Lagos – Dr Zainab Ahmed, Minister of Finance, Budget and National Planning, on Friday said that Value Added Tax (VAT) increment would contribute to inflation rise, said that it would moderate over time.
She further dispelled the report that the Federal Government was planning to borrow N2trillion pension funds for infrastructure development.
Ahmed stated this in Lagos at Udo Udoma & Belo-Osagie (UUBO) second private equity summit with the theme: ‘Drivers, Disruptors and Unlocking Value.”
She said that government was not borrowing the fund for infrastructure development.
Ahmed said that the National Economic Council set up a committee of itself to explore the possibility of being able to encourage the pension fund managers to invest in infrastructure development.
“Its not that government is borrowing the pension fund.
“So, what we agreed now is to design a product that pension fund managers will fund attractive enough to invest in, that will give them free safe returns.
“Right now, the regulator, PENCOM, actually allows pension funds managers to invest up to 20 per cent of their money in infrastructure,” she said.
According to her, investment in infrastructure was not moving because it was easier for them to invest in Teasury Bills and Federal Government bonds.
She said that with returns on TBs not good, they were looking for long-term instrument they could invest in.
Ahmed said that now, pension funds managers don’t have an opportunity to invest in Open Market Operation (OMO) anymore.
” We are actually working to design products which they can uptake and we are also considering, in addition to regulation, whether we should amend the Act to allow them do other things,” she stated.
On government borrowings, she explained that government was working very hard to reduce domestic borrowing.
“In 2015, the total government stock that we had was 80 per cent domestic and 20 per cent foreign.
“But we are gradually changing that; the debt management strategy is to move the ratio to 60 per cent domestic and 40 per cent external and now it’s 35 per cent external borrowing.
“This is to give room for private sector to borrow and to reduce cost of debt servicing,” Ahmed said.
Speaking on Value Added Tax (VAT) increment, Ahmed, who admitted that it would contribute to inflation rise, said that it would moderate over time.
“When you increase any form of tax, it leads to inflation, but its a temporary thing; after some months it will moderate,” the minister said.
She said that government would continue to support the development of SMEs for economic growth and development.
The minister also said that Finance Act would be a regular feature that would accompany the budget going forward.
Ahmed said that the next Finance Bill would be more consultative for more input.(NAN)
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