From Washington DC| The International Monetary Fund (IMF), on Wednesday, raised concerns that Nigeria has not been able to save enough and continues to carry a huge fiscal deficit despite rallying oil prices.
The IMF released its latest Fiscal Monitor report, which strongly recommends fiscal tightening to help tackle inflation, address debt vulnerabilities, and a deliberate cooperation between the fiscal monetary policies/authorities to navigate present challenges.
The report maps out the difficult trade-offs facing fiscal policymakers as they try to protect low-income families from large real income losses while avoiding moves that would contravene monetary policy.
“Reducing deficit is necessary. Fiscal consolidation sends a powerful signal that policymakers are aligned in their fight against inflation, which, in turn, would reduce the size of required policy rate increases to keep inflation expectations anchored and keep debt servicing costs lower than otherwise,” the IMF said.
Many oil exporters that have taken advantage of the oil boom are now running fiscal surpluses because of higher oil revenues. But Nigeria’s fiscal deficit is projected to widen in 2022 and 2023 as growth slows and inflation remains high.
As contained in the proposed 2023 budget presented by President Muhammadu Buhari last Friday, the fiscal deficit will widen to 4.78 percent of estimated GDP in 2023 as the government plans an unprecedented N20.51 trillion spending for the year. The projected deficit is also above the 3 percent threshold set by the Fiscal Responsibility Act 2007.
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At a press meeting on the IMF Fiscal Monitor, Paulo Medas, deputy division chief in the IMF’s Fiscal Affairs Department, said Nigeria’s fiscal troubles have worsened on the back of huge fuel subsidies, low oil production due to crude theft, as well as low oil income mobilisation.
“Governments are facing a very difficult environment with many countries battling double digit inflation and in this respect, fiscal policy needs to help monetary policy, working together to ensure price stability. This is absolutely critical for that stable growth and for some public finances in countries,” Medas said.
The biggest risk emphasised in the IMF Fiscal Monitor is debt. But with N42.84 trillion already accumulated in debt, Nigeria plans to borrow an additional N8.80 trillion to fund the 2023 budget.
Buhari had explained that the government resorted to borrowing to finance fiscal gaps due to low revenues.
The IMF chief said: “For countries like Nigeria, especially the oil exporters, they can take advantage of rising commodity revenues to address some of these needs and to be able to spend.
“In Nigeria, which has benefited from higher record revenue, so far, we haven’t seen any improvement in deficits as we would hope. Part because of the large energy subsidies, but also other issues with the production of oil and other pressures on the budget.”
He said that the IMF recommendation is to try to save some of these oil revenues to reduce threats but also to use them to address these emergency needs.
Medas said: “Another aspect is that Nigeria is one case where tax revenues are really low. And this really undermines the capacity of governments to react to these types of shocks or to provide key services.
“So in the case of Nigeria, where the priority is really a domestic revenue mobilisation you need to increase the scale capacity to address the needs of the country. And this will also help make fiscal policy more consistent with other efforts to ensure economic stability.”
Vitor Gaspar, IMF director of Fiscal Affairs, underscored the need for what he called “orderly debt restructuring” to put low-income countries on a more sustainable path.
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