With mounting criticisms over the country’s rising debt stock, the Minister of Finance, Budget and National Planning, Zainab Ahmed, told PREMIUM TIMES’ Business Editor, Bassey Udo, that only time will vindicate the current administration’s decision to borrow big to develop infrastructure, grow the economy and create wealth.
The minister, during the exclusive interview in her office in Abuja to mark her one year in office, said that the situation could have been worse but for the government’s proactive fiscal measures to push back on the impact of COVID-19 on the global economy. Excerpts:
PT: You are one of the few ministers in recent history to combine three powerful portfolios – Finance, Budget and National Planning. How much of a challenge is this on your shoulders?
AHMED: Well, it’s not so much a challenge, because I do not work alone. In his second term, the President, in his wisdom, formed the Ministry of Finance, Budget and National Planning, bringing together the planning and budgetary functions of the government.
The essence of the decision was for the country’s budget implementation to be guided by the government plans. Over the years, planning and budgeting processes were not going together.
In his first tenure, that objective was largely achieved. But, with some identified gaps between what the Ministries of Planning and Finance were doing, specifically as related to the government’s budget function, in terms of preparation, execution and monitoring/evaluation, there was (a) need for the merger.
As a minister, my role was to coordinate the three major functions. And I must say my job has not been as challenging as one would think, because I have a solid support base from the Minister of State for Budget and National Planning and three capable Permanent Secretaries in the Ministry of Planning and two others in the Ministry of Finance.
We keep making progress on a daily basis, because we have the right core structures in place. Apart from the new ministries, the team collectively supervises about 18 agencies, with shared supervisory responsibilities among directors representing the Ministries in most of the Boards of those agencies.
We have a system of tracking performances and determining what is working and what is not. On a weekly basis, we have management meetings to review updates on what progress and challenges have been identified as well as refine efforts to achieve overall goals and objectives on (an) ongoing basis.
PT: What are the challenges in pursuing those responsibilities?
AHMED: The first major challenge at the beginning was the fragmentation of efforts between the various ministries.
One of the first things I did, on taking over, was to develop the strategic revenue growth initiative (SRGI). The biggest challenge the country is facing is low revenue yields to support the government’s programmes.
After examining the entire revenue ecosystem, the SRGI was designed to bring all the key revenue generating agencies together, including the NNPC (Nigerian National Petroleum Corporation), DPR (Department of Petroleum Resources) and others not directly under the Ministry of Finance.
One of the key objectives of the SRGI was to create coercion among the people and their tools, because not only were people working in silos, the investments in systems were standing alone. That created a huge challenge to the effort to deliver on targets.
Although the systems are automated everywhere, on a monthly basis during the FAAC (Federation Accounts Allocation Committee) meeting, people bring their reports in a flash, or send through emails. There was no central system we could see revenue flow real-time, to be able to make (an) informed assessment of what the government’s plan would be in the next one month or so.
So, the main pillar of the ERGP (Economic Recovery and Growth Plan) was the creation of coercion between people and tools. As you are aware, managing people is one of the most difficult tasks managers face, especially trying to change the orientation of people and their mindsets.
But, today, we are making some progress. It is an ongoing process, although one of the most difficult things is to change the attitude of people, or the ways they do things. The challenge is even bigger when considered that there is a huge revenue gap to bridge with the ERGP.
The government’s target was to attain a revenue-to-GDP (gross domestic product) level of 15 per cent by 2019, from 6 per cent in 2015.
Gradually, the level inched up to about 8.2 per cent last year. Sadly, with the slowdown in the global and Nigerian economy, we are seeing the ratio beginning to decline already.
The implication is that when the revenue is not performing at a rate the government is planning, the government would struggle to fund all its programmes and activities. This is a significant challenge the government is living with on a daily basis.
The government has been trying to joggle providing for social development, in terms of health, education, security, social investment, infrastructure and other sectors. Everything has a legitimate and important demand on the government’s limited resources. The government revenue cannot do everything. Therefore, the government ends up borrowing massively to finance these development efforts.
But it is not irresponsible borrowing. The government has always ensured the borrowings were tied to and applied on major infrastructure and developmental projects, while using its revenues to pay salaries and other obligations to institutions categorized under the Constitution as beneficiaries of first line charge.
PT: Clearly, the impact of poor revenue on budget implementation is huge. Like you’ve said, this has compelled (the) government to rely more on borrowing to do most programmes. What’s your assessment of the implementation of the 2020 budget?
AHMED: In spite of these challenges, incidentally the 2020 budget is one the government has had an opportunity to implement nearly 100 per cent. One, because the government had to review the budget fundamentals downwards to reflect the current realities, particularly of the COVID-19 pandemic.
Two, the budget has the benefit of being implemented for the first time for a full year, because its implementation began in January.
Don’t forget this is the first budget to be implemented under the new January to December budget cycle, unlike previous years when the capital components of the budgets were implemented sometimes for just six months.
We are very much on course to meet the target to implement the budget at nearly 100 per cent.
Over time, the government implemented personnel 100 per cent; overheads 70-75 per cent. This year, the target was to implement 100 per cent of even overheads, personnel (salaries, gratuities, pensions) and other non-discretionary expenditures, like transfers to arms of government with first line charge status.
We are also going to perform nearly 100 per cent, because we are going to have the benefit of a full year, and also because we were able to raise financing through borrowing to fund capital expenditures.
It becomes very important to maintain the spending on basic infrastructure, because consumption is what is helping the economy to stay afloat.
PT: If you want to attach percentages to the budget sectoral implementation, what would the picture look like?
AHMED: Like I said, in terms of revenue, which the government had to review by half-year, the overall performance was 72 per cent, which is higher than the past three years’ performances. Personnel emoluments, which have always been 100 per cent, are of course, same as debt service.
On capital, by middle of August, the government did more than 50 per cent, after releasing up to N1.2 trillion, of the N2.4 trillion capital budget for not all MDAs (ministries, departments and agencies) alone, but including those in the service-wide votes relating to government-owned enterprises.
The more than 50 per cent capital budget release is despite the slowdown in the country’s economy as a result of the impact of COVID-19. This is because the government was able to raise funds from local and capital markets as well as funding the government raised from international sources to finance capital projects.
PT: In January, the government introduced the Finance Bill with a rash of taxes, including a revised VAT rate to 7.5 per cent. It was perhaps an alternative source for declining revenues from oil and other sources. Critics say more tax burdens on the people at a time of global economic downturn is insensitive. How do you react to this, vis-à-vis your assessment of the Finance Bill?
AHMED: I don’t agree on the insensitive aspect of your question. Over the years, there were several attempts to increase VAT in the country, without success. But, the government did it, because Labour was involved.
When the government was negotiating for the new national minimum wage, Labour was shown the performance of the economy on the expenditure and the revenue sides. The government made it clear that at the current rate governance was going, it would not be possible to pay the minimum wage they were demanding.
So, Labour understood with the government that some fundamental changes were necessary to enhance the revenue performance, not only at the Federal, but especially at the state level. That is how the government and Labour collectively agreed on the increase in VAT.
Again, although the economy is slowing down, the government still has the minimum wage to pay. So, we cannot go back on the review of the VAT and the Finance Bill.
If we pull back at the Federal and State levels, with the stress already on the economy, we will begin to have difficulties in pursuing development goals.
In fact, some states will fail to meet their obligations to their people, in terms of payment of the minimum wage to the workers. That is why the new VAT rate has to stay, despite the obvious pains. We know the slowdown (of) the economy is temporary, while the payment of the minimum wage is permanent and constant. If there is anything, it will increase, with another upward review.
Regardless, Nigerians forget that in the same Finance Bill, the government provided some tax relief by reducing taxes in the most important sector of the economy – the small and medium enterprises (SMEs).
PT: But that is only a section of the economy and not to the vulnerable and the poor?
AHMED: Yes, but that is the most important sector of the economy. Any economy that is to grow at a sustainable basis must have a robust SMEs sector. It is not the big businesses that sustain the growth of the economy. The SMEs are the ones that employ people, increase general productivity and enhance the general welfare of the citizenry. It is not (the) government that would employ people.
So, the government thought the SMEs should be given relief by zeroing their taxes if they are SMEs with annual turnover of between N25 and N100 million. That, by any standard, is very significant.
During the global economic slowdown, that is exactly what countries were doing. The Nigerian government did its own fortuitously not knowing that the country’s economy would be hit by COVID-19. All we are doing is to implement in the best possible way.Naira notes used to illustrate the story.
Again, the government increased the VAT threshold, from N1,000 to N10,000, so that even when the rate has gone up, SMEs’ products would still be insulated from the VAT, to protect SMEs to grow and expand.
PT: So, what would you say about the impact of the Finance Bill on the economy so far?
AHMED: Well, we are seeing the increase in VAT revenue collection, in terms of numbers, as more significant on the import side of things. On the non-imports, it is about 17 per cent and about 30 per cent on the import side so far, based on the recently published half-year performance report.
PT: After your appointment, your ministry must have set some targets to achieve in the next one year. What’s your assessment of those targets one year after?
AHMED: For the Ministry of Finance, the overarching target was to increase the government’s revenue yield to 15 per cent to the GDP. Earlier, I said the journey has started.
We have gone up to 8 per cent. The government was hoping 2020 was going to be a wrap up to 15 per cent, because the SGRI was designed a year earlier in a way to realize that. A lot of preparation was done.
The Finance Bill that was passed corrected a lot of loopholes in the existing fiscal laws. At the minimum, we were expecting our revenue-to-GDP rate to grow to about 9.5 per cent in 2020.
Unfortunately, COVID-19 happened. Now, we are seeing a practical setback to our initial assessment to reach that target by 2023. If the review of the target is not completed, we will push it to 2025.
We also had a target to change the distortions in the fiscal year. We targeted going to block the loopholes in several laws responsible for heavy revenue losses in the finance sector. We have captured it in the 2020 Finance Bill.
We had the target to increase efficiency in collection of the Federal Inland Revenue Service (FIRS) and the Nigerian Customs Service (NCS). All these are on the upward swing.
Each of these agencies had key deliverables we signed up to during our swearing in when the President gave 17 targets to deliver, including preparing the next national development plan and completion of the movement of all staff to the IPPIS (Integrated Personnel Payment Information System) and the full implementation of the GIFMIS (Government Integrated Financial Management Information System). All these are progressing very well.
PT: As Minister of Finance, are you not worried that despite all these efforts, Nigeria’s foreign and domestic debts appear to be growing by the day?
AHMED: The greatest concern I have is about our revenues not still performing to the level we want. As at half-year, the country’s total debt stood at about $27 billion, and our debt-to-GDP ratio is at about 22-23 per cent.
I have said it before, for (an) economy Nigeria’s size, compared with our peers, the average borrowing rate-to-GDP should be about 50 per cent. So, Nigeria is far below that level.
For the government to deliver on major infrastructure required for economic development, make businesses easier and bring in investments, we need massive roll-out of major infrastructure. Nobody can do it with the government revenue, but with borrowing, because the infrastructure will help generate revenue to pay back the loans.
We are working with the National Assembly to amend the Fiscal Responsibility Act (FRA) to reflect the new reality. When the 2020 Budget was revised, the government exceeded the 3 per cent deficit-to-GDP threshold. We did not need to amend the law at that time, because the law actually allowed that to be done in exceptional circumstances.
The MTEF (Medium Term Expenditure Framework) 2020/2021 showed the government cannot bring it below 3 per cent, because the reality was that revenue was going sluggishly against a rapidly growing expenditure.
So, we might have to amend that provision as part of the process in preparing the 2021 Budget and also the 2020 Finance Act the government is working on.
We will also have to amend that part of the law that the country’s borrowing should not go beyond 25 per cent. We might have to raise that to about 30 per cent or more. The government has also revised the country’s debt management strategy. It will go through stakeholders’ consultation before the usual approval processes.
So, in terms of debt, I have no concern, because the government is borrowing for the right purposes, apart from ensuring the funds are applied currently. Only time will judge us whether we were taking the correct decisions. In future, people will see the full result of what we used these facilities to do. Then, we will be vindicated that we borrowed correctly; not to waste on recurrent expenditure, but invest in the development of key infrastructures.
As a policy of the government, whenever there is need to borrow, we go (for) concessional loans, where the rates are very low and the repayment tenors (are) very long.
We are also looking at borrowing and using natural resource assets like crude oil to secure the borrowing so that the payment could be done in the future.
We are also looking at how we can refinance obligations that reduce the payments the government has to do now to decrease the burden. Previously, it was high cost of domestic borrowing with short repayment tenor. Over time, as the debt instruments are maturing, we have been refinancing them with longer tenured instruments under the debt management strategy.
PT: It appears the more the loans are taken to build infrastructure and create wealth are growing, poverty is growing in almost equal measure. The latest GDP report by the NBS says unemployment and poverty are increasing. Is the government overwhelmed?
AHMED: Unemployment has increased more rapidly during the period of economic stress as a result of the COVID-19 pandemic. But, if one looks at the previous reports, one will have people that are just coming into the employment market, those that have been employed and those that are being added to the list.
However, the number of people employed are growing. But, those coming into the employment pool are growing at a rate faster than those employed.
So, it is not that people are not being employed, but it is just that we are churning out more of our young population, who are finishing school and coming out to look for jobs.
It is because of that situation that the President made a pronouncement in June last year that we must take 100 million Nigerians out of poverty over the next 10 year. How do you do that? By creating jobs. If someone is gainfully employed, that person is being pulled out of poverty.
PT: But Nigerians are still asking where those jobs created are.
AHMED: This is because the proportions are not growing fast enough. That is why the government has to concentrate on SMEs. Government cannot be the one to create the jobs, but the enabling environment for businesses to create jobs.
Until we get to a point where economic growth is overtaking population growth, people will not feel the impact today. Since we cannot do much to control our population, all the government can do is to grow the economy for the large population to feel the impact.
Each of the ministers has a mandate to contribute to that presidential declaration. In designing the economic sustainability plan (ESP), one of the main focuses is creating jobs. The quickest way to do it under the emergency period is under public works using almost 100 per cent local raw materials to create more opportunities in the value chain.
We have the mass agricultural, housing, public works programmes as the major components of the ESP, all aimed at creating jobs and having a spill over effect on the SMEs that will themselves be creating more jobs directly and indirectly.
PT: You have always said that with the pandemic and the impact on the global economy is going to be another slip into recession. The latest NBS report appears to suggest the economy is at the verge of that inevitable outcome. How prepared is the country for that reality?
AHMED: From the beginning of this pandemic in March, when the ministers were formed into a crisis response committee, the NBS gave an assessment that showed the global economy, by extension the Nigerian economy, was heading into another recession.
On the back of that, we took a number of fiscal measures that included the design of the ESP, which is currently being implemented.
So, if we did not take those measures, the recession the country would have gone into would have been deeper, which would be difficult to come out (of). All the measures we have taken are to ensure the negative growth is not too deep that it would become difficult to come out.
We are very optimistic the third quarter GDP performance will be better than the second, because more work has been done. But, it remains nine out of 10 chances that it will still be a negative growth, which means technically we will be in a recession.
We are hopeful that in the fourth quarter the performance will still be better. By the first quarter of 2021, the economy might grow back into the positive growth territory, if we are able to fully implement the ESP, which was based on an analogy that if the government spends N500 billion that the President approved as the initial ESP package. Instead of the negative growth projected at minus 4.4 per cent, it was going to slow down to about minus 3.5 per cent.
However, if we are able to spend the whole of N2.5 trillion and apply to the economy, we would end up with a negative growth of about minus 5.9 per cent. This would make it easy to pull back from recession back into the positive growth territory.
So, the government has planned for these scenarios. We hope the COVID-19 situation and crude oil price, which appears to be improving now, is sustained. The fear is that if the economy has another huge blow, we will be pushed deeper into trouble.
PT: So, does this give Nigerians any reason to hope for leg room to manoeuvre, in terms of ability to create jobs?
AHMED: For every crisis, there is usually an opportunity to exploit. The COVID-19 pandemic is an opportunity for us to take stock and bring things to reality.
It was because of this crisis that the government was able to pull out of fuel subsidy.
In the budget, there was a provision for N457 billion expenditure per annum. But, in reality, it was more than that, considering the foreign exchange component relating to that. So, at least that is N1 trillion that is saved.
We are now beginning to pull out of the electricity subsidy, because the industry has now been able to agree they would be negotiating with their customers that have the higher capacity to pay to collect higher tariffs. So, gradually, the subsidy in that sector will also be removed.
In the budget, we reviewed our spending and stopped the non-essential expenditure, so that limited funds are applied to the expenditures that are more important and urgent. So, as (a) government, we saw a lot of opportunities.
But, in the business side, the businesses, like the pharmaceutical sector, now have the opportunity to grow. They have a number of special concessions in terms of financing and waivers, so that they can expand their businesses.
So, we will end up being able to produce more of what we need. Even businesses producing face masks and other personal protective equipment (PPEs) in Nigeria. Also, drugs that we used to import are now being produced in Nigeria. These are opportunities that came out as a result of COVID-19.
The biggest opportunity is the country’s ability to step back and assess the poor level of health infrastructure in the country. So, we will come out of the pandemic with a better healthcare system. That, in itself, is an investment in people and their ability to be more productive in the economy.
PT: Going forward, what should Nigerians expect as plans for the economy for the future?
AHMED: We have already completed our next medium-term expenditure plan (MTEF) 2021-2023, which is currently before the National Assembly. We are now working on the 2021 Budget and the next national development plan.
First of all, a medium term for five years and then a long-term plan for 25-30 years. These are things going on simultaneously with the review of the country’s debt management strategy as well as the IT systems to be able to link up and be able to speak to each other and get the best outcomes for the economy.
PT: You are one of the few ministers in recent history to combine three powerful portfolios – Finance, Budget and National Planning. How much of a challenge is this on your shoulders?
AHMED: Well, it’s not so much a challenge, because I do not work alone. In his second term, the President, in his wisdom, formed the Ministry of Finance, Budget and National Planning, bringing together the planning and budgetary functions of the government.
The essence of the decision was for the country’s budget implementation to be guided by the government plans. Over the years, planning and budgeting processes were not going together.
In his first tenure, that objective was largely achieved. But, with some identified gaps between what the Ministries of Planning and Finance were doing, specifically as related to the government’s budget function, in terms of preparation, execution and monitoring/evaluation, there was (a) need for the merger.
As a minister, my role was to coordinate the three major functions. And I must say my job has not been as challenging as one would think, because I have a solid support base from the Minister of State for Budget and National Planning and three capable Permanent Secretaries in the Ministry of Planning and two others in the Ministry of Finance.
We keep making progress on a daily basis, because we have the right core structures in place. Apart from the new ministries, the team collectively supervises about 18 agencies, with shared supervisory responsibilities among directors representing the Ministries in most of the Boards of those agencies.
We have a system of tracking performances and determining what is working and what is not. On a weekly basis, we have management meetings to review updates on what progress and challenges have been identified as well as refine efforts to achieve overall goals and objectives on (an) ongoing basis.
PT: What are the challenges in pursuing those responsibilities?
AHMED: The first major challenge at the beginning was the fragmentation of efforts between the various ministries.
One of the first things I did, on taking over, was to develop the strategic revenue growth initiative (SRGI). The biggest challenge the country is facing is low revenue yields to support the government’s programmes.
After examining the entire revenue ecosystem, the SRGI was designed to bring all the key revenue generating agencies together, including the NNPC (Nigerian National Petroleum Corporation), DPR (Department of Petroleum Resources) and others not directly under the Ministry of Finance.
One of the key objectives of the SRGI was to create coercion among the people and their tools, because not only were people working in silos, the investments in systems were standing alone. That created a huge challenge to the effort to deliver on targets.
Although the systems are automated everywhere, on a monthly basis during the FAAC (Federation Accounts Allocation Committee) meeting, people bring their reports in a flash, or send through emails. There was no central system we could see revenue flow real-time, to be able to make (an) informed assessment of what the government’s plan would be in the next one month or so.
So, the main pillar of the ERGP (Economic Recovery and Growth Plan) was the creation of coercion between people and tools. As you are aware, managing people is one of the most difficult tasks managers face, especially trying to change the orientation of people and their mindsets.
But, today, we are making some progress. It is an ongoing process, although one of the most difficult things is to change the attitude of people, or the ways they do things. The challenge is even bigger when considered that there is a huge revenue gap to bridge with the ERGP.
The government’s target was to attain a revenue-to-GDP (gross domestic product) level of 15 per cent by 2019, from 6 per cent in 2015.
Gradually, the level inched up to about 8.2 per cent last year. Sadly, with the slowdown in the global and Nigerian economy, we are seeing the ratio beginning to decline already.
The implication is that when the revenue is not performing at a rate the government is planning, the government would struggle to fund all its programmes and activities. This is a significant challenge the government is living with on a daily basis.
The government has been trying to joggle providing for social development, in terms of health, education, security, social investment, infrastructure and other sectors. Everything has a legitimate and important demand on the government’s limited resources. The government revenue cannot do everything. Therefore, the government ends up borrowing massively to finance these development efforts.
But it is not irresponsible borrowing. The government has always ensured the borrowings were tied to and applied on major infrastructure and developmental projects, while using its revenues to pay salaries and other obligations to institutions categorized under the Constitution as beneficiaries of first line charge.
PT: Clearly, the impact of poor revenue on budget implementation is huge. Like you’ve said, this has compelled (the) government to rely more on borrowing to do most programmes. What’s your assessment of the implementation of the 2020 budget?
AHMED: In spite of these challenges, incidentally the 2020 budget is one the government has had an opportunity to implement nearly 100 per cent. One, because the government had to review the budget fundamentals downwards to reflect the current realities, particularly of the COVID-19 pandemic.
Two, the budget has the benefit of being implemented for the first time for a full year, because its implementation began in January.
Don’t forget this is the first budget to be implemented under the new January to December budget cycle, unlike previous years when the capital components of the budgets were implemented sometimes for just six months.
We are very much on course to meet the target to implement the budget at nearly 100 per cent.
Over time, the government implemented personnel 100 per cent; overheads 70-75 per cent. This year, the target was to implement 100 per cent of even overheads, personnel (salaries, gratuities, pensions) and other non-discretionary expenditures, like transfers to arms of government with first line charge status.
We are also going to perform nearly 100 per cent, because we are going to have the benefit of a full year, and also because we were able to raise financing through borrowing to fund capital expenditures.
It becomes very important to maintain the spending on basic infrastructure, because consumption is what is helping the economy to stay afloat.
PT: If you want to attach percentages to the budget sectoral implementation, what would the picture look like?
AHMED: Like I said, in terms of revenue, which the government had to review by half-year, the overall performance was 72 per cent, which is higher than the past three years’ performances. Personnel emoluments, which have always been 100 per cent, are of course, same as debt service.
On capital, by middle of August, the government did more than 50 per cent, after releasing up to N1.2 trillion, of the N2.4 trillion capital budget for not all MDAs (ministries, departments and agencies) alone, but including those in the service-wide votes relating to government-owned enterprises.
The more than 50 per cent capital budget release is despite the slowdown in the country’s economy as a result of the impact of COVID-19. This is because the government was able to raise funds from local and capital markets as well as funding the government raised from international sources to finance capital projects.
PT: In January, the government introduced the Finance Bill with a rash of taxes, including a revised VAT rate to 7.5 per cent. It was perhaps an alternative source for declining revenues from oil and other sources. Critics say more tax burdens on the people at a time of global economic downturn is insensitive. How do you react to this, vis-à-vis your assessment of the Finance Bill?
AHMED: I don’t agree on the insensitive aspect of your question. Over the years, there were several attempts to increase VAT in the country, without success. But, the government did it, because Labour was involved.
When the government was negotiating for the new national minimum wage, Labour was shown the performance of the economy on the expenditure and the revenue sides. The government made it clear that at the current rate governance was going, it would not be possible to pay the minimum wage they were demanding.
So, Labour understood with the government that some fundamental changes were necessary to enhance the revenue performance, not only at the Federal, but especially at the state level. That is how the government and Labour collectively agreed on the increase in VAT.
Again, although the economy is slowing down, the government still has the minimum wage to pay. So, we cannot go back on the review of the VAT and the Finance Bill.
If we pull back at the Federal and State levels, with the stress already on the economy, we will begin to have difficulties in pursuing development goals.
In fact, some states will fail to meet their obligations to their people, in terms of payment of the minimum wage to the workers. That is why the new VAT rate has to stay, despite the obvious pains. We know the slowdown (of) the economy is temporary, while the payment of the minimum wage is permanent and constant. If there is anything, it will increase, with another upward review.
Regardless, Nigerians forget that in the same Finance Bill, the government provided some tax relief by reducing taxes in the most important sector of the economy – the small and medium enterprises (SMEs).
PT: But that is only a section of the economy and not to the vulnerable and the poor?
AHMED: Yes, but that is the most important sector of the economy. Any economy that is to grow at a sustainable basis must have a robust SMEs sector. It is not the big businesses that sustain the growth of the economy. The SMEs are the ones that employ people, increase general productivity and enhance the general welfare of the citizenry. It is not (the) government that would employ people.
So, the government thought the SMEs should be given relief by zeroing their taxes if they are SMEs with annual turnover of between N25 and N100 million. That, by any standard, is very significant.
During the global economic slowdown, that is exactly what countries were doing. The Nigerian government did its own fortuitously not knowing that the country’s economy would be hit by COVID-19. All we are doing is to implement in the best possible way.Naira notes used to illustrate the story.
Again, the government increased the VAT threshold, from N1,000 to N10,000, so that even when the rate has gone up, SMEs’ products would still be insulated from the VAT, to protect SMEs to grow and expand.
PT: So, what would you say about the impact of the Finance Bill on the economy so far?
AHMED: Well, we are seeing the increase in VAT revenue collection, in terms of numbers, as more significant on the import side of things. On the non-imports, it is about 17 per cent and about 30 per cent on the import side so far, based on the recently published half-year performance report.
PT: After your appointment, your ministry must have set some targets to achieve in the next one year. What’s your assessment of those targets one year after?
AHMED: For the Ministry of Finance, the overarching target was to increase the government’s revenue yield to 15 per cent to the GDP. Earlier, I said the journey has started.
We have gone up to 8 per cent. The government was hoping 2020 was going to be a wrap up to 15 per cent, because the SGRI was designed a year earlier in a way to realize that. A lot of preparation was done.
The Finance Bill that was passed corrected a lot of loopholes in the existing fiscal laws. At the minimum, we were expecting our revenue-to-GDP rate to grow to about 9.5 per cent in 2020.
Unfortunately, COVID-19 happened. Now, we are seeing a practical setback to our initial assessment to reach that target by 2023. If the review of the target is not completed, we will push it to 2025.
We also had a target to change the distortions in the fiscal year. We targeted going to block the loopholes in several laws responsible for heavy revenue losses in the finance sector. We have captured it in the 2020 Finance Bill.
We had the target to increase efficiency in collection of the Federal Inland Revenue Service (FIRS) and the Nigerian Customs Service (NCS). All these are on the upward swing.
Each of these agencies had key deliverables we signed up to during our swearing in when the President gave 17 targets to deliver, including preparing the next national development plan and completion of the movement of all staff to the IPPIS (Integrated Personnel Payment Information System) and the full implementation of the GIFMIS (Government Integrated Financial Management Information System). All these are progressing very well.
PT: As Minister of Finance, are you not worried that despite all these efforts, Nigeria’s foreign and domestic debts appear to be growing by the day?
AHMED: The greatest concern I have is about our revenues not still performing to the level we want. As at half-year, the country’s total debt stood at about $27 billion, and our debt-to-GDP ratio is at about 22-23 per cent.
I have said it before, for (an) economy Nigeria’s size, compared with our peers, the average borrowing rate-to-GDP should be about 50 per cent. So, Nigeria is far below that level.
For the government to deliver on major infrastructure required for economic development, make businesses easier and bring in investments, we need massive roll-out of major infrastructure. Nobody can do it with the government revenue, but with borrowing, because the infrastructure will help generate revenue to pay back the loans.
We are working with the National Assembly to amend the Fiscal Responsibility Act (FRA) to reflect the new reality. When the 2020 Budget was revised, the government exceeded the 3 per cent deficit-to-GDP threshold. We did not need to amend the law at that time, because the law actually allowed that to be done in exceptional circumstances.
The MTEF (Medium Term Expenditure Framework) 2020/2021 showed the government cannot bring it below 3 per cent, because the reality was that revenue was going sluggishly against a rapidly growing expenditure.
So, we might have to amend that provision as part of the process in preparing the 2021 Budget and also the 2020 Finance Act the government is working on.
We will also have to amend that part of the law that the country’s borrowing should not go beyond 25 per cent. We might have to raise that to about 30 per cent or more. The government has also revised the country’s debt management strategy. It will go through stakeholders’ consultation before the usual approval processes.
So, in terms of debt, I have no concern, because the government is borrowing for the right purposes, apart from ensuring the funds are applied currently. Only time will judge us whether we were taking the correct decisions. In future, people will see the full result of what we used these facilities to do. Then, we will be vindicated that we borrowed correctly; not to waste on recurrent expenditure, but invest in the development of key infrastructures.
As a policy of the government, whenever there is need to borrow, we go (for) concessional loans, where the rates are very low and the repayment tenors (are) very long.
We are also looking at borrowing and using natural resource assets like crude oil to secure the borrowing so that the payment could be done in the future.
We are also looking at how we can refinance obligations that reduce the payments the government has to do now to decrease the burden. Previously, it was high cost of domestic borrowing with short repayment tenor. Over time, as the debt instruments are maturing, we have been refinancing them with longer tenured instruments under the debt management strategy.
PT: It appears the more the loans are taken to build infrastructure and create wealth are growing, poverty is growing in almost equal measure. The latest GDP report by the NBS says unemployment and poverty are increasing. Is the government overwhelmed?
AHMED: Unemployment has increased more rapidly during the period of economic stress as a result of the COVID-19 pandemic. But, if one looks at the previous reports, one will have people that are just coming into the employment market, those that have been employed and those that are being added to the list.
However, the number of people employed are growing. But, those coming into the employment pool are growing at a rate faster than those employed.
So, it is not that people are not being employed, but it is just that we are churning out more of our young population, who are finishing school and coming out to look for jobs.
It is because of that situation that the President made a pronouncement in June last year that we must take 100 million Nigerians out of poverty over the next 10 year. How do you do that? By creating jobs. If someone is gainfully employed, that person is being pulled out of poverty.
PT: But Nigerians are still asking where those jobs created are.
AHMED: This is because the proportions are not growing fast enough. That is why the government has to concentrate on SMEs. Government cannot be the one to create the jobs, but the enabling environment for businesses to create jobs.
Until we get to a point where economic growth is overtaking population growth, people will not feel the impact today. Since we cannot do much to control our population, all the government can do is to grow the economy for the large population to feel the impact.
Each of the ministers has a mandate to contribute to that presidential declaration. In designing the economic sustainability plan (ESP), one of the main focuses is creating jobs. The quickest way to do it under the emergency period is under public works using almost 100 per cent local raw materials to create more opportunities in the value chain.
We have the mass agricultural, housing, public works programmes as the major components of the ESP, all aimed at creating jobs and having a spill over effect on the SMEs that will themselves be creating more jobs directly and indirectly.
PT: You have always said that with the pandemic and the impact on the global economy is going to be another slip into recession. The latest NBS report appears to suggest the economy is at the verge of that inevitable outcome. How prepared is the country for that reality?
AHMED: From the beginning of this pandemic in March, when the ministers were formed into a crisis response committee, the NBS gave an assessment that showed the global economy, by extension the Nigerian economy, was heading into another recession.
On the back of that, we took a number of fiscal measures that included the design of the ESP, which is currently being implemented.
So, if we did not take those measures, the recession the country would have gone into would have been deeper, which would be difficult to come out (of). All the measures we have taken are to ensure the negative growth is not too deep that it would become difficult to come out.
We are very optimistic the third quarter GDP performance will be better than the second, because more work has been done. But, it remains nine out of 10 chances that it will still be a negative growth, which means technically we will be in a recession.
We are hopeful that in the fourth quarter the performance will still be better. By the first quarter of 2021, the economy might grow back into the positive growth territory, if we are able to fully implement the ESP, which was based on an analogy that if the government spends N500 billion that the President approved as the initial ESP package. Instead of the negative growth projected at minus 4.4 per cent, it was going to slow down to about minus 3.5 per cent.
However, if we are able to spend the whole of N2.5 trillion and apply to the economy, we would end up with a negative growth of about minus 5.9 per cent. This would make it easy to pull back from recession back into the positive growth territory.
So, the government has planned for these scenarios. We hope the COVID-19 situation and crude oil price, which appears to be improving now, is sustained. The fear is that if the economy has another huge blow, we will be pushed deeper into trouble.
PT: So, does this give Nigerians any reason to hope for leg room to manoeuvre, in terms of ability to create jobs?
AHMED: For every crisis, there is usually an opportunity to exploit. The COVID-19 pandemic is an opportunity for us to take stock and bring things to reality.
It was because of this crisis that the government was able to pull out of fuel subsidy.
In the budget, there was a provision for N457 billion expenditure per annum. But, in reality, it was more than that, considering the foreign exchange component relating to that. So, at least that is N1 trillion that is saved.
We are now beginning to pull out of the electricity subsidy, because the industry has now been able to agree they would be negotiating with their customers that have the higher capacity to pay to collect higher tariffs. So, gradually, the subsidy in that sector will also be removed.
In the budget, we reviewed our spending and stopped the non-essential expenditure, so that limited funds are applied to the expenditures that are more important and urgent. So, as (a) government, we saw a lot of opportunities.
But, in the business side, the businesses, like the pharmaceutical sector, now have the opportunity to grow. They have a number of special concessions in terms of financing and waivers, so that they can expand their businesses.
So, we will end up being able to produce more of what we need. Even businesses producing face masks and other personal protective equipment (PPEs) in Nigeria. Also, drugs that we used to import are now being produced in Nigeria. These are opportunities that came out as a result of COVID-19.
The biggest opportunity is the country’s ability to step back and assess the poor level of health infrastructure in the country. So, we will come out of the pandemic with a better healthcare system. That, in itself, is an investment in people and their ability to be more productive in the economy.
PT: Going forward, what should Nigerians expect as plans for the economy for the future?
AHMED: We have already completed our next medium-term expenditure plan (MTEF) 2021-2023, which is currently before the National Assembly. We are now working on the 2021 Budget and the next national development plan.
First of all, a medium term for five years and then a long-term plan for 25-30 years. These are things going on simultaneously with the review of the country’s debt management strategy as well as the IT systems to be able to link up and be able to speak to each other and get the best outcomes for the economy.
