Organisation advices Nigeria on Flexible Exchange Rate, Higher VAT

ayodele johnson

January 7, 2016 3:54 PM

The current VAT rate of Nigeria is among the lowest in the world and well below the rates in other ECOWAS member states.

The Managing Director of the International Monetary Fund (IMF), Christine Lagarde has urged the President Buhari led government on a need to encourage a flexible exchange rate policy as opposed to devaluation.

She mentioned this on the third day of her four days official visit to Nigeria during an interaction with MP’s in the Federal Capital Territory.

According to her, additional exchange rate flexibility, up or down, could help soften the impact of external shocks on the nation’s economy, make output and employment less volatile, and help build the external reserves.

The IMF boss is quoted as saying, “It (exchange rate flexibility) can also help avoid the need for costly foreign exchange restrictions, which should, in any case, remain temporary”.

“And going forward, improved competitiveness from improved exchange rate flexibility and other reforms will facilitate the needed diversification of the exports base and, ultimately, growth.”

She commented that Nigeria can capitalise on her large population through VAT rate increment. The direct translation of this is a rise in revenue to aid capital projects, as well as an opportunity to service foreign debts.

Comparing Nigeria’s VAT rate disadvantage to other countries, she notes that “For example, the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS member states. So, some increase should be considered”.

She further commented about the subject of the fuel subsidy removal. Lagarde opines in a quote, “Indeed, fuel subsidies are hard to defend. Not only do they harm the planet, but they rarely help the poor. The IMF research shows that more than 40 per cent of fuel price subsidies in developing countries accrue to the richest 20 per cent of households, while only seven per cent of the benefits go to the poorest 20 per cent”.

“Moreover, the experience here in Nigeria of administering fuel subsidies suggests that it is time for a change”.

Expressing more goodwill during her visit, she donated a sum of $7,500 which is equivalent to N1.5 Million to the Mother Theresa Children Home, Abuja. An orphanage that has taking up the role of catering for abandoned children.

As far as resuscitating Nigeria's deteriorating economy is concerned, her visit can be said to have provided the needed motivation necessary to introduce the change that has been promised by the ruling government.

ayodele johnson