Fiscal projections in the 2022-2024 Medium Term Expenditure Framework and Fiscal Strategy Paper may not be realized if the government does not take steps to resolve the menace of insecurity causing distortions in key sectors of the economy, the Centre for Social Justice (CENSOJ) has said.
Insecurity, particularly in the northern part of the country, has been a major bane of the economy in recent years., as operators in all sectors of the economy have had to contend with new challenges that make it impossible for set targets to be realized.
Those involved in the agricultural sector, especially farmers say they have not been able to either access their farmlands, harvest their crops, or transport their produce to the market for fear of the bandits and other insurgent groups in their areas of operation.
Their inability to operate freely, they said, has negatively affected their capacity to recover their investments and repay their loans from banks, while it is difficult for the government to realize its goal of reducing poverty and promoting more involvement of the private sector in the development of the economy.
Presenting its report on the analysis of the MTEF in Abuja on Monday, the Lead Director of CENSOJ, Eze Onyekpere, stressed the need for the government to urgently address the challenges of insecurity posed by bandits and other categories of perpetrators.
Onyekpere said the active participation of the private sector and economic growth of the country would not be possible when, even agriculture that is one of the main anchors of the country’s growth pillars, is becoming sub-optimal, as a result of the menace of insecurity across the country.
“There is no way we can continue to think agriculture would be powering the country’s economic growth and promote poverty reduction if the insecurity in the country is not reined in across the country and the bandits, in whatever name they call themselves, are not called to order,” he said.
The analysis by CENSOJ was on the MTEF prepared by the Minister of Finance, Budget and National Planning, Zainab Ahmed, endorsed by the Executive Council of the Federation (EXCoF) and sent to the National Assembly (NASS) by the President for approval in accordance with the provisions of the Fiscal Responsibility Act (FRA).
Also, CENSOJ frowned at the practice where the government grants waivers and other incentives meant to promote investments in the economy without adequate monitoring and regular reviews to ensure their objectives were achieved.
On tax expenditure proposed in the MTEF, the group noted general and specific interventions around the issue but said the expenditure was often more than the actual revenue collection.
In the 2020 budget, CENSOJ noted that out of a total of N4.2trillion revenue collection by the government from various sources, including normal tax, value-added tax (VAT), company income tax (CIT), petroleum profit tax (PPT) and excise duties by the Nigeria Customs Service, about N2.4trillion, or 57.9 percent, was foregone for various incentives and waivers.
“If all commodities in the Nigerian VAT system were fully taxable, the country could generate about N6trillion from the existing tax structure. “But Nigeria generated only N1.8trillion in 2020 and N900 billion foregone was attributable to exemptions contained in legislation, while the balance of N3.3trillion was lost to the huge compliance gap.
“For CIT, compared to the N1.1trillion recorded in 2019 as foregone revenue, only N457billion was reported in 2020. This massive decline cannot be supported by empirical evidence and the MTEF states that this is attributable to “the inconsistencies in data formats and level of details obtained”.
“The collected CIT was N1.479trillion. Thus, the foregone CIT was 30.8% of the collected revenue. A partial estimation of foregone PPT put the figure at N307billion.
“Also, the foregone Customs revenue in 2020 amounted to N780 billion, comprising N600 billion from waivers of import duties and N180billion from VAT on import duties. The actual Customs revenue collection for 2020 was N931.6 billion. The waivers amount to 83.7% of collected revenue,” the group said.
To check the huge losses through the policy of waivers, CENSOJ said MTEF must adopt schemes requiring the conversion of tax concessions into refundable tax credits, while tax expenditure must be capped as a percentage of overall actual and collectible tax.
Consequently, the group recommended that not more than 20 percent of the available tax revenue should be foregone as tax expenditure to any company or investor, while there should be an opportunity for the review of extant tax expenditure provided by the annual Finance Act and the 2021 Finance Act.
On the review of aspects of the fiscal document, Onyekpere, in the six-part presentation, said the MTEF failed to align with the country’s national planning objectives, as it was not prepared based on known national economic policy agenda or set objectives as was the case in the past.
Onyekpere recalled that the MTEF under the Olusegun Obasanjo administration was based on the National Economic Empowerment and Development Scheme (NEEDS), while the Yar’adua government relied on its seven-point agenda, and Jonathan on the Transformation agenda.
Although Buhari introduced the National Economic Reform and Growth Plan (NERGP) at the inception of his administration, Onywkpere said Nigerians are not aware of any economic policy agenda the preparation of the latest MTEP was anchored on since the expiration of NERGP.
A review of some of the fiscal fundamentals, he said, showed that some would be difficult to realize, while other projections would only be achievable through effective monitoring and implementation.
He described the three years projections on crude oil production and the average price at the international market as realistic and achievable, noting the crucial role oil continues to play in the development of the country’s economy.
The MTEF put estimated average crude oil production at about 1.88 million barrels per day for 2022; 2.23 million barrels per day and 2.22 million barrels per day for 2023 and 2024 respectively, while crude oil prices were projected at about $57 per barrel in 2022 and 2023 and $55 in 2024.
However, Onyekpere said the projection that the Exchange rate of the Naira to the dollar would stay at about N410.15 was hardly practicable.
“There is no immediate empirical fact to support this position in the MTEF, as the dollar does not even exchange at that rate even today, where it is going for as high as N540 to the dollar.
“The reason the bureaus de change (BDCs) were stopped from dealing in FX was that they were being given dollars at N410, while they were making a premium of over N100 with the market experiencing any stability.
“Even as the Central Bank has handed over the FX issue to the banks, the situation would even worsen, as the BDCs may not be as clever as the banks, that have perfected the art of exploiting their customers.”
On why Nigerians are today preferring converting their Naira into foreign currencies, cryptocurrencies, gold, or other means of exchange to preserve the real value of their money, Onyekpere blamed it on banks discouraging them from saving by giving interest rates on deposits that are far less than the prevailing inflation rate.
“The rate of interest paid by banks on monies saved by their customers is below the inflation rate. This is against the general economic principle that for citizens of a country to build up capital to grow the economy, the rate of accretion of their savings must get to a certain level.
On the passage of the Petroleum Industry Act (PIA), Onyekpere said this could impact on the economy positively if it would be well managed, citing the example of key establishments like the Dangote Refinery, if allowed to come on stream.
On job creation, CENSOJ urged the government to ensure its actions were not at variance with its policies outlines in the MTEF if their target objectives were to be realized.
“The government says it wants to create jobs and preserve existing ones. But what it has done since the ENDSARS crisis is to take deliberate steps to cut down even the jobs the youth created for themselves.
“The number of jobs lost to the Twitter ban by the government is huge. If the government cannot create new jobs as a basic obligation, it is not supposed to take steps to take away even the few that were created by the private sector
“Governmental actions and policies should be made to reconcile with the policy objectives the government has in the MTEF,” Onyekpere said.
Promoting poverty reduction, he noted, was a misconception, as government cannot have a standalone poverty reduction programme.
Rather, he said there must be a policy framework mainstreamed into almost every activity of government, whether it is in agriculture, trade policy, imports reduction or local value addition.
“Government cannot be importing all its official vehicles when there are local vehicle assembly plants that are not being patronized and say it is creating jobs. We cannot be shipping our raw crude oil abroad when our refineries are allowed to go to waste,” he said.
On operating surplus, he said the government must take steps to ensure all its agencies were compelled to come on the treasury single account (TSA) platform
He said the government must ensure that any agency that fails to remit its operating surpluses, such monies are deducted directly from their allocations.
On fuel and electricity subsidies, he said the continuation of these policies did not make economic sense, because they are today the greatest channels for official corruption and leakage of government revenues.
“Before 2015, when the current government took over, national petrol consumption was about 35million litres per day. As at that time, the country did not have two serious recessions; a greater number of Nigerians were employed; there were more active companies in the economy.
“Yet, two recessions later, with more Nigerians out of jobs, more companies and businesses closed down, for the NNPC to be telling us that we are now consuming an average of 55 million litres is unbelievable and scandalous,” he said.
Earlier this year, he recalled the NNPC reported a consumption level of 102 million litres per day, more than the total volume of petrol consumption in West Africa.
“What the NNPC is doing is to continue to use our scarce resources to import petrol, while some unscrupulous elements would take it across the border to make billions at our expense. Yet we have our security operatives and the Nigerian Customs manning the borders. It does not make sense,” he said.
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