Forex scarcity: FG to target domiciliary accounts others, says Edun
By Patience Ikpeme
To mitigate the country’s current scarcity of foreign exchange, which is worsening the effect of subsidy removal, the fiscal authorities will work with the Central Bank of Nigeria (CBN) to attract foreign exchange into the country from different sources.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, said “there are substantial sources of foreign exchange open to Nigeria. There is a lot of cash outside the system which if brought into the system increases the money supply of dollars and increases the reserves,” he said.
Addressing journalists at his maiden press briefing, Edun said “government is giving serious thought to this idea of mopping up forex outside the system. There are funds in domiciliary accounts which if you give people the incentive, they will utilize those for investment in Nigeria.
“Nigerians in Nigeria have huge holdings of foreign currency in financial institutions abroad, we need to provide the environment that brings those funds home so that the owners of these foreign currencies will choose to invest in the Nigerian economy rather than foreign economies, which is what they are doing now”.
“We also have a huge source of funds from the diaspora, Nigerians living and working abroad who have families here and who are interested in keeping a presence here, we have to encourage them to save in Nigeria perhaps by improving payment mechanisms etc” the minister revealed”
Other sources of foreign exchange he said “include recovery of oil production which will provide additional foreign exchange liquidity and automatically provide additional naira resources to government”.
Mr. Wale Edun noted that “there’s plenty of hope and it is our determination to put in place the kind of structures and incentive framework that brings Nigerian money abroad and even Nigerian money outside the system into the financial and economic system to work to create jobs for Nigerians”.
The finance minister also disclosed that the federal government has only released N2 billion from the N5 billion it offered to each state as palliative to cushion the impact of subsidy removal.
The reason for releasing N2 billion is to mitigate the obvious spike in inflation if N5 billion had been released.
Mr Wale Edun said the federal government was mindful of the consequences of its decisions, as a result, it opted to stagger the release of the palliative funds.
The minister said the source of the fund is “a blend of grant to and borrowing by the state governments”.
According to the finance minister, “on the issue of the N5 billion, it’s a combination of grant from the federal government and borrowing by the states. Though the sum of N5 billion is the amount, you will agree with me that to release such fund at once across all the states will be self-defeating because it could lead to an inflationary spiral, exchange rate changing.
“So, it is two billion naira that has been released as an initial intervention and the FCT will be included” he disclosed. The N5 billion is part loan part grant. On the part of the federal government, it’s a grant and on the part of the states, they are borrowed”.
Speaking to the issue of government borrowing, the finance minister once again stated that “government is not in a position to borrow if you consider 90 percent debt service to revenue and behind that, the rising debt to GDP ratio can’t be ignored”.
Wale Edun added that “there is a borrowing requirement built into the 2023 budget appropriated by the National Assembly and that is ongoing, so it is an indication of the commitment of the government to find other sources of funding rather than relying on borrowing”.
The finance minister and coordinating minister for the economy revealed that the federal government will “bring down or eliminate a certain type of borrowing as soon as possible and that type of borrowing is borrowing for recurrent as opposed to borrowing for capital expenditure which has a return and which is self financing”.
The minister also confirmed that efforts were on to wind down the Asset Management Corporation of Nigeria (AMCON) very soon.
According to the minister, “work is being done to ensure as much as possible that AMCOM meets its mandate of winding up in the very near future so it’s a question of financial engineering, making arrangements for timely taking care of the liabilities and those responsible include the banking system, CBN and other stakeholders”.
During the press briefing, Mr. Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal and Tax Reform disclosed that Nigeria loses an estimated N6 trillion every year due to tax incentives given to individuals and businesses.
Oyedele stated that the government has not been measuring the benefits gained from the incentives.
He said President Bola Ahmed Tinubu has authorized the committee “to analyze the current incentives regime and design a targeted, data-driven and evidence-based system with sunset clauses”.
The goal is to reduce taxes paid by Nigerians while increasing the tax to GDP ratio by 18 percent over the next three years.
Oyedele believes that with the right amount of taxes being paid, the federal government could be generating approximately N20 trillion yearly. To achieve this, automation and harmonization of tax collection are necessary.