The effects of the current state of Nigeria’s economy are beginning to take a toll with many Nigerians worried and many unable to afford basic things. Ahead of the 2023 general elections, the scramble to become Nigeria’s next president has intensified.
According to reports, Nigerian governors under the Nigeria Governors Forum (NGF) met and advised president Buhari to take some urgent steps as “part of coordinated efforts to instil fiscal discipline and prevent the nation from economic collapse.”
The governors highlighted 33 measures, here’s analyzing some of the measures proffered.
Eliminate PMS subsidy/under recovery
The governors advised president Buhari to remove fuel subsidy. Since the start of President Buhari’s tenure in 2015, subsidy payment has continued to increase annually. In 2021, the country spent N1.57trillion on subsidies. In the 2022 budget, N4 trillion which represents about 270% of the total payment in 2021 was budgeted. The N4 trillion budget represents about 24% of the total budget for 2022 and 74% of the capital expenditure. With increasing fuel prices across the globe and importation of fuel, the IMF has revealed that subsidy payment might increase to N6 trillion, leaving a N2 trillion deficit.
According to reports, Nigeria spent 10 trillion on subsidies between 2006-2019. This country also spent N14.6 trillion on capital expenditure. This means that during the period, Nigeria spent 68.1% of its capital expenditure on subsidy. Despite increasing subsidy payments, fuel prices have continued to increase in the country. The elimination of subsidies will help curb corrupt practices and improve capital projects in the country if used judiciously.
Implementation of Orosanye report
The Orosanye report on public sector reforms was submitted in 2011. The report among others seeks to reduce, abolish and merge agencies. The cost of governance and the similitude in the way of carrying out the functions of different government agencies has been a major source of concern. Some of the suggestions made in the reports are, that the top three anti-corruption agencies in the country should be merged, the National Agency for the Control of AIDS should be subsumed into the Nigeria Centre for Disease Control, also both the Hajj and Christian commissions should be abolished and government should stop sponsoring pilgrimages, and the government should stop granting concessionary foreign exchange to pilgrims, among other recommendations. According to reports, If implemented it is expected to save the country N1 trillion.
Reduce fiscal deficit to no more than 2% of GDP in 2023-2025
A fiscal deficit is a difference between the total revenue and total expenditure of a government in a fiscal year. Nairametrics earlier reported Nigeria recorded a record-breaking fiscal deficit of N7.3 trillion in 2021. The report also noted that Nigeria generated N4.3 trillion in revenue but incurred an expenditure of N11.69 trillion, which means for every N4 earned, over N11 was spent. Deficits are usually incurred through high spending or low taxes, both are peculiar to Nigeria. The IMF also revealed that Nigeria’s fiscal deficit is expected to remain high as 6.1% of the country’s GDP. Creating measures to reduce the fiscal deficit to 2% will help the country’s GDP and boost the economy.
Increase VAT levels to 10% with a timeline to raise it to between 15% and 20%
To boost and increase revenue, the governor advised president Buhari to increase VAT levels to 10%. VAT(Value Added Tax) is a consumption tax paid when goods are purchased and services are rendered. It should be recalled that in February 2020, the Federal Government increased VAT from 5% to 7.5% which was met with criticism. Increasing the VAT level two years after, in an economy where the average Nigerian is gradually losing purchasing power should be put on hold, and ensure a stable economy first. Increasing VAT will increase the cost of production, which will in turn increase the cost of goods and services. With the government’s lack of transparency in the use of public funds in times past, this move is set to be met with restrictions if implemented.
Improve offshore crude oil and gas production
Nigeria has lost its place as Africa’s largest oil-producing nation. This was in June 2022, when production reduced to 1.02 mbpd with Angola taking over. Oil production in the country has been met with problems following the shut down of some terminals, and the increase in oil theft and oil vandalization. Improving offshore oil production will help in increasing Nigeria’s daily oil production, it will also help boost the Excess Crude Oil account, which has depleted drastically from $35.37 million to $376,655.
CBN should be directed to focus on its core and statutory mandate of exchange rate management, interest rate management, and inflation targeting. It should also be required to cease competing with federal government ministries, development, and commercial banks.
The CBN in recent months has neglected its duties as Nigeria’s apex bank and has been seen as a competitor to the commercial banks. The CBN through the governor, should focus more on performing its primary duties and also ensure it makes policy that doesn’t stifle the performance of commercial banks.
Corruption over the years has been damaging to the growth of Nigeria. Implementing the measures is a step toward economic prosperity for Nigeria, another step is to ensure funds saved and earned should be used in boosting the economy.
NO Nairametrics! VAT is a CONSUMPTION tax, and there’s no logical reason for Nigeria’s VAT to be so significantly LESS than that of its ECOWAS neighbours when Nigeria has the strongest and most resilient economy in the region. Meanwhile, small business are exempted from VAT, and there is NO VAT on essential items (food, education, healthcare, etc), and so it only applies to ‘elastic’ goods. In Nigeria, we keep kicking economic measures we should take down the road (with the WORST being the corrupt fuel subsidy regime) and then are befuddled that our macro economic fortunes remain unchanged.