Post Views: 600 In this interview, transcript of which was made available by Oluyinka Akintunde, her media aide, Nigeria’s Finance Minister speaks on ...
In this interview, transcript of which was made available by Oluyinka Akintunde, her media aide, Nigeria’s Finance Minister speaks on various issues including the nation’s external debt level and recent comments by the International Monetary Funds (IMF), the stalemated Federation Accounts Allocation Committee (FAAC) meetings over underpayments by the Nigerian National Petroleum Corporation (NNPC), infrastructure funding, TSA, Whistleblower policy, VAIDS and other efforts to raise the tax-to-GDP ratio. She also spoke on the 2018 budget and the economic impacts, among others…
What did you meet on ground when you assumed office and what were steps taken to address the thorny issues?
When we came in, things were really difficult and the signs were there for all to see. All indicators pointed to the fact that Nigeria was really exposed and very dependent on oil. Then the outlook on oil was that it was going to keep declining and eventually got as low as US$28 per barrel. It was really a tough period as reserves were very low and there wasn’t anything in place in terms of infrastructure even when Nigeria earned unprecedented oil revenue from high price of over $100 per barrels. No improvement in road infrastructure, no improvement in power generation, our rails were in comatose and unemployment was high. It was really a daunting and difficult period.
What did we do? We sat down to really examine the problems and see how we could move the economy and country forward. We took two actions – one was to focus on stabilizing the economy and insulating the people from the negative impact and two, we had to increase the budget size. It was very important that we increase the capital budget allocation because it is the capital expenditure that drives the economy and creates jobs and wealth. We reflated the economy and began to pay contractors, who had laid off their staff. Some of the contractors told us they hadn’t been paid since 2012. We paid them and they recalled their staff and moved back to their construction sites.
Then, Nigeria had the potential to solve her problems but didn’t have the enabling environment, which is infrastructure.
So, when we came on board, our main focus was infrastructure development. We increased the amount of spending on infrastructure from 10% to 30%. We increased capital spending for road, power and rail projects. These are infrastructure that would grow the economy and provide jobs for the people.
We also worked very hard to assist the State Governments. We recognised that the States were heavily indebted and needed support which came in form of bailouts and the Paris Club Refund. This support from the Federal Government greatly assisted the States in paying workers’ salaries.
What is the nature of funding for infrastructure?
As I said earlier, we have increased the allocation to infrastructure in the budget from 10 to 30%. The budget is partly funded by borrowings. We went for concessional funds, which are low cost money, from places like the World Bank and China EXIM where the interest rates are 1.5% and have repayment period of 20 years. We tied the borrowings to specific projects. We believe if we could put infrastructure in place, then we can drive revenue by collecting taxes to repay the borrowings.
A lot of reforms is being put in place by this administration through your Ministry. How have they impacted the economy?
The reforms have impacted positively in creating transparency and accountability in the system, significantly curtailing wastages in governance, reducing fiscal leakages, and achieving exceptional savings for the Government. We have promoted transparency in the payment process and have continued to sanitise the public-sector payroll system. The Administration introduced the Whistleblower Policy to support the fight against graft and reward credible whistleblowers. Through this policy, the government has made significant recoveries in assets and funds. We have also improved our accounting procedures and processes and making it more difficult for people to take money. Take the case of Treasury Single Account (TSA) which we inherited. It was initiated by the previous administration but couldn’t implement it. It was President Muhammadu Buhari that gave the instruction and the Central Bank of Nigeria had to work with relevant agencies to force the banks to close thousands of accounts.
Up till the present moment, we are still uncovering government funds hidden in banks which no one knew about. Through the TSA, the government has saved billions of naira in bank charges. We can see every account on TSA and where we see suspicious pattern, we ask the agency some questions to know what is going on.
Let me talk about recovery of funds and what we have done. We have recovered money but a lot of what we recovered was properties.
People used stolen money to buy assets and the challenge we had was when the figure of the recoveries was released, people assumed the recoveries were only cash. Most often the recoveries were properties. Through the Efficiency Unit (E-Unit), many of the properties were allocated to government agencies which were renting buildings they occupied. The cash recoveries were earmarked for specific projects.
The US$322.51 million Abacha funds returned by the Swiss Government were earmarked social safety nets. That is the conditional cash transfers that the poor get. As announced by the President, we are also going to earmark some of the recovered funds for specific projects where the people can actually point and say these projects were funded with recovered funds.
Looking back at the past three years of this administration, what would you really say has changed?
Everything has changed. What has changed the most is the attitude of Nigerians. Nigerians are becoming more industrious and innovative. The country has gone through a difficult period and now on the path of economic growth. Nigerians are now less ostentatious than before. Previously, the talk used to be how many private jets we have in Nigeria but the narrative is changing to how many young graduates are gainfully employed, how many free school meals are provided, how many roads are being constructed and rehabilitated, how many rails are being built? The matrix by which we measure our success as a nation has changed for the better.
That for me is very rewarding. With the school feeding programme, more children are now enrolling in schools. The President has directed the use of UBEC funds to build more classrooms. The narrative has changed. We have a government that cares for the poor, the needy and the people.
As far as the economy is concerned things are much better now than before. Our reserves are improving, inflation is coming down and growth is back. We have stimulated some industries, revived some fertilizer blending plants and we are growing rice in Nigeria and eating the Nigerian rice.
The administration of President Muhammadu Buhari has succeeded in building macroeconomic resilience for Nigeria, particularly revising the funding mix, rebuilding fiscal buffers, enhancing reserves and focusing on import substitution strategies. We are confident that if we continue to diligently implement our economic plan, Nigeria’s growth level will keep improving.
Given the recent alarm raised by the IMF, shouldn’t we be worried at this point about th level of our public debt?
I have said this before and I am saying it again, there is no cause for worry. Nigeria’s debt to GDP ratio is 20% and it is one of the lowest in Sub-Saharan Africa. Ghana is at 68%, Ethiopia is at 50%, and Nigeria is at 20%. China’s debt to GDP is at 250%. They had a particular strategy which is go and borrow, sort out the infrastructure and sort out how to pay. There was room in the global economy for them to do that to become an industrial hub and to grow that way. We are not pursing that strategy. We are pursuing a very measured strategy.
We are running a budget deficit; the size of that deficit is coming down now. Nigeria is not among the countries IMF is worried about.
We do have a challenge on debt service to revenue. That is because the interest cost is quite high and that is a function of two things. One is the fact that most of the debts were short-term so we are paying interests and compounding it. We have been refinancing treasury bills and issuing bonds. We have been refinancing treasury bills in the domestic market and replacing them with longer term debt in the international market. And this is reducing our cost of borrowing. This time last year, Nigerian government was borrowing at an average cost of about 18% but now it is 13%. We are working very hard on the debt service cost and of course revenue.
The other leg of the equation is Revenue. Debt Service as a percentage of revenue, you reduce your debt service and you increase your revenue. That brings us to the work we are doing around taxes and VAIDS, which is our strategy. What you should have been worried about was when our debt doubled in the period of high oil prices and gross capital formation did not grow.
Right now, borrowings are tied to capital projects, so you are seeing massive investments in infrastructure. And those roads and rails will be here for the next 30 years, so you are matching long-term assets and long-term liabilities.
We don’t have infrastructure and we cannot afford to wait for oil prices to go up above $100 per barrel before we fix power, roads and rail. Nigeria needs growth and jobs now and the way we can accelerate job creation and growth in an economy is to provide the enabling infrastructure, improve the ease of doing business, encourage the private sector to thrive, increase your tax base so that you have more money in the public sector to then invest in education and health to then create jobs in those sectors and that in itself has a multiplier effect on growth.
So, there is no cause for alarm as far as Nigeria is concerned. We are using a well-managed very conservative debt strategy and we continue to be very focused on concessional borrowing. You saw the World Bank Executive Directors visiting Lagos, Edo and Abuja. This is the first time in 27 years they will come to see Nigeria. This gives us access to a wider sum of concessional funds; they have expanded the IBRD window so there is more money available. We will be proposing projects that will enable us access those concessional long-term money to drive growth and opportunities for Nigeria. Some of the projects the World Bank Executive Directors came to see are around reconstruction of the North East; they are doing budget support for Edo State, supporting education, railway and supporting LAMATA Transport in Lagos State. These are things that will change infrastructure fundamentally and that’s our strategy to drive development.
Will the government yield to last week’s motion by the Senate seeking that the proposed adjustments in excise duties on beverages be halted to allow for stakeholder consultations?
We extensively consulted with stakeholders before we came up with that proposal which the President approved. The stakeholders included Manufacturers Association of Nigeria (MAN), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and members of the private sector. We had a lot of stakeholders’ engagement before we came up with that policy and it’s been widely accepted by the industry. What we eventually recommended was lower than when we started. It was when we engaged with stakeholders and we began to consider all the possible impacts, because we don’t want to lose jobs… and that’s why we took a three-year phased approach rather than overnight increase in the rate.
Since the Presidential approval extending the VAIDS to June 30, 2018, what has been the response from tax payers, particularly those not originally captured?
On VAIDS, the numbers are still being collated. With VAIDS, you declare and the tax authorities will verify what you have submitted and give you a certificate. It is only when you pay that we can say it is completed. We have held meetings with the Joint Tax Board (JTB) and the Federal Inland Revenue Service (FIRS) Chairman and they are still compiling and getting applications on a daily basis. For now, the applications are in thousands.
When it is concluded, we will be able to give the final figure. Since it is still a process; you don’t simply get the person’s application or declaration and accept it, you have to check it against the data with us. In some cases, people had to revise the applications they made. I believe that there is a certificate of completion that the VAIDS team will need to expose to the media next week. People actually get certificates that they have complied with VAIDS. I think when the deadline expires on 30th of June we will have more clarity on what the final numbers are.
On the impact of the extension, people have continued to apply and are taking advantage of the programme to regularize.
How prepared is government to prosecute tax evaders and looters, going by stories of recovered stolen money?
On prosecution, I am probably the wrong person to ask that question because our job in the Federal Ministry of Finance is to get the evidence, recover the money and refer the cases to the investigative authorities. I think I mentioned the number that we have referred to the Economic and Financial Crimes Commission (EFCC) and the Independent Corrupt Practices Commission (ICPC). We already have some cases in court and people are being prosecuted.
We don’t have control over the judicial process, all we can say is we believe this is how this crime was committed and then pass it on to the investigative authorities. The approach for us has been more pragmatic, let’s get the money first, because sometimes you can be in court for years. Our approach is let’s get the money first and then we pass the case to the investigative authorities to prosecute.
Also, know that the FIRS and the State tax authorities have been doing a lot of enforcements. We have heard reports of sealing of properties and businesses for not paying tax. There are lots of enforcements going on across the States. We also need to avoid discouraging business by sealing of properties and businesses. When you see a place sealed up and unsealed, it’s because they have paid. It does not mean that the FIRS or Government is soft pedaling. I think the FIRS is doing an excellent job in the enforcement narrative. We are actively preparing cases for prosecution once the VAIDS window expires. What we didn’t want is going to enforce against someone and the person says he or she has applied under VAIDS. During this period, there is amnesty.
From June 30, you will see a marked increase in enforcement actions on tax matters. With a tax to GDP ratio of 6%, we can’t go anywhere. We will be deluding ourselves that we are going to grow with that kind of tax to GDP ratio. No country has done it. We have to drive up compliance. We’ve got a lot of workers paying their taxes, but people who are self-employed and running their own businesses are evading tax. A lot of high net worth people are also evading tax and we have to get them into the tax net. Everyone has to pay his or her fair share.
Twice in recent times, the FAAC meetings ended in a stalemate. Give us an update on the investigation of oil revenue payment by the NNPC.strong>
We are spending more time on our state-owned enterprises. With the oil price up to US$78 per barrel, you can compute and have an indication of how much you think should come to the FAAC account. And if the figure is lower than that, we need to know why. We need to understand those variances that contributed to it and so that process is very robust. The governors are involved, the Commissioners are involved and the Federal Ministry of Finance is also involved. It is better for us to ask questions now and resolve them than leave the situation to fester for the next three or four years and start saying the Nigerian National Petroleum Corporation (NNPC) should have remitted trillions of naira into the Federation Account.
What we are currently doing is to resolve the issues as they come up and some of these issues are around things like the cost NNPC is debiting. Are we satisfied with it? Are we in agreement with it? Can they justify it? Sometimes we ask for more details and there is a process of going back and forth before we all agree.
However, I think it is quite a healthy process. I don’t like the fact that we have stalemates. I would prefer that we are able to resolve these issues before the FAAC meeting. But every now and then, we have situations where both sides feel like they are right and we are unable to broker a solution and we end up coming back together to resolve it.
Last month when I was in Washington, it was actually resolved by the Vice President. This gives you a sense of the level of scrutiny and oversight over NNPC which I think is a healthy process. We had seen oil at over US$100 per barrels which we couldn’t account for. The incumbent Administration is not going to allow leakages to build up again. We have to plug those leakages and work very closely with NNPC. I don’t think you should be too alarmed whenever there are stalemates as long as it is all in the public interest to make sure that the monies we are expecting into the Federation Account actually come in and we account for them properly.
The Federal Government, IMF and World Bank have given varying projections for Nigeria’s economy. Why?
Well projections by their nature are estimates. It depends on the assumptions you used to come up with the projections. Unless the same person comes up with the projections, it is very unlikely that the figures will be aligned. But I think where everyone is in agreement is that Nigeria is on the right path of growth. How much growth and how fast that growth is where the differences lie. I think our focus should be that we all agree that the Nigerian economy is growing.
I believe that we will end up surpassing some of the estimates. From what we are seeing, we foresee a high level of activity in certain sectors and we expect that we may surpass some of the numbers that have been projected. During our meeting with the FIRS and JTB on VAIDS, we saw some figures on tax collection. They haven’t been verified yet by the National Bureau of Statistics (NBS) but it would change our tax to GDP ratio from the current level of 6%. I think that is credit to Nigerians who are basically saying to this Administration we trust you.
The number of taxpayers as you know has increased from 13 million before we came in 2015 to 14 million in 2016 and now 19.3 million as at April 2018. What is very interesting is at the States level. When we ran some statistics, we asked States to give us the number of people paying N10m and above. The figure of people paying N10m, in one particular state has gone from two to 200. That is the sort of direction that we want to go and such tax payments are sustainable revenues.
We are quite encouraged by what we are seeing, but we really need everyone in Nigeria to get on board because this is the way in which we can really generate the funds that we need. Critical areas like health and education need investment. We have a lot of private institutions that are able to fund themselves but for the poor they rely on the public system. We have to re-invest in the public system very strongly and to do so, we need improved tax revenues. We are encouraged by what we are seeing.
Five months into the year, the implementation of 2018 Budget is yet to take-off, how optimistic are you about the 2018 Budget?
I remain optimistic about the budget. We have to realign our priorities, since five months are gone already. What has helped us is that the 2017 budget was passed late last year and what we have done was to carry on with those projects. We will close the 2017 budget with capital expenditure in excess of N1.5 trillion which is higher than the previous year’s figure of N1.3 trillion. The provisional figure as at last week was N1.491tr and there are some postings still to come in. So, I am quite confident that we will close the 2017 Budget in excess of N1.5 trillion for capital expenditure.
As you know, many of these projects are multi-year projects so, hopefully there wouldn’t be too much disruption. Of course, there will be some and it will be insincere of me to say that the delay in the budget passage has no impact.
It does, because the cost of money in the markets changes and so there will be an impact. But we are going to try and mitigate that impact as much as possible and focus on completing projects. Many of the projects like the rail projects, power projects are multi-year projects so we will continue working. We didn’t close down our system.
Normally the system closes down on the 31st of December and the Ministries, Departments and Agencies (MDAs) can’t spend anymore. But we left the system open to enable MDAs continue with the execution of their projects.
Yes, there will be an impact, but it could have been better had we got the 2018 Budget running in January.
Photo caption: Nigeria’s Finance Minister, Mrs. Kemi Adeosun, with her predecessor and former Managing Director of World Bank Group, Dr. Ngozi Okonjo-Iweala, at the 53rd Annual Meetings of the African Development Bank’s (AfDB) Board of Governors in Busan, South Korea on Friday, 25th May, 2018.