IMF boss warns FG against foreign loans
Visiting Managing Director of the International Monetary Fund (IMF), Christine Lagarde, has warned the Federal government against taking foreign loans to run the economy now, just as she told Nigerians not to expect an immediate improvement of the economy amid consistent fall in the price of crude oil at the International market. Christine Lagarde, who gave the warning during a meeting with Senators led by the Senate President, Bukola Saraki in Abuja on Tuesday, noted that the country’s economy is currently in bad shape, and the government needs to build resilience which entails making careful decisions on borrowing. “Nigeria’s debt is relatively low at about 12 percent of GDP.
But it weighs heavily on the public purse. Already, about 35 kobo of every naira collected by the federal government is used to service outstanding public debt”, she stressed. The advice is coming against the backdrop of plans by the Federal government to borrow as much as N900 billion from abroad to partly fund the N2.2 trillion deficit projected in the 2016 budget recently presented to the National Assembly by President Muhammadu Buhari.
The IMF boss said with the global financial meltdown, the price of crude oil is not expected to rise soon, stressing that oil price will remain low for some period of time. She said Nigeria, however has all it takes to confront its economic challenges, just as she stressed the need for the country’s leadership to launch some belt-tightening measures aimed towards assuaging the impact of the economic meltdown on the citizens. The IMF Director offered some ways out for the government of Nigeria which she tagged as three Rs; Resolve, Resilience and Refrain. She said Nigeria can immediately resolve to mobilise revenue for its economic growth, while cutting down wastages through the fight against corruption, urging the country also to show Resilience by making careful decisions on how to grow its Gross Domestic Products (GDP).
Lagarde said by showing Refrain, Nigeria can guarantee quality and efficiency within its systems, while improving on service delivery as well as ensuring budget discipline. According to her, in view of the low oil price and revenues with concomitant failure on the part of government in delivering the needed public services to the citizenry, there was need for fundamental change in the way government operates. This, she stated, means that hard decisions will need to be taken on revenue, expenditure, debt, and investment going forward. She said: “The new reality of low oil prices and low oil revenues means that the fiscal challenge facing government is no longer about how to divide the proceeds of Nigeria’s oil wealth, but what needs to be done so that Nigeria can deliver to its people the public services they deserve—be it in education, health or infrastructure.
“This means that hard decisions will need to be taken on revenue, expenditure, debt, and investment going forward” She said in carrying out the hard decisions and acting with resolve, government would have to step up revenue mobilization by broadening its tax base and reducing leakages and improving compliance and enhancing collection efficiency as well as increase VAT rate in the country which according to her, is one of the lowest in the world. She added that government in exercising restraint in her bid to turn the economy around, would need to focus on the quality and efficiency of every naira spent. According to her, “This is critically important.
As more people pay taxes there will, rightly, be increasing pressure to demonstrate that those tax payments are producing improvements in public service delivery”. She counseled the government to eliminate fuel subsidy on the basis that realities on ground in the country have shown that the advantage of removal of fuel subsidy far outweighed any advantage. She added, “Indeed, fuel subsidies are hard to defend. Not only do they harm the planet, but they rarely help the poor. IMF research shows that more than 40 per cent of fuel price subsidies in developing countries accrue to the richest 20 per cent of households, while only 7 per cent of the benefits go to the poorest 20 per cent. “Moreover, the experience here in Nigeria of administering fuel subsidies suggests that it is time for a change—think of the regular accusations of corruption, and think of the many Nigerians who spend hours in queues trying to get gas so that they can go about their everyday business.
