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IMF okays PIB; calls for early passage

By on May 21, 2013

Global financial watchdog, the International Monetary Fund, IMF, has commended Nigeria’s Petroleum Industry Bill, PIB, saying, it “would boost investment, government revenue, and fiscal transparency.”

The commendation was given in spite of varied criticisms by oil majors and other interest groups against some of the fiscal propositions in the bill. It was the first international endorsement for Nigeria’s economic reforms, in which oil and gas is the bedrock.

 

The IMF in a Public Information Notice, PIN, released on March 28, and obtained by Vanguard, also called for early passage of the bill saying, “directors welcomed reforms underway in the energy sector, and looked forward to an early passage of the Petroleum Industry Bill.”

The IMF said its appraisal followed the conclusion of consultations between its Executive Board and Nigeria under the 2012 Article IV, on February 6, 2013.

The PIB is one of Nigeria’s most important pieces of legislation, which proposes massive reforms in the petroleum industry.

As such, the IMF pass mark comes at a time the Bill is going through critical appraisals under public hearings in the lower house of the National Assembly.

Commendationcounterweighs IOCs criticism

 The IMF’s endorsement, analysts believe, will provide a counterweight to the trenchant criticism coming mainly from the International Oil Companies, IOCs, regarding the Bill.

Although the fate of the Bill rests with the legislators, the IMF’s remarks is expected to present an important international perspective on the Bill for the benefit of the lawmakers who are daily fed with disparaging remarks on the document.

Surprisingly, the IMF’s endorsement, which is yet to be publicised, is a welcome development, especially as the global agency is constantly criticised for its “conditionalities” in saving developing countries, including Nigeria, from economic woes.

At the recently concluded Offshore Technology Conference, OTC in Houston Texas, USA, the lawmakers who attended the conference like the IMF, agreed that the bill will institute greater transparency in the system and maximise government’s revenues.

 N-Assembly reiterates commitment to passage of PIB

 Speaking on behalf of his colleagues, Senator Emmanuel Paulker, also Committee Chair on Upstream, and his counterpart from the House of Representatives, Samson Osagie, Deputy Committee Chair on PIB, reiterated the commitment of the National Assembly to passing the bill before year end.

They maintained that unlike its predecessor, the new bill will not suffer from undue political manipulations, but will protect national interest.

The IOCs have continued to insist that the passage of the Bill will force operating companies to exit Nigeria for countries with more generous fiscal terms, but the legislators gave the assurance that the fiscal regime will not be too harsh as to drive away existing or prospective investors.

 Macroeconomic observations

 The IMF in its notice also declared Nigeria’s macroeconomic performance as being “broadly positive over the past year”, notwithstanding that “real gross domestic product, GDP, growth is projected to have decelerated slightly to 6.3 percent, reflecting the effects of the nationwide strike in early 2012, floods in the fourth quarter of 2012, and continued security problems in the north.

“Annual inflation increased from 10.3 percent (end-of-period) in 2011 to 12.3 percent in 2012, owing mainly to the adjustment of administrative prices of fuel and electricity; large increases in import tariffs on rice and wheat; and the impact of floods in Q3.

“The external position has strengthened while international reserves rose from US$32.6 billion at end-2011 to US$44 billion at end-2012 (5½ months of prospective imports), driven by sustained high oil prices, stricter administration of the gasoline subsidy regime, and strong portfolio inflows.”

Furthermore, the agency noted that the country’s fiscal policy stance was tightened in 2012, and fiscal buffers are being rebuilt. “The non-oil primary deficit of the consolidated government is estimated to have narrowed from about 36 percent of non-oil GDP in 2011 to 30.5 percent in 2012, mainly due to expenditure restraint.

“Monetary policy remained tight in 2012 in response to inflationary pressures. The Central Bank kept its policy rate unchanged during the year but raised the cash reserve requirement for banks from eight percent to 12 percent and lowered allowable open foreign exchange position for banks. Financial soundness indicators point to continued improvements in the health of the banking system.

“It also noted that “in 2013, growth is expected to recover to above seven percent. Inflation is projected to decline below 10 percent, supported by the tight monetary policy stance and ongoing fiscal consolidation.

“The key downside risks are a large drop in world oil prices; and slow progress in building consensus around key fiscal reforms.

 FG macroeconomic policy

 ”In view of the foregoing, the IMF Executive Directors commended the Federal Government for its “prudent macroeconomic policies that have underpinned a strong economic performance in recent years.”

However, the directors agreed that “widespread unemployment and poverty remain key challenges for policymakers,” and called for renewed efforts to make economic growth more broad-based and inclusive.

The directors also supported government’s strategy to consolidate the fiscal position while opening up policy space for needed investment in infrastructure and human capital.

“To this end, they underscored the need to improve tax administration, prioritise public expenditure, strengthen public financial management, and improve the fiscal framework.

 Reduction of fuel subsidy

 “In particular, they encouraged the authorities to reduce poorly-targeted fuel subsidies, adopt a rule to set the reference oil price in the budget, and fully operationalise the Sovereign Wealth Fund as soon as possible.”

They added that efforts to mobilise public support for these reforms should be intensified.

Furthermore, the Directors considered the current tight monetary stance to be consistent with the authorities’ objective of reducing inflation to single digits, adding that the exchange rate in real effective terms is broadly in line with fundamentals.

Other commendations and observations of directors were: “Commended Nigeria’s success in restoring financial stability after the 2009 banking crisis.

“In light of this achievement, they recommended winding down the operations of the asset management company to curb moral hazard and fiscal risks.

“Welcomed the Central Bank’s commitment to address supervisory and regulatory gaps identified in the financial stability assessment update, particularly the need to strengthen cross-border supervision and the regime against money laundering and terrorism financing.

“Concurred that wide-ranging reforms are key to make growth more inclusive.  Agreed on the importance of supporting sectors with high employment potential, not through protectionist measures or tax incentives but rather with initiatives to improve governance, the investment climate, and competiveness.

“Encouraged the authorities to promote market-based access to credit for small and medium sized enterprises”.

 

 

 

[Vanguard]