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Nigeria May Adjust VAT Rate To 15% In Next Three Years ~EIU

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Value added tax - Investors King

In a bid to raise its revenue profile, Nigeria may hike its Value Added Tax (VAT) rate to 15 percent from the current 7.5 percent, according to a projection by the Economist Intelligence Unit (EIU), London.

According to the EIU report titled, “Country Report Nigeria,” an increase in the consumption tax becomes inevitable given the rising public debt burden and the likelihood that the Petroleum Industry Bill (PIB) might not be able to deliver a considerable increase in the government’s revenue.

The Unit also projected that increase in VAT rate would be implemented in installment in the next three years to 2025.

“We expect three equal VAT rate increases, taking the rate to 15 percent by 2025. The first is expected in 2022, prior to the next elections but seemingly inevitable given a rising debt burden, with further rises in 2024 and 2025.

“Even then we expect fiscal revenue to peak at just five percent of the GDP in 2024, which also assumes no fuel subsidies beyond 2022.

“The federal government’s tax take is among the world’s lowest, undermined by widespread evasion and a large informal sector.

“The PIB is likely to be balanced between the interests of the treasury and investors, and so not deliver a considerable increase in revenue.

“Consequently, the VAT, currently at 7.5 percent, is likely to be used as a means of repairing the public finances,” the report stated.

The report also projected that public finances would remain in deficit till the year 2025, because an average global crude oil price of $63.8/barrel in 2021-25, which makes up for more than 50 percent of the federal government’s retained income, would be insufficient to balance the budget.

It added that the percentage of public debt to the GDP would stand at 35.4 percent of the GDP in 2025.

“Overall, we expect the fiscal deficit to narrow to 3.3 percent of GDP in 2021 (from 3.7 percent of the GDP in 2020) as international oil prices rise.

“Also, the VAT rate increases and rising oil prices will push down the deficit to 2.6 percent of the GDP in 2023-24, but a decline in average global oil prices in 2025 will cause the shortfall to widen to 3.0 percent of the GDP in that year.

“The government has raised its public debt limit to 40 percent of GDP to incorporate higher budget shortfalls over the medium term and to accommodate securitisation of the Central Bank of Nigeria’s deficit-financing as long-term debt. We expect public debt to reach only 35.4 percent of the GDP in 2025,” the report added.

It further projected that “high debt-servicing costs, a large public wage bill, and the purchase of COVID-19 vaccines will elevate expenditure.

“Capital investment will be emphasised to compensate for the disappearance of petrol subsidies once the PIB is enacted (which is expected in late 2021).

“The government will justify price deregulation by promising to invest the savings in infrastructure and will face pressure to match rhetoric with action,” it said.

It, however, hinged the hope of market-determined petrol pump price on the Dangote Refinery, a new 650,000-barrel/day refinery near Lagos expected to come on-stream in 2022.

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Economy

IMF Staff Completes Virtual Mission to Lesotho

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IMF

Lesotho has been struggling with the fallout from the pandemic and a sharp decline in revenues from the Southern African Customs Union (SACU); The authorities and the mission team made significant progress in their discussions on policies that could be supported by the IMF under a financial arrangement.

A team from the International Monetary Fund (IMF), led by Mr. Aqib Aslam, conducted a series of virtual missions, most recently from September 7 to October 15, 2021, to discuss the authorities’ economic and financial program and their request for IMF financial support.

The authorities and the mission team had productive discussions on policies that could be supported by the IMF under a financial arrangement. The program under discussion would aim to support a durable post-pandemic recovery, restore fiscal sustainability, strengthen public financial management, and ensure the protection of the most vulnerable. Other key structural reforms to be implemented include strengthening governance and fostering private sector investment to spur inclusive growth and employment over the medium term.

At the end of the visit, Mr. Aslam issued the following statement:

“Lesotho has been experiencing twin economic shocks resulting from the pandemic and a decline in revenues from the Southern African Customs Union (SACU) that have proved to be highly volatile. Public expenditures have been increasing while SACU revenues were buoyant but have not adapted to their decline and the limited growth in other revenue sources. At the same time, the economy has been in recession since 2017. The resulting fiscal and external imbalances, if left unaddressed, would continue to put pressure on international reserves and lead to government payment arrears.

“Discussions emphasized the need to support a robust and inclusive post-pandemic recovery. To this end, the mission discussed with the authorities a number of options for containing the fiscal deficit to a level that is sustainable and can be fully financed. The team noted that the adjustment should be focused on expenditure measures while boosting poverty-reducing social spending to protect the most vulnerable. Complementary actions include efforts to broaden financial access and inclusion; strengthen financial supervision; modernize the legal frameworks for bank lending, business rescue, and restructuring, and digitalize payment systems.

“On the fiscal front, efforts should focus on addressing the public sector wage bill, which is one of the largest in the world compared to the size of the economy; saving on public sector and official allowances; better targeting education loans; streamlining the capital budget and initiating gender-responsive budgeting. Discussions also considered measures to modernize tax policy and improve domestic revenue mobilization. The mission noted the need to address long-standing PFM issues to ensure the provision of reliable fiscal data, the integrity of government systems, and the sound use of public resources.

“Significant progress was made during the visit, and discussions will continue in the coming weeks. If agreement is reached on policy measures in support of the reform program, an arrangement to support Lesotho’s economic program would be proposed for the IMF Executive Board’s consideration.

“The IMF team thanks the authorities for their hospitality and constructive discussions.”

The IMF mission met with Prime Minister Majoro, Minister of Finance Sophonea, Central Bank Governor Matlanyane, and other senior government officials. The team also met with representatives of the diplomatic community, private sector, civil society, and multilateral development partners.

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Nigeria’s Inflation: Prices Increase at Slower Pace in September 2021

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Consumer Confidence

Prices of goods and services moderated further in Africa’s largest economy, Nigeria in the month of September 2021, the latest report from the National Bureau of Statistics (NBS) has revealed.

Consumer Price Index (CPI), which measures the inflation rate, grew at 16.63 percent year-on-year in September, slower than the 17.01 percent rate achieved in the month of August.

On a monthly basis, inflation rose by 1.15 percent in September 2021, representing an increase of 0.13 percent from 1.02 percent filed in August 2021.

Food Index that gauges price of food items grew at 19.57 percent rate in the month, below the 20.30 percent rate recorded in August 2021.

The increase in the food index was caused by increases in prices of oils and fats, bread and cereals, food product N.E.C., fish, coffee, tea and cocoa, potatoes, yam and other tuber and milk, cheese and egg.

However, on a monthly basis, the price of food index rose by 0.20 percent from 1.06 percent filed in August 2021 to 1.26 percent in September 2021.

The more stable twelve months average ending in September 2021 revealed that prices of food items grew by 0.21 percent from 20.50 percent in August to 20.71 percent in September.

Prices of goods and services have been on the decline in Nigeria in recent months, according to the NBS. However. on masses are complaining of the persistent rise in prices of goods and services across the nation.

Some experts attributed the increase to Nigeria’s weak foreign exchange rate given it is largely an import-dependent economy.

 

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Economy

Global Debt Rises by $27 Trillion to $226 Trillion in 2020 – IMF

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IMF - Investors King

The pandemic has led to an unprecedented increase in debt—issued by governments, nonfinancial corporations, and households the IMF estimated in the latest Fiscal Monitor report. In 2020 global debt reached $226 trillion and increased by $27 trillion, the IMF estimated Wednesday  (October 13) in Washington, DC.

High and growing levels of public and private debt are associated with risks to financial stability and public finances, said Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department.

“According to preliminary estimates from the Global Debt Database, global debt by governments, households, and non-financial corporations reached $226 trillion. That represents an increase of $27 trillion relative to 2019. Both the level and the pace of increase are record highs. We know that high and rising debts increase risks to financial stability and public finances,” Gaspar said ahead of the Fiscal Monitor release.

Gaspar emphasized that countries with a high credibility fiscal framework benefit from better bond market access. They also experience lower interest rates on sovereign bonds.

“A strong message from the fiscal monitor is that fiscal credibility pays off. Countries that have credible fiscal frameworks benefit from better and cheaper access to bond markets. That’s a precious asset to have in an uncertain and difficult times like COVID 19. Fiscal credibility pays off!,” added Gaspar.

He also recognized that while the international community has provided critical support to alleviate fiscal vulnerabilities in low-income countries, still more is needed.

“In 2020, the IMF’s rapid financing and the G20 Debt Service Suspension Initiative contribute to make resources available to the countries that need it the most. But more is needed. With a general allocation of SDRs of $650 billion, liquidity has been provided, but much more could be achieved if rich countries would make part of their resources available to the developing world. By doing so, donors would be contributing to fighting the pandemic and to the achievement of sustainable and inclusive growth,” said Gaspar

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