Nigeria needs to reduce debt risks, says IMF

The International Monetary Fund (IMF) has said Nigeria needs a medium-term plan to reduce its debt vulnerabilities.

The IMF asked the country to raise incomes from taxes, particularly through ensuring compliance and expanding the tax net, in order to help it generate more revenues and cut burgeoning debt.

At 8 percent tax-to-GDP ratio, Nigeria ranks among the lowest globally, amid concerns that total debt stock could hit N77 trillion by the end of next month.

The Debt Management Office said in March that the country’s debt stock as at December 2022 had reached N46.25 trillion.

In its latest Fiscal Monitor, titled ‘On the path to Policy Normalisation’ released Wednesday during its joint spring meetings with the World Bank, the IMF said Nigeria’s debt is projected to keep rising and that necessary steps must be taken to generate needed revenues.

“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,” Paulo Medas, division chief, Fiscal Affairs Department at IMF, said.

He said: “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 benefitted 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.”

“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.”

Medas said Nigeria should broaden the tax space and improve tax compliance as it has one of the lowest tax revenues in the world as a share of GDP. “So, there’s a lot of room for increasing the tax base and improving tax compliance.”

The IMF said in the report that globally, public debt is higher and growing faster than projected before the COVID-19 pandemic, driven mainly by the world’s two largest economies, the United States and China.

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The Washington-based fund projects that 60 percent of countries could see their public debt-to-GDP ratios decline through 2028 after COVID-related surges, but a significant number of large economies, including Brazil, China and the United States, are seeing rapid growth in their debt-to-GDP ratios.

The report said low-income developing countries had 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.

It said: “Fiscal deficits in low-income developing countries, at an average 4.2 per cent of GDP in 2022, showed moderate improvements relative to the worst of the pandemic. Primary spending remained stable at 16.9 percent of GDP, just below its 2021 level, on average, as countries increased fuel subsidies and social spending to respond to rising energy and food import prices.

“The increase in spending was larger among commodity exporters Burundi, Democratic Republic of Congo and oil exporters Nigeria, Yemen, with the latter group benefitting from more fiscal space thanks to high energy prices. In non-oil commodity exporters, the average fiscal deficit rose by 0.6 percentage points in 2022, reversing the improvement in 2021, as both primary spending and debt service payments increased.”