IMF says Nigeria’s low per capita income still a barrier to inclusiveness

The International Monetary Fund (IMF) on Wednesday commended Nigeria’s growth rebound but raised concerns that per capita income will remain flat, making it difficult for the country to achieve the much sort-inclusiveness.

“So you are not going to be able to adress inequality and poverty without resuming growth and part capita growth,” Assistant Director in Fiscal Affairs Department, Catherine pattillo said briefing on the fiscal monitor, one of IMF flagship reports released in Washington on Wednesday.

Pattillo advised that the priorities for Nigeria are fiscal consolidation that will mainly be driven by revenue mobilisation and non oil revenue, as well as building capacity which will allow the funding of education, health, infrastructure, and servicing debt.

Her words,” There is a lot of positive reforms in Nigeria and those are welcomed including to reduce the infrastructure gap particularly in the power sector. But really more needs to be done is our massage.

“There is a need for urgent actions for front loaded fiscal consolidation through mobilizing more non oil revenue. So right now, non oil revenue collection in the first part of the year was only half
of what was budgeted and there is an expectation that the trend might continue for the second part of the year. And if so, that would continue to widen the deficit and make interest payments to revenue stay very high in around 60 percent which is quiet striking.”

Speaking on whether Nigeria”s rising debt should be a concern, she stressed, “the concern in a number of oil exporters is that unless there is action now, that debt which has been rising in many countries is a concern particularly because of the interest payments.

“So if you have continuing rise in debt the interest payments would rise then it would consume a large part of any revenue that you collect and you won’t be able to use that revenue for the objectives of the economic growth and recovery program and increasing growth and employment. So for insuring that you have the ability to use those revenues for enhancing expenditure, there is a need to make sure that debt is sustained and interest to revenue is kept at reasonable level.

She said the message is front loaded fiscal consolidation, emphasize non oil revenue mobilization, noting some other certain measures both on the tax and spending that the IMF team have been emphasising on.

This come as the IMF has urged low income and developing countries (LIDCs) to raise tax capacity to enable them tame increasing fiscal deficits.

In the report, the IMF said fiscal deficits increased sharply between 2011 and 2016 in the LIDCs but are expected to start declining steadily in 2017.

But it raised the concerns that the in these countries, tax capacity is too low- as half of them have a tax ratio of 15 percent of Gross Domestic Product (GDP).

The fund also noted that the composition of spending is expected to improve with consolidation relying less on cutting capital spending and more on controlling current spending.

The IMF said one priority is to raise the tax capacity for two reasons- first in mobilising revenue which is essential to finance growth-enhancing expenditures. The fund also stressed that investments in public infrastructure, education and health are quite needed to support inclusive growth and a dress pressing development needs.

The IMF has also argued that higher revenues are necessary to service public debt.

“When interest as a share of tax revenues increases sharply and becomes too high, this creates vulnerabilities,” according to the report.

In the report, the IMF also documented trends in equality around the world and that fiscal policy remains powerful in tackling inequality.

Briefing on the report, Vitor Gaspar, Director, fiscal Affairs Department at the IMF said that not all countries share in the upswing.

According to him, too many countries in Africa had GDP per capita falling in 2016. and that “there are many countries in Africa that will not be catching up.”

He emphasised that in Africa, poverty are still big issues.

“In Africa, we very much emphasise tax capacity,” he started, adding” it is necessary to increase the capacity of countries to mobilise tax revenue so hat they can fulfil their role in promoting inclusive growth and that for Africa, for Sub-Suharan Africa, is the main challenge,” he added.

 

Onyinye Nwachukwu, Washington DC