The International Monetary Fund (IMF) has called on the Federal Government of Nigeria (FGN) to reduce its debt by focusing on increasing the tax basket and compliance as a means of generating revenue to cut borrowing.
The fund in its latest Fiscal Monitor titled, ‘On the path to Policy Normalisation’, noted that Nigeria’s debt is projected to continue to rise and urged the government to remove fuel subsidies and direct them towards health and education.
“In general, what we are saying about Nigeria is the need for a medium-term plan to reduce debt vulnerabilities over time and is because Nigeria has very low tax revenues.
“So, that makes it more vulnerable to these types of shocks and tightening global conditions.
“So, what we advocate is raising taxes, which is going to create space not only to manage debt but also to spend on other priorities.
“And the other part of what we say is that Nigeria has not benefited as much from the windfall of the oil prices in the past because a lot of it has been spent on these untargeted energy subsidies”, said IMF’s Division Chief, Fiscal Affairs Department, Paulo Medas.
The IMF also advised on target subsidy. “By shifting to more targeted subsidies, you can reduce the fiscal deficit, and you can use that resources on other priorities that actually can promote higher growth in the future such as education, and health, and reduce the deficit.
“So having more targeted energy subsidies actually can be very beneficial both for fiscal, debt dynamics, and growth”.
Speaking on tax reforms required, he said emphases should be on improving tax compliance and tax bracket, stating that Nigeria’s tax revenues are one of the lowest in the world.
The Fiscal Monitor report highlighted that low-income developing countries have been hit by several concomitant shocks, including the COVID-19 pandemic and the cost-of-living and food security crises, which have taken their toll on public finances.
The increase in spending was larger among commodity exporters Burundi, Democratic Republic of Congo, and oil exporters Nigeria and Yemen, with the latter group benefitting from more fiscal space thanks to high energy prices.
On his part, the IMF Director of the Fiscal Affairs Department, Vitor Gaspar, while giving a global perspective noted that the near-term outlook is complex amid high inflation, tightening financing conditions, and elevated debt and urged policymakers to prioritise keeping fiscal policy consistent with central bank policies to promote price and financial stability.
“Many countries will need a tight fiscal stance to support the ongoing disinflation process, especially if high inflation proves more persistent.
“Tighter fiscal policy would allow central banks to increase interest rates by less than they otherwise would, which would help contain borrowing costs for governments and keep financial vulnerabilities in check”, Gaspar said.