The federal
government assured the International Monetary Fund (IMF) that it would not
return to the era of fuel subsidy after the COVID-19 pandemic is over.
In a letter of
intent requesting for the $3.4 financial assistance under IMF’s rapid financing
instrument, the federal government assured the IMF that it would remain
“engaged with the IMF to benefit from its policy advice and its technical
assistance”.
The letter was
signed by Zainab Ahmed, the minister of finance, budget and national planning,
and Godwin Emefiele, governor of the Central Bank of Nigeria (CBN).
At a meeting on
March 18, the federal executive council agreed that it would begin moves to
deregulate the downstream oil sector by adjusting petrol retail price to any
development in the global oil market.
Read the full text
of policy assurances that the Nigerian government provided to the IMF below:
Going beyond this
year, the government of Nigeria is fully committed to pursuing policies
consistent with macroeconomic stability and good governance:
First and foremost,
we will revert to our government’s planned medium-term fiscal consolidation
path—which includes increasing revenue to 15 percent of GDP through further VAT
reforms, rise in excises, and removal of tax exemptions— once the crisis passes.
The recent introduction and implementation of an automatic fuel price formula
will ensure fuel subsidies, which we have eliminated, do not reemerge. In line
with the Fiscal Responsibility Act, this will allow us to reduce the Federal
Government deficit to under 3 percent of GDP and eliminate recourse to central
bank financing by 2025.
We are also
advancing in our power sector reforms—with technical assistance and financial
support from the World Bank—including through capping electricity tariff
shortfalls this year to N380 billion and moving to full cost-reflective tariffs
in 2021.
Monetary and
exchange rate Policy. As outlined in our home-grown Economic Recovery and
Growth Plan, we are also strengthening monetary and exchange rate policies with
a view to moving towards full exchange rate unification and greater exchange
rate flexibility, which would help preserve foreign exchange reserves and avoid
economic dislocation.
In addition to the
external borrowing sought, we are also increasing our domestic borrowing limits
in the supplementary budget so that we can make use of our favourable low
domestic yields, particularly since the results of the last domestic bond
auction show strong demand. The existing stock of overdrafts held at the CBN
will also be securitized.
We fully recognize
the importance of ensuring that financial assistance received is used for
intended purposes. To that end, we will (i) create specific budget lines to
facilitate the tracking and reporting of emergency response expenditures and report
funds released and expenditures incurred monthly on the transparency portal
(http://opentreasury.gov.ng/); (ii) publish procurement plans, procurement
notices for all the emergency response activities—including the name of awarded
companies and of beneficial owners—on the Bureau of Public procurement website;
and (iii) publish no later than three to six months after the end of the fiscal
year the report of an independent audit into the emergency response
expenditures and related procurement process, which will be conducted by the
Auditor General of the Federation—who will be provided the resources necessary
and will consult with external/third party auditors.
In line with IMF
safeguards policy, we commit to undergoing a new safeguards assessment conducted
by the Fund. To this end, we have authorized IMF staff to hold discussions with
external auditors and provide IMF staff access to the CBN’s most recently
completed external audit reports.
We do not intend to
introduce measures or policies that would exacerbate the current
balance-of-payments difficulties. We do not intend to impose new or intensify
existing restrictions on the making of payments and transfers for current
international transactions, trade restrictions for balance-of-payments purposes,
or multiple currency practices, or to enter into bilateral payments agreements
which are inconsistent with Article VIII of the IMF’s Articles of Agreement.
We are determined to
meet the immense challenge the Covid-19 pandemic is facing us with. Support from
the international community will be critical, and we look forward to early
approval of financial assistance by the IMF—which will help our effort to keep
the Nigerian economy on a strong path and sustain our fight against poverty.
Beyond this much needed immediate financial assistance, we reaffirm our
willingness to remain engaged with the IMF, to benefit from its policy advice
and its technical assistance.
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