Business

IMF urges Nigeria to fully implement cash transfer program before subsidy reforms

Published

2 months ago

March 6, 2024

By Sodiq Adelakun

The International Monetary Fund (IMF) has called on the Nigerian government to ensure the full operational capacity of its cash transfer program aimed at supporting vulnerable households.

This move is recommended as a necessary precursor to the planned reevaluation of the nation’s substantial fuel and electricity subsidies.

In a statement released after an IMF team’s visit to Nigeria, the Fund highlighted the importance of the social safety net program, which is intended to provide financial assistance to the poor and vulnerable.

The IMF stressed that the full implementation of this program is essential to protect the economically weaker sections of the society before any adjustments are made to the current subsidy system for fuel and electricity.

The IMF’s concerns are based on the significant fiscal pressures that arise from the ongoing subsidies. During the visit, which was part of the 2024 Article IV Consultations, the IMF team, led by mission chief Axel Schimmelpfennig, held discussions with Nigerian officials in Lagos and Abuja from February 12 to February 23, 2024.

The IMF warned that if Nigeria continues to cap fuel pump prices and electricity tariffs below cost-recovery levels, it could face fiscal costs of up to 3% of its Gross Domestic Product (GDP) by 2024.

The statement also noted some positive developments, such as recent improvements in revenue collection and oil production, but pointed out that Nigeria’s low revenue mobilisation limits the government’s ability to respond to economic shocks and hinders long-term development efforts.

The statement read partly, “Recent improvements in revenue collection and oil production are encouraging. Nigeria’s low revenue mobilisation constrains the government’s ability to respond to shocks and to promote long-term development.

“Non-oil revenue collection improved by 0.8 percent of GDP in 2023, helped by naira depreciation. Oil production reached 1.65 million barrels per day in January as the result of enhanced security. The capping of fuel pump prices and electricity tariffs below cost recovery could have a fiscal cost of up to 3 percent of GDP in 2024.

“The recently approved targeted social safety net program that will provide cash transfers to vulnerable households needs to be fully implemented before the government can address costly, implicit fuel and electricity subsidies in a manner that will ensure low-income households are protected.”

The IMF notes that despite Nigeria’s economy showing signs of growth in the fourth quarter of 2023, with a GDP growth of 2.8 percent, this growth barely keeps pace with population dynamics.

The Fund further projects an improvement in GDP growth to 3.2 percent in 2024, supported by increased oil production and anticipated better harvests. However, challenges such as high inflation, a weakening naira, and the need for tighter monetary policies are expected to pose significant headwinds.

…On food security and social protection

During its visit, the IMF team praised the Nigerian government’s efforts in addressing food insecurity, which affects approximately 8 percent of the population.

The team also acknowledged the approval of a targeted social safety net programme intended to provide cash transfers to vulnerable households. This initiative, coupled with improvements in revenue collection and oil production, is seen as a positive step towards stabilising the economy.

However, the IMF emphasised the urgent need for Nigeria to address the financial implications of fuel and electricity subsidies. The Fund suggested that before tackling these costly subsidies, the recently approved social safety net program must be fully implemented to protect low-income households effectively.

The IMF also applauded the decision of the Monetary Policy Committee (MPC) to tighten monetary policy further by increasing the policy rate by 400 basis points to 22.75 percent.

This move, aimed at containing inflation, which had hit 29.9 percent year-on-year in January 2024, and alleviating pressure on the naira, represents a total tightening of 1,025 basis points since May 2022.

The elimination of fuel subsidies and other recent policies have had a disproportionate impact on Nigeria’s poor and vulnerable, who stand to benefit greatly from a monthly cash transfer system.

The World Bank earlier said that cash transfers can help save Nigerians from intergenerational poverty traps as inflation and low economic growth adversely affect the poor.

President Bola Tinubu launched a social safety net programme last year that will distribute N25,000 to 15 million homes for three months in observance of the 2023 International Day for the Eradication of Poverty.

The Federal Ministry of Humanitarian Affairs and Poverty Alleviation is tasked with carrying out the $800 million World Bank loan project.

However, the Federal Government had to suspend the cash transfer programme for further investigation and revamping following alleged misappropriations within the programme.

Business

Oyetola in Lagos, defies downpour, embarks on inspection tour

Published

52 mins ago

May 17, 2024

NewsDirect

By Seun Ibiyemi

The rain in Lagos began very early on Thursday morning. But the torrential rainfall did not stop Minister of Marine and Blue Economy, Adegboyega Oyetola, CON, from embarking on the tour of two key institutions that were recently brought under his ministry — the Nigerian Institute for Oceanography and Marine Research (NIOMR) and the Liaison office of the Department of Fishery and Aquaculture, which houses College of Fishery, Lagos.

His first port of call was NIOMR, where the Chief Executive of the institute, Prof. Abiodun Sule, took the Minister through some of its strategic breakthroughs, including unveiling some of the different species of fish in our waters.

The Minister charged the Institute to take up the challenge of mapping out the country’s various marine resources, saying the country needs to know what it has and in what quantity.

He charged the staff to redouble their efforts and ensure they find a solution to the rising cost of fish feeds in Nigeria. The Minister reiterated his desire to increase local production of fish, while reducing dependence on importation.

From the Institute, Oyetola and his entourage, which included the Permanent Secretary, Oloruntola Olufemi; Director, Maritime Safety and Security, Babatunde Bombata, and the Executive Director, Engineering and Technical Services, Engr. Ibrahim Umar, who represented the the MD of NPA, headed for the Department of Fishery and Aquaculture, where the delegation inspected the Laboratory and charged the staff not to lower the standard of monitoring and inspection so as to ensure the country’s exporters are not blacklisted by the International community and also ensuring that those being imported meet required standard.

He assured the staff of both institutions of his commitment to their welfare, while urging them to also increase their capacity and productivity, as he wants to see the fishing contribute to job creation and increase in revenue of the FG.

The elated members of staff promised the Minister not to let him down and pledged their commitment to the vision and mission of the Minister with respect to the maritime sector.

Business

CPPE urges CBN to halt interest rate tightening, as businesses are yet to recover from previous hikes

Published

1 hour ago

May 17, 2024

NewsDirect

The Centre for the Promotion of Public Enterprise (CPPE) has called on the Central Bank of Nigeria (CBN) to slow down on monetary policy tightening ahead of its Monetary Policy Committee (MPC) meeting this month, stating that businesses are yet to recover from the hawkish monetary policy stance in the last two months.

The Centre stated this in its reaction to the latest inflation figures published by the NBS where headline inflation rose to 33.69 percent in the month of April from 33.20 percent in March.

According to the statement signed by the Director-General of the CPPE, Dr Muda Yusuf, monetary policy tools should be paused for the fiscal side of the economy to work towards addressing the supply issues affecting the inflation dynamics in the country.

He stated, “Meanwhile we urge the monetary policy Committee to soften its monetary tightening stance for the time being. Businesses are yet to recover from the shocks of the recent bullish rate hikes. The monetary instruments should be put on pause while fiscal policy tools address supply-side factors in the inflation dynamics.”

Furthermore, the Centre appreciated the slowdown in inflation for the month, especially headline and food inflation, but noted that the main drivers of price hikes (food, transport, insecurity in farming communities and other structural problems) are yet to cool down.

He explained that the drivers of inflation are supply-based and being addressed by the fiscal authorities. Also, Dr. Yusuf doubled down on his call to the Nigerian Customs Service (NCS) to set a quarterly exchange rate between N800 and N1000 for import duties assessment, noting that the continuous fluctuation has a pass-through effect on inflation.

In his words, “Meanwhile the exchange rate benchmark for the computation of import duty continues to be a major concern to businesses as it has become a major inflation driver. We again urge the CBN to peg the rate at between N800 -N1000/dollar to be reviewed quarterly. This is necessary to reduce the pass-through effect of heightening trade costs on inflation.”

Meanwhile, the CPPE also lauded the commencement of refining by the Dangote refinery, stating that it would help slow down inflation in the short term.

Recall that Nigeria’s inflation rate rose to 33.69 percent in April on the back of an increase in food and transport prices. The rate is one of the highest in about 28 years.

The CBN, in an effort to rein in inflation, has increased

Business

April 2024: FG, States, LGs share N1,208.081trn

Published

1 hour ago

May 17, 2024

NewsDirect

The Federation Account Allocation Committee (FAAC), at its May 2024 meeting chaired by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, shared a total sum of N1,208.081 Trillion to the three tiers of government as Federation Allocation for the month of April, 2024 from a gross total of N2,192.007 Trillion.

From the stated amount inclusive of Gross Statutory Revenue, Value Added Tax (VAT), Electronic Money Transfer Levy (EMTL), and Exchange Difference (ED), the Federal Government received N390.412 Billion, the States received N403.403 Billion, the Local Government Councils got N293.816 Billion, while the Oil Producing States received N120.450 Billion as Derivation, (13 percent of Mineral Revenue).

The sum of N80.517 Billion was given for the cost of collection, while N903.479 Billion was allocated for Transfers Intervention and Refunds.

The Communique issued by the Federation Account Allocation Committee (FAAC) at the end of the meeting indicated that the Gross Revenue available from the Value Added Tax (VAT) for the month of April 2024, was N500.920 Billion as against N549.698 Billion distributed in the preceding month, resulting in a decrease of N48.778 Billion.

From that amount, the sum of N20.037 Billion was allocated for the cost of collection and the sum of N14.426 Billion given for Transfers, Intervention and Refunds. The remaining sum of N466.457 Billion was distributed to the three tiers of government, of which the Federal Government got N69.969 Billion, the States received N233.229 Billion, Local Government Councils got N163.260 Billion.

Accordingly, the Gross Statutory Revenue of N1,233.498 Trillion received for the month was higher than the sum of N1,017.216 Trillion received in the previous month of March 2024 by N216.282 Billion. From the stated amount, the sum of N59.729 Billion was allocated for the cost of collection and a total sum of N889.053 Billion for Transfers, Intervention and Refunds.

The remaining balance of N284.716 Billion was distributed as follows to the three tiers of government: Federal Government got the sum of N112.148 Billion, States received N56.883 Billion, the sum of N43.855 Billion was allocated to LGCs and N71.830 Billion was given to Derivation Revenue (13 percent Mineral producing States).

Also, the sum of N18.775 Billion from Electronic Money Transfer Levy (EMTL) was distributed to the three (3) tiers of government as follows: the Federal Government received N2.704 Billion, States got N9.012 Billion, Local Government Councils received N6.308 Billion, while N0.751 Billion was allocated for Cost of Collection.

The Communique also disclosed the sum of N438.884 Billion from Exchange Difference, which was shared as follows: Federal Government received N205.591 Billion, States got N104.279 Billion, the sum of N80.394 Billion was allocated to Local Government Councils, while N48.620 Billion was given for Derivation (13 percent of Mineral Revenue).

Oil and Gas Royalties, Companies Income Tax (CIT), Excise Duty, Petroleum Profit Tax (PPT), Customs External Tariff levies (CET) and Electronic Money Transfer Levy (EMTL) increased significantly, while Import Duty and Value Added Tax (VAT) recorded considerably decreases.

According to the Communique, the total revenue distributable for the current month of April 2024, was drawn from Statutory Revenue of N284.716 Billion, Value Added Tax (VAT) of N466.457 Billion, N18.024 Billion from Electronic Money Transfer Levy (EMTL), and N438.884 Billion from Exchange Difference, bringing the total distributable amount for the month to N1,208.081 Trillion.

The balance in the Excess Crude Account (ECA) as at May 2024 stands at $473,754.57.