IMF calls for depoliticisation of budget, steady increase in VAT

Amidst lingering crises in the 2016 budget, the International Monetary Fund, IMF, has proposed a “depoliticized” oil-based fiscal policy to shield the budget from controversies that stall smooth passage as well as hamper impactful implementation.

The multilateral financial institution made this proposal in the full report of its 2016 Article IV consultations published last weekend which shows further details of the staff report submitted to the executive board in late March, 2016, with the executive summary made public early last month.

The report failed to explain in details what it meant by depoliticisation neither did it allude to the long-drawn battle between the executive and the legislative arms of government.

In the latest report, the Fund, however, suggested a combination of the oil price over the past five years, the current price and the forward level over the next five years, together with a primary surplus target (before interest payments), to determine benchmark.

The 2016 budgeted benchmark was set at USD38 per barrel but before the budget could go through the passage process the international price had gone down to USD30 per barrel before rebounding to over USD46 previous week.

The report also calls for a steady increase in the standard tax rate with specific reference to the Value Added Tax, VAT, from 5.0 per cent to 7.5 per cent, noting that the Economic Community of West African States, ECOWAS,   require a minimum 10 per cent.

The Fund was basing its tax suggestions on the adverse effect of dependence on oil export for budget funding, a situation which has forced governments at all levels into borrowings.

The baseline fiscal projections for the federal government this year have non-oil revenue collection lower than in 2015 and a poor performance from independent revenue, of which the authorities have high hopes based upon the treasury single account, TSA.

In the first publication of the Article IV Consultation report the Fund had   favoured a more flexible foreign exchange policy to replace what it terms a “soft” or a “de facto peg”.

Central Bank of Nigeria, CBN, had imposed what the Fund views as exchange restrictions and a multiple currency practice under Article VIII of the Articles of Agreement.

The restrictions include the circular of foreign exchange restrictions covering imports of 41 items and the allocation of foreign exchange in line with the CBN’s own priorities.

(Vangurad)