IMF ADVICE : MY PEOPLE LET US REASON TOGETHER BEFORE WE MOVE.

I know some of us don't like politics especially my dear and beautiful  ladies. Pls politics aside. This is pure ECONOMICS. Ignore it at your peril. When your boy friend begins to withdraw you from those eatery visits, Coldstone , Lagoon restaurants etc. This could be one of the causes. So, bear with him and pls follow me.

  

Policies are beautiful and can be dangerous if not thoroughly looked into especially the ones that dictate economy. I will rather have a quake doctor than a quake economist. Because he is likely to kill everybody on the word "go". Those who witnessed SAP in 1986 can say more on it. 

This is  to advise the FG to look well before leaping even though it is a leap year.

Information as my disposal says IMF is currently advising us to do the following in order to have our macro economy back to shape:

1. Flexibility of the FOREX Market

2. Increase our VAT (rate I guess)

3. Removal of fuel subsidy. 

Let us think through pls.

Flexibility of the forex market may

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not be a serious issue with us especially in the medium and long term also because we are not practicing a communist system.
So, the CBN can always get that in when the parameters are healthy.

Our challenge should not be the increase in VAT rate or the removal of fuel subsidy (especially now that we seem to have a regime that wants to fight corruption head on) but for the  two policies to run simultaneously is where the FG needs to sit and look thoroughly and if they want the people alive to enjoy their beautiful programmes. 

All things being equal, when you increase the VAT rate, the effect of it cuts across all including the poorest man on this street. They will all pay more especially at final level of production. This will automatically reduce the real value of disposable income  that is obviously not enough. With this policy in place, If the disposable income doesn't go up, the cost of living will go up, standard of living will fall and the people end up poorer. It is that simple.

On the Subsidy removal. The idea is great if the savings gathered can be used efficiently to build infrastructures that will enhance growth and development, create jobs etc especially in the long run. And also, we must pray that the current crude oil price in the market doesn't improve and if possible lower( then the people will not feel the effect of subsidy removal now and pending the time we have our refineries fixed).

But the fundamental question is, if we wish for the current price to remain as it is, how do you implement a budget that has about 1trillion Naira projected from crude oil sales at a bench mark of 38 Dollars per barrel and now that the current out of our refineries can only give us about 15% of our daily consumption need? A real question indeed. So, the saying of "you cannot eat your cake and and have it" is truly real. But if the prayer of Saudi Arabia is answered and crude oil price shoots up and the removal of subsidy in place and no new refineries in place, we will  most likely buy a litre at N150 if not more. Then inflation will naturally sets in immediately. Couple with VAT rate increase, majority of us will be poor if not poorer  except some of us who operate on Heaven economy ( Job 22:29).

WAY OUT

The policies are good but they cannot run at the same time if the government will still oversee a living people by 2018. Which will eventually lead to stealing, corruption, and many negative vices.

1. Increase the VAT and not RATE by blocking all loopholes especially from those who don't  remit or remit fully. A good consulting firm can do that for the government. 

2. Subsidy can go with a well designed time frame work of building enough refineries especially from the private sector. It must be done and seen done because the effect of subsidy removal is always sharp and immediate should the crude oil price go up. Then the last Ojota protest will be a shadow of things to come.

3. The government must not run the two policies together. Only one for now. But I will go for subsidy removal with the prayer and hope that crude oil price will not go beyond 50 dollars ( so that we can have some excess savings) until the time we can refine locally.

God bless Nigeria

Tunde Adenuga
twitter @tunde_adenuga