Why Nigeria must raise revenue, check debt servicing costs -IMF

The International Monetary Fund (IMF) says Nigeria’s 10 percent-to-GDP ratio is too small to effect the required change on the economy. It also noted that the nation must reduce its debt servicing costs to achieve fiscal stability.

Davide Furceri, division chief, Fiscal Affairs Department, IMF, told the media at the IMF/World Bank meetings in Washington DC, USA, that Nigeria faces significant challenges, particularly in terms of revenue mobilisation.

“Nigeria has a very low revenue-to-GDP ratio, around 10 percent,” he said, noting that the country’s debt servicing obligations are consuming a large portion of its revenue, similar to other low-income countries where this ratio averages around 15 percent,” he said.

“This means a large share of revenue growth is used just to finance the debt,” Furceri explained, emphasising the need for Nigeria to broaden its tax base and increase revenue mobilisation.”

Furceri also pointed to the impact of rising food prices and droughts on Nigeria’s economy, calling for transparent mechanisms to ensure that government resources reach the most vulnerable populations. He stressed the importance of balancing revenue growth with targeted social safety nets, especially in countries like Nigeria that are facing both fiscal and humanitarian challenges.

Debt servicing took about 74 percent of Nigeria’s federal revenue in the first quarter (Q1) of 2024, amounting to N1. 31 trillion out of the N1. 76 trillion retained revenue. said the Central Bank of Nigeria (CBN) Statisticsl Bulletin. This is the lowest in five years, according to BusinessDay’s analysis of Nigeria’s debt service and revenues between Q1 of 2020 to Q1 of 2024.

The decrease was driven by naira devaluation and partial petrol subsidy removal at that time, experts said.

According to Vitor Gaspar, director of Fiscal Affairs Aepartment, IMF, “Deficits are high, and global public debt is projected to rise to about $100 trillion this year.” He added that at the current rate, the global debt-to-GDP ratio could reach 100 percent by the end of the decade, surpassing even the levels seen during the pandemic. Despite this alarming outlook, he noted the differences across countries, saying, “In about one-third of the countries, public debt is higher and projected to grow faster than pre-pandemic levels. This includes major economies such as China, the United States, Brazil, and the United Kingdom, representing around 70 percent of global GDP.”