measures would actually cushion the impact of the falling oil prices.
He said, “That is a good start. The most important thing is the fact that the government has come to accept that it has to do something with respect to the falling oil prices. What we are seeing now is not a short-term phenomenon. Whether the therapy is adequate is another issue. But I think it is a good move and it has not ruled out other moves.
“On the $2bn withdrawal from the ECA, I don’t think that will make any impact. The reality is that we have to look at what is important. And what is important is that the Nigerian government has come to terms to the fact that it has to start austerity. So it is encouraging and this is the beginning of a number of steps to be adopted.”
On whether there might be more measures, Rewane said, “Certainly, this is just the beginning. And I will like to say that it will be good for Nigeria to accept the reality on ground presently.”
Also, a former President, Association of National Accountants of Nigeria, Dr. Samuel Nzekwe, said the government’s resolve to adopt austerity measures was not surprising.
He said, “About 80 per cent of our earning is from oil and so it is not a surprise that the government is adopting austerity measures considering the fact that oil prices are falling. This is actually the beginning o things to happen. Apart from imposing tax on luxuries, they should look at how to diversify the economy by creating enabling environment so that industries can thrive.
“Increasing or taxing more utilities is not the major solution. The government should now make more efforts to diversify the economy. They should make concerted efforts to ensure that the agricultural sector and a few others are working.
“Nigerians may not worry much about the tax issue because it is expected but this tax should be used wisely. It should not end in the pockets of a few individuals because since the country’s earning is mostly from oil, it means a fall in the price of this commodity will deny Nigeria a lot of income to build roads, power plants and many other things that will benefit the ordinary Nigerian.”
The All Progressives Congress, through its National Publicity Secretary, Lai Mohammed, described the proposed austerity measures as a reflection of the massive corruption inherent in the Jonathan-led Peoples Democratic Party government .
It argued that it was unfair for the Federal Government to subject Nigerians to austerity measures after frittering away the “petrodollars accruable to the country in the last 15 years.”
The APC said, “This country enjoyed high crude oil prices in the last 15 years. What has the PDP-led Federal Government done with the money in the last 15 years? They simply frittered the money away in massive corruption and misgovernment.
“They now want Nigerians to pay for their corruption and misdirection. Are Nigerians not already under austerity measure? They only want to impoverish us the more. Their ultimate aim is to devalue the naira; that’s their ultimate destination and this is very unfair.
“To make Nigerians, who did not participate in corruption, to suffer is not fair. What provisions have they made for the rainy days?”