The Central Bank of Nigeria (CBN) won’t allow any bank in the country to fail, its governor,Godwin Emefiele, said yesterday. He gave this assurance at a joint press conference of the Finance Ministry and the apex bank at the justconcluded World Bank/ IMF Annual General Meetings in Washington D.C. Emefiele’s assurance came minutes after Nigeria’s Finance Minister, Mrs. Kemi Adeosun, declared that Nigeria won’t borrow recklessly and had no intention of bequeathing unserviceable debts on Nigerians.
Acknowledging that the IMF advised central banks to focus on the banking system very attentively to ensure that there is no significant destabilisation, Emefiele said that the banking watchdog would continue to put in place strong prudential that will continue to guide banks in Nigeria.
“From our view, we are saying no bank should fail in our environment, whether you are big or whether you are small, and what we would continue to do is to see to it that we put in place strong prudential that will continue to guide them.
“And what we are doing is to keep our eyes on the banking system to ensure that there are no significant threats that would alter the strategic health of the banking industry to the point where we begin to think about some threats that will destabilise the system and, therefore, create problems for the economy,” he said.
Noting that global growth had improved, he said it was gratifying that in the midst of this recovery, Nigeria has shown signs of recovery, especially the turnaround in the Gross Domestic Product (GDP) position, from a negative position to about 0.55 per cent. “That, for me, shows that we are in the right position,” he said. “We held meetings with a couple of correspondent banks and it is interesting and nice to see them making some positive comments.
They are showing more confidence in the Nigerian economy and making commitments that they would make credit lines available to Nigerian banks, even in larger size.” Besides, the CBN governor said the Nigeria delegation held meetings with foreign investors and the response was tremendous.
“We held meetings with some foreign investors, not just portfolio investors, but direct investors. We had meetings with people who said they are interested in investing in infrastructure.
We held meeting with people who, as a result of the leadership we have seen, said they also want to come in and participate in agriculture,” Emefiele said. On the nation’s currency and foreign reserves, which have continued to firm up, the CBN governor was optimistic that naira would get stronger.
“It is easier to put it this way – that the fundamentals currently we see shows that there is a lot of stability in the foreign exchange market and having come down from those kinds of high levels – to where we are right now – that the currency is just fluctuating between N359 and N365, we think it is a good level compared to where we are coming from,” he said.
“But we think it is important that as reserves increase, as the economic fundamentals get stronger, there is no doubt that the naira will get stronger, and we are going to see some more appreciation in the currency.” Justifying why Nigeria had to aggressively borrow, Adeosun recalled that the nation’s principal source of revenue (oil) had plummeted by up to 85 per cent, triggering the economy to go into recession. Nigeria had run into five consecutive quarters of negative growth before getting out of recession last quarter with a growth of 0.5 per cent.
“So, we had no choices,” Adeosun said. “You either cut public infrastructure massively, which should have led to massive job losses or you borrow in the short-term, until you begin to generate revenue.
“We felt that laying off thousands of persons was not the best way to stimulate growth. Also, when we came into office, about 27 states could not pay salary. If we had allowed that situation to persist, we would have been in depression by now. So, we took the view as a government that the best thing to do was to stimulate growth and spend our way out of trouble, get the state governments to pay salaries, make sure Federal Government pays and invest in capital infrastructure.”
Consequently, she said the solution to borrowing is for Nigerians to pay tax. “Of course, there is the responsibility on the part of government to be more responsible and efficient. We are really focusing on this. We are trying to find ways to cut cost. Fundamentally, we must invest,” Adeosun noted. “We don’t have the power we need, we don’t have the roads yet and there is a lot of money required to fund these projects.
If we were able to move our tax to GDP from just six per cent, where it is now, to 10 per cent, it would significantly reduce the amount we need to borrow. And that would have a wider effect on the economy, reduce borrowing and bring down interest rate. It will also create headroom for the private sector to borrow, because they are currently being crowded out.”
Nigeria’s total domestic and foreign debt stocks, as at June 30, stood at about $15.1 billion and N14.1 trillion respectively, according to the National Bureau of Statistics (NBS). But Adeosun defended Nigeria’s debt, saying that the nation’s debt to GDP ratio at 19 per cent is still one of the lowest
. “We are at 19 per cent, but most advanced countries have over 100 per cent. I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rails, the roads and power so as to generate economic activities, jobs, which would be used to pay back the debt,” she explained. “But I assure you that this government is very prudent around debt.
We don’t borrow recklessly and we have no intention of bequeathing unserviceable debts on Nigerians. On states’ borrowing, she explained that state governments have to get approval from the Federal Government before they can borrow and that a Debt Sustainability Analysis is performed.
“If the repayment is more than 40 per cent of their revenue, we turn it down,” she said. Moreover, Adeosun said that luxury tax planned by the Federal Government is being finalised now because it cuts across the Economic Community of West African States (ECOWAS). “There are legal processes you must go through, including the customs union to actually vary the specific taxes,” she said. She said the problem currently is that those at the lower level are the ones paying.
“If the man in the traffic control, with little income will pay at source, why would we not pursue the billionaire or the trillionaire to pay out of the income?” she asked rhetorically.
“We need to change the mindset in the country with regards to tax system. So far, we are encouraged by the responses of companies to this tax amnesty. “In these meetings, I have been able to speak to a number of ministers like the Indonesia and Argentina that have completed theirs to exchange progress report. From their response, we are on track and they predicted that towards the end, there would be rush.”
