The International Monetary Fund (IMF) on Wednesday asked Nigeria to increase non-oil tax revenue that will contribute to providing space for infrastructure, human development, and social spending.
Vitor Gaspar, director, fiscal affairs department at IMF, said this while presenting the Fiscal Monitor Report at the ongoing IMF/World Bank annual meetings in Washington DC.
He said this move is important because Nigeria’s interest payments as a share of tax are very high – around a third for overall and two-thirds for the Federal Government.
“And that is not because interest payments are particularly high. It’s because the denominator is incredibly low; Nigeria has one of the lowest tax-to-GDP in the world. It is not because Nigeria does not have big development problems, Nigeria has a large need for education and health spending. It has some very low indicators in that area and the demographic projections,” Gaspar said.
Nigeria is projected to be the third most populous country in the world by 2050, and so addressing those challenges is really important, Gaspar said.
He said major economies should be prepared for coordinated action in case of a severe downturn.
According to him, in emerging markets and lowincome developing countries, public debt ratios are high and rising. The cost of servicing debt is also increasing, unlike advanced economies where low interest rates have compensated for high debt levels. Some countries are vulnerable to exchange and interest rate shocks.
Gaspar said fiscal policy has an important role to play in the development agendas of many countries, which need to substantially raise spending to meet the SDGs by 2030, particularly lowincome developing economies. The spending must be framed in the context of a comprehensive growth and development strategy.
Building tax capacity is necessary to enable a country to generate the extra revenue that underpins inclusive development. And improving the efficiency of a country’s spending is a crucial aspect of good governance. It is also necessary to ensure complementarities between public finance, private investment, and official development assistance, he said.
He said Fiscal Monitor is now fully digital, contributing to limiting global warming. Fiscal policy plays a central role in managing the synchronised slowdown; preparing for downside risks; contributing to financial stability; financing the Sustainable Development Goals and, finally, addressing climate change.
It is important to realise that current pledges under the Paris Agreement are not enough, Gaspar said. They will limit global warming to 3°C. This is well above the safe level. To limit global warming to 2°C or less (the level deemed safe by scientists), finance ministers need to take further substantial fiscal policy actions, he said.
