The Federal Government’s desire to borrow more funds from international creditors is to prevent job losses, Finance Minister Kemi Adeosun has said.
Mrs. Adeosun, who spoke yesterday at a joint press conference with the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, at the conclusion of 2017 International Monetary Fund (IMF)/World Bank Group Annual Meetings in Washington D.C, said with Nigeria’s source of revenue dropping by nearly 85 per cent, the country had no option but to borrow. The option before the country was to either cut public services massively, which should have led to massive job losses, or borrow in the short-term, until it begins to generate sufficient revenues, she said.
“We felt that laying-off thousands of persons was not the best way to stimulate growth. Also, when we came into office, about 27 states could not pay salary. If we had allowed that situation to persist, we would have been in depression by now. So, we took the view as a government that the best thing to do was to stimulate growth and spend our way out of trouble, get the state governments to pay salaries, making sure that the federal government pays and invests in capital infrastructure,” Mrs Adeosun said.
Emefiele said the apex bank was trying to encourage Nigerians in Diaspora to keep remitting funds home, and also invest in the country, as they do not have any other place they can call home but Nigeria. Nigerians in Diaspora remit $21 billion annually to the local economy.
“We will put in place policies that will continue to encourage them. We are working on how we can actually link credit bureau arrangement to the foreign borrowing arrangement so that once there is a link between Nigeria and the foreign credit system, it will be easy for them to even borrow from Nigeria,” he promised.
The CBN boss said the apex bank was also planning to ensure that Nigerians in Diaspora get some form of attachments to the credit system that they have abroad, either in the United States or United Kingdom. That, he said, will make it easy for them to access credit and begin to build their businesses, so that when they retire, they retire back into Nigeria, and they do not retire in Diaspora.
Mrs Adeosun said that once growth was restored, the country would begin to systematically reduce its dependence on borrowing. “Now, we are talking about tax and what we are saying is that people should be aware of their responsibilities to their nation. The solution to borrowing in Nigeria is that we must pay taxes. If you pay the taxes properly, there is no need to borrow. Of course, there is the responsibility on the part of government to be more responsible and efficient. We are really focusing on this. We are trying to find ways to cut cost. Fundamentally, we must invest. We don’t have the power we need, we don’t have the roads yet and there is a lot of money required to fund these projects,” the minister said.
Continuing, she said that reducing Nigeria’s tax to Gross Domestic Product (GDP) ration from six per cent to 10 per cent would significantly reduce the amount the country needs to borrow and that would have a wider effect on the economy and bring down interest rate.
She added that such a move would also create some head room for the private sector to borrow, because they are being crowded out.
On state borrowing, the minister said state governments’ get borrowing consent from the ministry, which performs Debt Sustainability Analysis and if the repayment is more than 40 per cent of their revenue, such request to borrow is turned down.
“So, many people are talking of how many loans we are approving; they don’t talk about how many loans we are turning down. Many do not go through and we are constantly monitoring state governments to ensure that the debts that they take on are sustainable. The problem with some of the states that have debt problems are legacy loans that were there before they came in. But since we came in, we have been very strict, trying to make sure states do not borrow more than they can service,” Mrs Adeosun said.
According to the minister, Nigeria’s debt to GDP ratio is one of the lowest. “We are at 19 per cent, but most advanced countries have over 100 per cent. I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rail, the roads and power so as to generate economic activities, jobs, revenue, which would be used to pay back the debts. But I assure you that this government is very prudent around debt. We don’t borrow recklessly and we have no intention of bequeathing unserviceable debts on Nigerians,” she assured.
The minister said the Voluntary Asset and Income Declaration Scheme (VAIDS) had so far got positive response from Nigerians. “I had discussions with some high net-worth individuals asking me to speak to the state governors to allow them time to pay. They needed to pay to the state governments. I have discussed with the governors that anyone that comes to them voluntarily for tax payment, should be given time to pay. We don’t want a situation where people willing to pay their taxes are stifling economic activities. We have told the governors, if someone comes willingly, quickly allow them plan to pay,” she said.
Mrs Adeosun said revenues were needed to provide public services and the burden of taxation must be borne by those whose income allows them to bear it.
“So, those with higher income should bear greater part of the burden. The problem with Nigeria is that most of our taxpayers are at the lower level. The man on the streets passing traffic, his tax is deducted at source. Why will we not allow billionaires to proportionately pay their taxes? I think we need a mindset change on taxation in Nigeria. So far, we are encouraged by the response of those companies and individuals to this tax amnesty,” she added.
In her view, the tax amnesty policy is on track. “We’re on track. We expect that at the end of the timeline, everybody will rush and we will raise significant money. We have every reason to believe that this tax mobilisation effort will work and hopefully bring long-term money,” she said.
“We are trying to do is create enough headroom to invest in capital projects that the country desperately needs. I do not think there is any Nigerian that will say we do not need to invest in power, do the roads, and that will not want us to fix 17 million housing deficits and build rails. These projects will generate economic activities and jobs. We do not need to continue hobbling as a poor nation. We are middle income country now. Nigeria, Angola, and South Africa are middle income countries. We do it jointly and efficiently, but the key thing really is revenue,” the minister said.
