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Kill subsidy, cut CBN loans, raise ‘sin’ taxes… 7 things World Bank wants Buhari to do in 2022

Published

2 years ago

November 23, 2021

The World Bank on Tuesday released its November 2021 Nigeria Development Update, which showed — among other things — that eight million Nigerians fell into poverty in less than two years as a result of inflation shocks.

The report also revealed that Nigeria no longer benefits from high oil prices, with record low revenues, and exorbitant fuel subsidies, which makes Nigeria the only country in the world granting universal price petrol subsidies.

Also, the report reiterated that Nigeria has the worst revenue-to-GDP ratio among 115 countries monitored by the World Bank. Worse than Haiti.

To address the grim picture of Nigeria’s economy going into the future, the World Bank has recommended a number of policy decisions for the Muhammadu Buhari administration and the Central Bank of Nigeria (CBN) starting from the year 2022.

The Cable brings you a summary of the policy recommendations from the 112-paged Nigeria Development Update.

RAISE TAXES ON SINFUL GOODS

The World Bank recommended that the government raises taxes on what it referred to as “sinful goods,” including cigarette, alcohol, sugary drinks.

The bank said FG has “accelerated efforts to diversify its revenue stream; however, risks to the implementation of these reforms remain high”.

“These reforms include improving tax administration, especially for VAT, while also undertaking some significant policy reforms, such as implementing a levy on electronic money transfers, and additional excise taxes on alcohol and tobacco

“While these reform efforts are expected to generate additional revenues of over ₦ 3 trillion a year, they may be challenging to politically implement in the run up to the national elections, planned for 2023.”

Despite the perceived difficulties, the bank advised that FG increase these taxes in order to generate adequate revenue.

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KILL FUEL SUBSIDIES

Fuel subsidy removal has been a recurrent recommendation in World Bank/IMF policy briefs for Nigeria for more than a decade, but little has been done about this.

In this report, the World Bank has asked the government to remove subsidies, again. The bank argues that the poorest Nigerians do not benefit much from the subsidy regime.

“Nigeria is the only country in the world with a universal price subsidy that applies exclusively to PMS. Universal price subsidies for liquid fuels are almost always regressive, as the rich consume far more fuel than the poor,” the report read.

“PMS subsidies are especially regressive because PMS is used primarily in light- and medium-duty motor vehicles, which are rarely owned by the poor. Since raising PMS prices tends to have minimal adverse effects on poor households, governments worldwide have typically prioritized eliminating PMS subsidies over those that apply to other fuels.

“However, Nigeria has done the opposite—eliminating all subsidies for liquid fuels other than PMS. Moreover, the Nigerian PMS subsidy is exceptionally generous, and in October 2021 the PMS pump price was the seventh-lowest among 168 economies surveyed at just ₦495 per liter”

The bank said the poorest 40 percent of Nigerians consume less than 3 percent of the total PMS consumption in Nigeria.

CUT LOANS FROM CBN

The World Bank said in its projections for Nigeria, that if current debt accumulation levels are maintained, the country’s debt-to-GDP ratio will hit 40 percent by 2025.

The bank, therefore, advised that the Buhari-admin cut back on its request for overdrafts from the CBN through the Ways and Means financing system. The bank asked FG to keep overdrafts to levels stipulated by law.

“Faced with a widening budget deficit, policymakers have increasingly turned to costly CBN overdrafts (also known as Ways and Means financing), which are not properly integrated into the fiscal accounts.

“While Nigeria’s debt burden remains manageable for the time being, maintaining sustainable debt dynamics will require curbing the use of CBN financing for the deficit and addressing fiscal pressures to break the cycle of low growth and rising public debt.”

FIX FOREX POLICY

“The current mix of monetary, fiscal, foreign exchange (FX), and trade policies also plays a prominent role as a driver of inflation,” the World Bank said. The bank recommended that fixing inflation will need some solution from forex management.

“Trade and FX restrictions, including the closure of land borders starting in August 2019, have increased prices for food and consumer goods, and imports of over 40 goods, including many staple foods, are currently ineligible for FX through formal windows.

“Nigeria’s exchange-rate management has resulted in the rise of parallel rates, which are closely linked to food-price dynamics.”

To address inflation, the bank recommended enhancement of the “flexibility and predictability of exchange rate management”. It also asked that all land borders be fully open for trade.

BUILD THE DIGITAL ECOSYSTEM

“One leading barrier is Nigeria’s underdeveloped fixed broadband infrastructure, which is partly attributable to burdensome Federal and State regulations,” the World Bank diagnosed.

“This weak infrastructure base creates a ripple effect across the economy, contributing to low levels of financial inclusion, and persistent geographic and gender gaps in access to and use of digital technologies.

“Conflicts, particularly in the north, exacerbate these challenges, due to heightened security risks. By investing in its digital infrastructure and strong foundational ID systems, Nigeria can promote economic development, security, governance, and efficient delivery of services, thereby accelerating progress toward an inclusive digital economy.”

The bank advised Nigeria to build digital public platforms, digital financial services, digital entrepreneurship, digital skills, and digital infrastructure.

PROTECT THE POOR

When subsidies are removed, the World Bank forsees some inflation, which would affect the poor and vulnerable. The bank is therefore calling on the government to fix this by protecting the poor.

“Implement a large-scale (covering 25% to 50% of the population) and time-bound targeted cash-transfer program to mitigate impacts of high inflation and the PMS subsidy removal,” the bank said.

It also called on government to “redirect savings from PMS subsidy to finance primary health, basic education, and rural connectivity projects”.

The bank said that the government in 2022 has planned to spend ~N3,000 per person per year on health while fuel subsidies could cost N13,000 per person per year in the same year”.

It called on the government to rearrange its priorities to shield the poor from bearing the burden of the subsidy removal.

SPEED UP PORT CLEARANCE

The World Bank advised that the government “reduce delays in border and port clearance by simplifying and harmonizing
documents, streamlining, automating procedures, and introducing risk-based customs interventions.”

This would entail spending up the processes of import at the popular Apapa Port, which is the busiest in the country, and one of the least efficient on the continent.

The Cable

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BDCs blame peer-to-peer Binance, others for naira fall

Published

15 hours ago

April 25, 2024

Trends Admin

BDCs blame peer-to-peer Binance, others for naira fall

The president of the Association of Bureau De Change Operators of Nigeria, BDCs, Aminu Gwadabe, says BDC operators are committed to preventing speculators from attacking the naira.

Mr. Gwadabe said this in an interview on Wednesday in Abuja.

The Association of Bureau De Change Operators of Nigeria, as a self-regulatory body, has platforms to check the excesses of BDC operators, he noted.

“We have inaugurated state chapters whereby we can have a database of participants in the forex market. This is for the Financial Action Task Force (FATF) to understand this market and to know the participants; give them a simple registration,” he said.

Mr. Gwadabe said that the foreign exchange market needed a kind of harmonisation, centralization, and KYC to identify all business participants.

“This will enable the CBN to track other players in the market other than the BDCs and their levels of involvement. The BDCs is collaborating with the regulatory authorities for physical verification of offices using technology.

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“We want to balance international obligations with our own objectives. International obligations are templates that have been built without our input. We are coming up with our own template to balance it. We have seen some illegal economic behaviour, and the CBN and the security agencies are aware, and I am sure they will nip it in the bud,’’ he added.

He said the recent wave of naira depreciation was of concern to the BDC operators.

Mr. Gwadabe explained, “I am happy that the authorities, and even the BDCs as operators, have identified the peer-to-peer (P2P) platform. P2P is a platform like Binance where speculators use the dollar to buy USDT, a stablecoin that is pegged at one to the dollar.

“As long as Binance and such other platforms continue to be profitable, the naira will continue to depreciate. There are many of them in the system. Binance has been nipped in the bud, but there are still many. They are online platforms with no registration or restrictions.”

Mr. Gwadabe said that the CBN and the security agencies were already aware of the antics of the platforms. According to him, they are more of an illegal form of economic behaviour, and the people behind them lack patriotism.

“People have turned the dollar into an asset—a commodity of trade—which is why those platforms continue to thrive. We have seen where people are buying dollars into their domiciliary accounts to finance these schemes. A lot of millions of dollars are going out of the system. It is one USD to one USDT. The market can be liquid.

“Binance alone has four billion dollars of liquidity and more than two million transactions. Most of them source money to finance their transactions on the open market, and that is one of the reasons why the naira is depreciating,’’ he said.

BDCs blame peer-to-peer Binance, others for naira fall

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MTN, Airtel, others set to increase call, data tarrif

Published

15 hours ago

April 25, 2024

Trends Admin

MTN, Airtel, others set to increase call, data tarrif

Telecommunications companies operating in Nigeria have begun moves that will see to an increase in call tariff in the country.

The companies which include Glo, MTN, Airtel and 9Mobile are asking the federal government to facilitate constructive dialogue in the industry.

According to the telcos, the current price control mechanism is not in tandem with the economic realities, thus seeking the government’s intervention in order to address pricing challenges.

The four telecommunications giants said they were the only ones that have not reviewed their prices which threaten the industry’s sustainability and possibly erodes investors’ confidence.

They made this known in a joint statement by the Association of Licensed Telecommunications Operators of Nigeria (ALTON) and Association of Telecommunication Companies of Nigeria (ATCON) on Thursday.

According to the statement signed by ALTON Chairman, Mr Gbenga Adebayo, and ATCON President, Mr Tony Emoekpere, there has not been a general service pricing framework upward in the past 11 years.

They attributed the non-increment to regulatory constraints despite the adverse economic hardship.

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They said: “For a fully liberalised and deregulated sector, the current price control mechanism, which is not aligned with economic realities, threatens the industry’s sustainability and can erode investors’ confidence.

“Despite the adverse economic headwinds, the telecommunications industry remains the only industry yet to review its general service pricing framework upward in the last 11 years, primarily due to regulatory constraints.

“Government needs to facilitate a constructive dialogue with industry stakeholders to address pricing challenges and establish a framework that balances consumers’ affordability with operators’ financial viability.”

The telcos also expressed concerns on the worsening security challenges affecting the productivity of the services provided, urging the federal government come up with measures to tackle the menace.

“Telecom infrastructure undisputedly plays a pivotal role in Nigeria’s national security and socioeconomic growth, especially as the country currently contends with multiple security challenges that require urgent and immediate actions in response to these threats.

“Attacks on cell towers, fibre optic cables, and other critical assets disrupt telecommunications services and result in significant financial losses for operators. We urge the government to prioritise the security of telecommunications infrastructure and collaborate with law enforcement agencies to enhance protection measures and combat vandalism and sabotage effectively.

“The industry also requires substantial investments in network expansion, maintenance, and technology upgrades,” they said.

MTN, Airtel, others set to increase call, data tarrif

Business

Naira continues fall against dollar despite CBN $10,000 to BDCs

Published

23 hours ago

April 25, 2024

Trends Admin

Naira continues fall against dollar despite CBN $10,000 to BDCs

The Naira has failed to appreciate against the US dollar at the foreign exchange market despite the Central Bank of Nigeria’s recent additional release of $10,000 to Bureau De change operators.

FMDQ data showed that the Naira recorded another drop to N1308.52 per Dollar on Wednesday compared to N1,300.15 exchanged on Tuesday.

On a day-to-day basis, this represents an N8.37 drop from N1,300.15 per Dollar it traded on Tuesday.

In the parallel market section, the Naira was sold at between N1,250 and N1,300 on Wednesday from N1230 on Tuesday.

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The development comes despite the Central Bank of Nigeria releasing 10,000 dollars each to BDC at N1,021 to a dollar with a caveat to sell at most 1.5 per cent above the bought price.

This is the third recent intervention for BDCs amid the bank’s effort to defend the Naira.

However, despite the FX rate record, the official window rate still surpassed the parallel market by N8.52.

Meanwhile, on Wednesday, the National President of the Association of Bureau De Change Operators of Nigeria, Aminu Gwadabe, blamed peer-to-peer cryptocurrency platforms like Binance for the recent depreciation of the Naira against the Dollar in the foreign exchange market.

In recent days, the Naira has slumped six times against the Dollar in the foreign exchange market.