IMF’S APC FOR NIGERIA’S HEADACHE

REMOVE SUBSIDY
JERK UP VAT
CUT COST GOVERNANCE
STOP SHARING REVENUE
INVEST IN CRITICAL INFRASTRUCTURE

By Emmanuel Ukudolo

January 06, 2016 – The International Monetary Fund(IMF) today advanced very strong reasons why Nigeria should do away with the policy of fuel subsidy, noting that researches show that only 7 percent benefit of fuel subsidy price goes to the poorest 20 percent, whereas 40 percent of fuel price subsidies accrue to the richest 20 percent of households.

According to IMF, fuel subsidies are hard to defend anywhere in the world, adding that they do not only harm the planet, but that 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 percent”, Managing Director of IMF, Ms. Christine Lagarde said while addressing Nigeria’s National Assembly in Abuja.

According to her, the experience of administering fuel subsidies in Nigeria 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” , the IMF chief said.

She also predicted poor economic growth for the year 2016 compared with economic growth of 7 percent in the last decade, which dropped to 3.2 percent in 2015 with only a modest rate of recovery in 2016.

“For a country with a rapidly increasing population, this means almost no real economic growth in per capita terms. On top of the slowdown, vulnerabilities have increased. The ability to manage shocks is restricted by low fiscal savings and reserves. And the weakening oil sector could stress balance sheets and put pressure on the banking system”, IMF said.

To get out of the woods, IMF is urging the Federal Government to stop monthly sharing of revenues and think of investing the money in high value project that will have positive impact on the masses.

She canvassed for fundamental changes in the way government operates.
“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.

The IMF boss called on Nigeria to step up revenue mobilization. “The first step is to broaden the tax base and reduce leakages by improving compliance and enhancing collection efficiency. At the same time, public finances can be bolstered further to meet the huge expenditure needs.

“For example, the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members—so some increase should be considered”, she said.
Besides calling for cut in cost of governance, she advocated investment in quality infrastructure, make the banks work, and improve governance.

“Act with resolve to significantly improve transportation networks and power delivery [i.e., generation, transmission, and distribution]. For example, Nigeria could be exporting tomato paste—a staple of Nigerian cuisine—on a large scale, but it imports about half of what it needs. This is why Nigeria needs to build more roads and better rail networks, so that more farmers can bring their crops to market”, she advised.