Daily Watch – CBN pulls brake on banking talent drain, Nigeria assures IMF of subsidy removal

The Nigerian government has assured the International Monetary Fund that fuel subsidy, which was recently removed, does not re-emerge. The Minister of Finance, Budget and National Planning, Zainab Ahmed, and the Central Bank of Nigeria Governor, Godwin Emefiele, made the pledge in a letter to the Managing Director of the International Monetary Fund, Kristalina Georgieva. The sharp drop in global crude oil prices as a result of the spread of novel coronavirus disease saw the landing cost of petrol hitting a record low, wiping off subsidy on the product. The pump price of petrol, which is still being regulated by the government, was reduced to ₦125 per litre from ₦145 per litre on 18 March 2020. The Petroleum Products Pricing Regulatory Agency further announced on March 31 a price band of ₦123.50-₦125 per litre. However, the Chairman, Major Oil Marketers Association of Nigeria, Tunji Oyebanji, said market operators remained uncomfortable with pump prices being fixed by fiat. He said that prices; supply or purchase costs and open market sales prices including pump prices, should not be regulated but monitored against anti-competitive and antitrust abuses by the already established competition commission and subject to its clearly stated rules and regulations. The IMF had approved the country’s request for emergency financial assistance of $3.4 billion and published the Federal Government’s letter of intent in a detailed report released late on Wednesday.

Boss Mustapha, the secretary to the government of the federation, says the country will enter a bigger crisis if the rate of value-added tax is reduced. Answering questions on Friday during the daily briefing of the presidential task force on COVID-19, Mustapha said the government is reliant on tax revenue after a crash in the price of crude oil, which used to be the major source of revenue. “We have been dependent on oil and we can see disruption that has happened with regards to our earnings in the oil and gas sector. The benchmark we had for the budget as totally be distorted. VAT is a component of government revenue. Taxes, either income tax or company tax, are all parts of government revenue. Explaining the sharing formula, Mustapha said the federal government only gets 15% of the VAT revenue while states and local governments share the remaining 85%. “So I think as much as possible I am not sure I want to advise at this stage for us to consider a reduction in the 7.5% VAT because that will really eat into the earnings of the states and the local governments,” he concluded. The implementation of the increased 7.5% VAT began on February 1 as part of efforts to shore up tax revenue. The newly signed bill expands the VAT-exempt items to include honey, bread, cereals, cooking oils, culinary herbs, fish. flour, starch, fruits, meat, poultry, milk, nuts, pulses, roots, salt, vegetables, water, sanitary pads, tampons, tertiary, secondary, primary and nursery tuition. Drugs, sanitary things and basic consumer goods were exempted under the old tax regime.

The bankers’ committee of the Central Bank of Nigeria has agreed that plans to lay off staff would be suspended. This was announced in a statement signed by Isaac Okorafor, CBN director of corporate communications, on Sunday. A meeting of the bankers’ committee was reported to have held on Saturday, May 2, to review the effect of the coronavirus on the banking industry. According to the statement, it was also agreed that banks would need the express approval of the CBN to lay off any staff. “The committee particularly deliberated on the issue of the operating costs of banks in view of the disruptions emanating from the global economic difficulties,” the statement read. “In order to help minimize and mitigate the negative impact of the COVID-19 pandemic on families and livelihoods, no bank in Nigeria shall retrench or lay-off any staff of any cadre (including full-time and part-time). In a video that went viral on social media, Herbert Wigwe, chief executive officer of Access Bank, had hinted that the bank would have to lay off some staff and implement a salary cut. Wigwe said he would take a 40 percent salary cut.

South Africa’s finance deputy minister was quoted in a leading newspaper on Sunday as urging the central bank to temporarily create money to fund the government response to the COVID-19 pandemic and its economic fallout. In an interview with the Sunday Times, David Masondo called on the government to avert a 1930s-style depression by getting the central bank to buy government bonds directly to fund the country’s deficit during the coronavirus crisis. “Such bonds must be once-off special bonds with earned proceeds, and should be treated as a temporary measure with a clear exit plan,” he was quoted by the paper as saying. “Such money from the SARB (South African Reserve Bank) must be used for immediate COVID-19 health-related interventions and … economic recovery measures,” he added. President Cyril Ramaphosa last month announced a record 500 billion rand ($26.3 billion) rescue package equalling 10% of the GDP of Africa’s most industrialised nation, to cushion the economic blow of the coronavirus pandemic. Since then the debate has stirred as to how it is to be funded. Ramaphosa has approached the IMF and World Bank, a sensitive issue in a government that has generally been hostile to the so-called Washington consensus.