Building Fiscal Resilience with a Balanced Fiscal Policy Approach.




By Chinedu Okoye 



Introduction:

The Finance Minister, so far seems to be leading a balanced fiscal pathway as it matches the deficit funding with revenue and industrial policy reforms. With government liabilities coming due in less than a year, and an extremely tight fiscal space, the government needs both short-term credit and significant increases in tax and other revenue in the long term.

The approach is reviewed in light of the revenue and deficit financing measures as outlined below, and a case for privatisation amd public private partnership in key deliverable sectors is made.



Revenue Measures:

The Minister of finance and cordinating minister of the economy has revealed plans to increase Non-Oil revenue by introducing tax policy reforms measures to; expand tax base, improve compliance of taxpayers. The reforms await the lawmakers decision before it can be enforced.

The Minister is targeting a possible N10 trillion Naira increase in government revenue and earnings from the above, and from other measures like efficient management of the federal government Non-Oil Assets.



Deficit Financing:

This comes on the back of the Ministry's earlier push for defict financing by raising more debt by issuing dollar bonds for Diasporans and for the local market. Given that the government has T-Bills paying over 20% on average maturing in less than 12 months, plans to refinance these debts are crucial, as 75% of the inflows into government securities are from foreign investors.

The dollar bonds if successfully issued, provides sufficient FX for these foreign investors to repatriate their capital. The Ministry plans to boost revenue from an amended tax policy and elimination of inefficiencies in the management of the country's Non-Oil assets.



A Balance Fiscal Approach:

The Minister is projecting a balanced approach raising of rasing short-term debt and taking actions to improve revenue and earnings in the long term, as revenue and output has to grow, for fiscal deficit to be sustainable.

The yield on government securities attracted much needed foreign exchange and credit to the government. Most of these funds have been used to finance government obligations, more specifically, the ways and means owed to the Central Bank. This implies a need for more funding in the short-term as government revenues as net FX gains from the development in the Oil sector builds up.

But the Minister isn't looking only at Oil, as that would leave the Naira exposed to external shocks and dependent on a narrow source of FX, with little room for fiscal maneuvers. The finance chief has also sort to raise government revenue and earnings with its focus on tax revenue and Non-Oil sector.



Longer term solutions:

The emergency in the bill is in the tax reforms because it comes into fruition as soon as it passes in the National Assembly. These laws could be enforced and businesses and individuals would be expected to pay.

However there is only so much you can tax the population if wealth and earnings don't increase, hence the need for the broader focus on growing the Non oil sector. With both FX, Debt and Budgetary challenges, more expedient sources of longer-term capital could be the development and securitization of Federal Assets in both the Oil and Non-Oil sector.

If the federal government could push privatization and public private partnerships in strategic industries, they could draw in more capital from asset purchases (equities and real capital) and investment financing. Energy, Power and Extraction remain the most viable industries in this regards.

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