A SUMMARY OF NIGERIA’S BUDGET 2001

INTRODUCTION

The 2001 budget statement indicated that some positive achievements were recorded during 2000 fiscal year especially in the areas of Macro-economy. The 2001 is intended to address some lingering economic and social problems which the policies adopted in 2000 was not achieved.

The policy thrust in 2001 remain:

•                          stability of the exchange rate

•                          maintenance of aggregate liquidity that is consistent with single digit inflation rate.

•                          improving the GDP

•                    Ensuring fiscal balance and curtailment of extra-budgetary spending.

•                          Privatisation and Commercialisation of Government owned Enterprises.

•                          Encouragement of small and medium scale enterprises (SME)

•                          Stimulation of economic growth

•                          Reduction of unemployment level

•                    Trade liberalization

•                    Increase foreign exchange earning from non-oil sector

•                    Export based diversification

a)  MONETARY AND CREDIT POLICY ai) OBJECTIVES

The primary objective of the 2001 monetary policy is to:

•                            Ensure price stability

•                            Maintenance of aggregate liquidity at a level that is consistent with single digit inflation

•                            Maintenance of money supply growth rate of not more than

12.2%

•                            Improvement in the GDP through the encouragement of small and medium scale enterprises (SME)

aii) POLICY MEASURES AND STRATEGIES

As in year 2000, the 2001 monetary policy will rely on market based mechanism involving the discretionary management of CEN’s balance sheet to keep the operating variables within target.

The monetary instruments that would be employed by the CBN includes:

     Open Market Operation (OMO)

This would be operated proactively to preempt growth in banks excess reserves in order to relieve the pressure on the exchange rate. OMO would be conducted on weekly basis while the Discount Houses would continue to play the role of the principal dealers in the market.

Reserve Requirement

This shall continue to serve prudential and liquidity management policy objectives as in year 2000.

Cash Requirement

This will compliment OMO in achieving monetary policy objectives. The existing cash reserve ratio of 10% shall in the meantime be in force until otherwise advised by the CBN.

Liquidity Ratio

The minimum liquidity ratio for banks currently fixed at 35% is retained but shall be subject to review. Discount Houses shall continue to invest at least 60% of their total deposit liability in Treasury Bills while banks are allowed discretion in the structuring of their liquid assets.

aiii) INTEREST RATE POLICY

Interest rate shall continue to be market determined, subject to the indirect influence of the CBN and its monetary policy’s instrument as in 2000.

Banks shall continue to pay interest on current account deposits at rates of interest negotiated between then and the customer.

a.iv     NATIONAL SOCIAL INSURANCE TRUST FUND (NSITF)

Effective from January, 2001, contributions to the scheme should henceforth be 10% (Employee =3.5% Employer =6.5%) subject to a maximum combined contribution of =N=4,400 per month (Employee =N=1,540 Employer =N=2,860). The contribution would be based on gross salaries.

a.v)     NATIONAL SAVING CERTIFICATE (NSC)

In order to compliment current effort aimed at reducing the excess liquidity in the economy, the Federal Government shall implement the NSC as approved in 1998. This will mobilise savings and reduce the money in circulation through issuance of medium to long term securities of between 3-5 year maturity at competitive interest yields. Individual, banks and non banks Companies are free to invest in this instrument.

a.vi     FEDERAL GOVERNMENT DEVELOPMENT STOCK (FGDS)

Government will take the initiative for the resumption of FGDS suspended since in the 1980s. This shall be imploded to further improve the financial environment for an efficient market-based monetary management and easy source of long term funds by the government.

avii UNIVERSAL BANKING

Universal banking will commence in Nigeria during fiscal 2001 following CEN’s approval for its adoption.

aviiiMINIMUM BALANCE ON PERSONAL SAVING AND CURRENT A/C

In continuation of the deregulation of the banking sector, the banks would have the discretion for determining the minimum balance to be retained in an individuals savings and current account together with the minimum initial deposit for opening an account.

a.ix     BANK CAPITAL BASE

To strengthen the capital base of banks, the minimum paid up capital for new banks is raised from =N=1. to =N=2 billion. While that of an existing bank remains =N=500m.

a.x     ABOLITION OF FOREIGN GUARANTEES/CURRENCY DEPOSIT AS COLLATERAL FOR NAIRA LOAN

The abolition of foreign guarantees for naira denominated loans as contained in monetary policy circular No 23, amendment No. 3 of April, 1989 by which banks were prohibited from granting loan denominated in naira on the security of foreign guarantees and/or foreign deposit held abroad and/or domiciliary account with Nigerian banks.

b.     FOREIGN TRADE AND EXCHANGE POLICY

b.1 OBJECTIVE

The objectives of foreign trade and exchange policy in 2001 includes:

•                            Maintain external balance and exchange rate stability

•                            Enhance effective utilization of foreign exchange

•                            Removal of all foreign exchange restrictions

•                            Channeling of foreign exchange to the productive sector.

POLICY AND STRATEGY

1.  Payment in foreign exchange for services rendered by a Nigerian company to another company shall not be allowed in the inter-bank foreign exchange market (IFEM) However, where the payer accepts to pay foreign exchange, the fund shall be from either his domiciliary account or off shore sources.

2.  Payment for bills for collection shall not exceed 180 days from the date of receipt of the goods, non compliance will render the bill stale and invalid for payment.

3.     Export Trade Promotion

Repatriated non oil export proceeds and other inflows shall be in domiciliary account maintenance with an authorised bank. Banks shall maintain two types of domiciliary accounts, namely

•                 Export domiciliary account and

•                 Ordinary domiciliary account.

Proceeds from export trade should be deposited in export domiciliary account.

TARIFF AMENDMENT AND FISCAL POLICY

c)     Tariff Amendment:

The Federal Government has amended the tariff on imported goods.

The tariffs on basic necessities were reduced to positively impact on the poverty alleviation programme of the Government and improve on the standard of living of the citizens.

While the tariff on other goods were increased to discourage importation and improve our balance of payment position. The schedule on tariff amendment is enclosed as appendix 1.

(d)     Fiscal Policy Measures

i)  Import Prohibition

Pursuance of Trade liberation and the removal of all trade barriers imposed, GYPSUM is now removed from import prohibition list and will attack 65% duty rate.

(ii)  Excise Duty

The excise duty regime of 2000 will remain in force in 2001 fiscal year.

(iii)     Export Incentive (Export expansion grants)

In a bid to further encourage production for export market. Export expansion grant (EEG) is therefore increased from 10% to 20% in 2001 fiscal year.

(iv) Bulk Importation

Cement shall henceforth be imported in bulk only and must not be less than 10000 metric tones or the full capacity of the carrying vessel. It shall be discharged into silos at quay side for onward delivery to the hinterland for packaging into 50kg bags using machinery and facilities already installed.

On the other hand, bulk importation of vegetable oil is prohibited for health reason vegetable oil must only be imported in branded cans.

(v)     Importation of Electricity Generating Set Importation of Electricity generating sets under chapter 85 must be cleared with the National Electric Power Authority (NEPA).

(vi) Other Fiscal Policy Measures

Other fiscal policy measure of year 2000 shall continue in operation in this year 2001 except where otherwise advised.

(e)     INCOME TAX POLICY

The Federal Government has come up with various Tax reform aimed at encouraging foreign investment, increasing the disposable income of the citizens that will positively impact on the poverty alleviation programme of the Government. These measures have been announced by the Finance Minister but it is yet to get the approval of the National Assembly, to become law.

Some of the reforms include:

•            Increase of allowable allowances of individual Tax Payers. such as housing allowance transport allowance, dependent relative allowance. e.t.c

•            Removal of restriction on certain allowable expenses for companies etc.

•            Abolition of tax on interest on foreign loan in order to encourage foreign investment.

•            Provision of additional tax reliefs and incentives to small and medium scale Enterprises, particularly those in non-oil sector.

Back to Index page