FG introduces austerity measures as drop in oil price in international market poses threat to Nigerian economy

Following the continued drop in oil price in international market, the Federal government yesterday announced the introduction of some austerity measures such as tax introduction on luxury goods such as champagne, jets, amongst other, to be implemented to reduce the effect of the continued oil price decline on the Nigerian economy as Nigeria is largely an oil dependent economy.
Addressing newsmen in Abuja yesterday November 16th, Minister of Finance and Coordinating Minister of the Economy, Dr Ngozi Okonjo Iweala, said as part of measures to cushion the hardship that is to come due to the continued drop of oil price in the international market, government would henceforth collect “tax on luxurious goods,” and that this was part of measures aimed at increasing revenue from non-oil sectors.

"We all know the definition of luxury goods, we are still compiling the lists and one of the things we can tax is champagne, alcoholic beverages, jets, luxury cars- we will look at the engine capacity, and yachts. We are putting the list together but we intend to do a surcharge going forward on these items. The principle is that those who are better off in the society and I hope they won’t mind will be willing to share a bit more in remitting a little bit more to the treasury than what they normally do on these things.” she said

She revealed that another austerity measure being put in place by the government is the reduction of international travel within the public service

“We are not talking about (cutting) salaries and benefits. We are talking of trainings and travels and these will be only for critical and essential items which will be pre-approved by the Head of Service and the Director-General of the Budget Office and then if someone invites you for overseas course, you can go provided they pay for your training and your stay and you have to furnish evidence that they are paying before you will be allowed. The purpose of this is to tell you what we are doing and this team is calm and will be effective and we are working with the monetary policy authorities and together we will manage the economy in a transparent manner so that people need not have any fear.” she said

The Minister said that after studying the trend in the drop of oil price in the international market, the economic team approved a $5 per barrel reduction in the 2015 budget benchmark price for oil from $78 to $73 per barrel.

“As part of the response, the Medium Term Expenditure Framework and the Budget 2015 proposal to the National Assembly have been revised. Government is now proposing a benchmark of $73 dollars per barrel to the National Assembly compared to the earlier proposed benchmark of $78. Given the nature of the oil market, we needed to see the extent and trend of the oil price in order to take the right measures. Panic is not a strategy. It’s important that our strategies are based on facts and a clear understanding of both the strengths of the economy and the challenges posed by the drop in oil prices which is currently at $79 for our premium Bonny Light Crude. The drop in oil prices is a serious challenge which we must confront as a country. We must be prepared to make sacrifices where necessary".

On the advise from some scholars to print more Naira notes so as to reduce the effect of the oil price drop on Nigerians, the Minister said such an action if implemented would be disastrous to the nation as it would increase the inflation rate of the economy

"Printing money without adequate revenue support will lead to serious consequences for the country. It will spur inflation as the experiences of Germany in the early part of the last century and more recently, Argentina and Zimbabwe demonstrate. This prescription will victimise the poor and the middle class that it is supposedly protecting.” she said

She said one of the best ways of managing the situation was to create more jobs. She announced that President Jonathan would today November 17th launch the 4th edition of the You Win youth empowerment programme.

“To show how serious government is about job creation, President Jonathan will tomorrow, (Monday) November 17 launch the 4th edition of YouWin to support another 1,500 entrepreneurs along with a private equity fund for entrepreneurs. That is an expression of government’s commitment and seriousness to job creation.”

Dr Okonjo-Iweala said the reduction in price of the oil prices in the international market may continue but that government would do everything possible to make sure Nigeria is not adversely affected.

She said from the $4.1bn (N656bn) in the Excess Crude Account, the government would be withdrawing $2bn (N320bn) between now and the end of this year to take care of critical expenditure.

“We will work in such a way that we won’t deplete the ECA because we have to leave something for next year but we might go to tap about a half of it ($2bn) or slightly less than half to be able to meet expenditures that are crystalizing at the moment that we need to make.” she said

She also stated that infrastructural expenditure would still continue as the economy can only improve when infrastructural development is in place.

Source: Punch