Analysts in the financial services sector have unanimously backed the call by the Monetary Policy Committee (MPC) to the Federal Government to urgently build fiscal buffers through the sale of idle public assets to raise more revenue.
The MPC chaired by Godwin Emefiele, governor, Central Bank of Nigeria (CBN), on Friday called on the government to, as a matter of urgency, adopt a BIG BANG approach towards building fiscal buffers by purposefully freeing up redundant public assets through an efficient, effective and transparent privatisation process.
The committee noted the government’s current drive to increase Value Added Tax (VAT) was too little to close the gap in government finances.
The Federal Government had proposed an increase in VAT from 5 percent to 7.5 percent, targeting huge revenues, which would reduce the fiscal deficit burden.
Emefiele, while announcing the retention of the benchmark interest rate at 13.5 percent, said the privatisation of assets would raise significant revenue for government and resuscitate the redundant assets to generate employment and contribute effectively to national economic growth.
“It is a good decision. And I think the starting point for me should be those assets that are lying idle,” Gbolahan Ologunro, an equity research analyst at Lagos-based CSL Stockbrokers, said.
“The government should withdraw certain ownership from key assets and allow private sector to dictate the dynamics or take control of ownership and they should perform more of supervisory roles and formulation of policies in the oil and power sectors,” he said.
Ologunro said this would lead to increase in revenue which will translate to increase in capital expenditure as against recurrent expenditure.
“Most of the fiscal deficit which has been mostly financed by borrowing can now be financed from the sale of the government assets. So what you will now see is that government will no longer rely or rely less on external borrowing as often,” he said.
Privatisation proceeds in Nigeria hit highest level in 2017, with figures climbing as much as 6,187.76 percent to N372.36 billion from N5.92 billion previously made in 2016, data from the CBN show.
The figure in 2017 accounts for 78.43 percent of all the total proceeds received by the Federal Government since 2009. The government has made N474.76 billion in 10 years from privatisation proceeds, according to BusinessDay calculation of figures from the latest CBN statistical bulletin.
There were no proceeds from privatisation in Nigeria between 2013 and 2014, while the provisional figures for 2018, according to the apex bank, showed no receipt in the year.
Johnson Chukwu, managing director, Cowry Asset Management Limited, told BusinessDay by phone that inasmuch as he supports the idea of privatisation, the truth is that the sale of the idle assets is not the enduring solution to government revenue shortfalls.
He said the government should eliminate some its exposures that are not beneficial, such as the petroleum subsidy.
“This is a very good piece of advice that is apt given the current low revenue generation for the Federal Government of Nigeria. This is also in line with the proposal of FSDH Merchant Bank to the Federal Government,” Ayodele Akinwunmi, corporate banking, FSDH Merchant Bank Limited, said.
“In addition to this, there is the need for the FGN to free herself off some expenses that there is no justification for engaging in them. Examples of such expenses are subsidy on the pump price of the Premium Motor Spirit (PMS) and the subsidy on electricity tariff,” Akinwunmi said.
The Federal Government had in 2017 listed some public assets for sale to fund the national budget between 2018 and 2020.
These include the National Integrated Power Plants (NIPP), national parks, the National Arts Theatre, Tafawa Balewa Square, 10 power generation plants constructed by the Niger Delta Power Holding Company (NDPHC) under the NIPP on behalf of the government, assets in mines and steel sectors and non-core assets, as well as houses.
Ayodeji Ebo, managing director, Afrinvest Securities Limited, said it would be a positive one if implemented.
“I feel they will be able to realise more cash from there and also in terms of the cash calls, the leakages will reduce. And they should look at how they can remove fuel subsidy. This will free up a lot of cash for the government and they can have enough to invest in capital projects,” he said.
At the end of the two-day MPC meeting in Abuja, the 11 members present unanimously voted to retain the Monetary Policy Rate (MPR) at 13.5 percent, and to hold all other policy parameters constant, which included the asymmetric corridor of +200/-500 basis points around the MPR; the CRR at 22.5 percent; and the Liquidity Ratio at 30 percent.
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