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IMF Urges FG to Remove Tax Incentives, Reform VAT

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IMF cuts Nigeria's 2016 Economic Growth To -1
  • IMF Urges FG to Remove Tax Incentives, Reform VAT

The International Monetary Fund has urged the Federal Government to eliminate tax incentives and reform Value Added Tax as part of efforts to stimulate economic growth.

The IMF said on Wednesday that its executive board concluded the 2019 Article IV Consultation with Nigeria on March 27, 2019.

“Nigeria’s economy is recovering. Real GDP increased by 1.9 per cent in 2018, up from 0.8 per cent in 2017, on the back of improvements in manufacturing and services, supported by spillovers from higher oil prices, ongoing convergence in exchange rates and strides to improve the business environment,” it said.

The Washington-based fund noted that headline inflation fell to 11.4 per cent at the end-2018, reflecting declining food price inflation, weak consumer demand, a relatively stable exchange rate and tight monetary policy during most of 2018, but remained outside of the central bank’s target range of six to nine per cent.

It said record holdings of mostly short-term local debt and equity and a current account surplus lifted gross international reserves to a peak in April 2018, while the three-times oversubscribed November 2018 Eurobond helped cushion the impact of outflows later in the year.

“However, persisting structural and policy challenges continue to constrain growth to levels below those needed to reduce vulnerabilities, lessen poverty and improve weak human development outcomes, such as in health and education,” the IMF said.

According to it, a large infrastructure gap, low revenue mobilisation, governance and institutional weaknesses, continued foreign exchange restrictions, and banking sector vulnerabilities are dampening long-term foreign and domestic investment and keeping the economy reliant on volatile oil prices and production.

The fund said, “Under current policies, the outlook remains, therefore, muted. Over the medium term, absent strong structural reforms, growth would hover around 2½ per cent, implying no per capita growth as the economy faces limited increases in oil production and insufficient adjustment four years after the oil price shock.

“Monetary policy focused on exchange rate stability would help contain inflation but worsen competitiveness if greater flexibility is not accommodated when needed.

The IMF executive directors said long-standing structural and policy challenges needed to be tackled more decisively to reduce vulnerabilities, raise per capita growth, and bring down poverty.

They, therefore, urged the Nigerian authorities to redouble their reform efforts, while supporting their intention to accelerate the implementation of their Economic Recovery and Growth Plan.

The fund said the directors emphasised the need for revenue-based consolidation to lower the ratio of interest payments to revenue and make room for priority expenditure.

It said, “They welcomed the authorities’ tax reform plan to increase non-oil revenue, including through tax policy and administration measures. They stressed the importance of strengthening domestic revenue mobilisation, including through additional excises, a comprehensive VAT reform, and elimination of tax incentives.”

The directors said securing oil revenues through reforms of state-owned enterprises and measures to improve the governance of the oil sector would also be crucial.

They welcomed the significant increase in public investment but underlined the need for greater investment efficiency.

The IMF said, “They also recommended increasing funding for health and education. They noted that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space.”

They recommended stronger coordination for more effective public debt and cash management.

The directors also stressed that the elimination of exchange restrictions and multiple currency practices would remove distortions and facilitate economic diversification.

They welcomed the decline in non-performing loans and the improved prudential banking ratios but noted that restructured loans and undercapitalised banks continue to weigh on financial sector performance.

The IMF suggested strengthening capital buffers and risk-based supervision, conducting an asset quality review, avoiding regulatory forbearance, and revamping the banking resolution framework.

The directors also recommended establishing a credible time-bound recapitalisation plan for weak banks and a timeline for phasing out the state-backed Asset Management Corporation of Nigeria.

It said, “With inflation still above the central bank target, the directors generally considered that a tight monetary policy stance is appropriate.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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