The International Monetary Fund has said Nigeria’s major fiscal challenge is its “very low revenue” and not so much of its debt profile.
The global body explained that the low revenue had led to low debt-servicing capacity and limited funding for critical sectors such as education, health and social welfare.
The IMF said it considered Nigeria’s public debt stock average at 29 per cent of its Gross Domestic Product as of the end of 2019, when compared to emerging and developing market average, which is about 53 per cent of GDP.
It noted that the 29 per cent includes not just government’s debt, but takes into account overall public sector liabilities, such as Central Bank of Nigeria’s overdraft, Asset Management Corporation of Nigeria’s debt and other things.
IMF’s Mission Chief and Senior Resident Representative for Nigeria, Jesmin Rahman, said these on Tuesday at a webinar hosted by the Nigerian Economic Summit Group, Fiscal Policy Roundtable and Tax Investment and Competitiveness Policy Commission.
She said, “The first vulnerability comes from having very low level of fiscal revenues. Total revenue at seven per cent of GDP is less than half of sub-Saharan Africa’s average and far lower than the average in oil exporting countries.
“It is also lower than the minimum threshold of 12 per cent, which is considered necessary for governments to provide an enabling and growth-enhancing role. Interest payments take up a large share of revenues, leaving little resources for everything else.”
“When we do our in-depth analysis, public debt is projected to reach about 37 per cent of GDP this year and remains roughly around that level in the medium term.
“We do various stress scenarios in our debt sustainability analysis and in all of those scenarios, public debt does not go beyond 50 per cent of GDP.
“So, I will not say that public debt is having a crisis or that public debt is extremely high. It is really a revenue issue; very low and volatile revenue is what poses a lot of fiscal risks and there are sizable financing risks in the next 12 months.”
She, however, advised that Nigeria needed to make sure its risk perception goes down significantly so that borrowing costs could be low.
While proffering solutions, she said Nigeria needed to raise its revenues, noting that policies should be made to make the number of registered voters commensurate with the percentage of active tax payers, which she described as low.
She added that it was also imperative for government to complete revenue administration reforms, reduce tax exemptions and raise trust in public institutions so as to improve tax morale.
Rahman added, “Taxes are contracts between the government and citizens, where payment is in return for services. As such, the perception of public institutions, services and accountability are very important.
“Worldwide and in sub-Saharan Africa, countries that rank the highest in controlling corruption and (having) good governance are also the ones with higher tax morale and collection. Fiscal transparency and accountability are very important.”