At the ongoing IMF/World Bank Spring meetings happening in Washington DC, the International Monetary Fund (IMF) has reemphasized that Nigeria should double its efforts to ensure payment of taxes from more people and organizations, increment of taxes, and reduction of the country’s debt rate. A suggestion by the Fund also advised that the country rules out the controversial petrol subsidy and reverse the funding to targeted subsidies that foster significant development such as health and education.
Speaking concerning the latest Fiscal Monitor of IMF, with the title, “On the path to Policy Normalisation,” Division Chief of the Fiscal Affairs Department, IMF, Paulo Medas, said that Nigeria requires a medium-term plan that would ensure stable reduction of debt vulnerabilities; this has not happened due to Nigeria’s poor tax revenues. Low tax revenues increase the country’s vulnerability to tightening global situations. Tax increment would create space for debt management and fund allocation for other national priorities.
Country has one of the lowest tax revenues worldwide.
In the past, Nigeria has not so much benefitted from the unexpected fall of oil prices due to its direction of a lot of it to untargeted energy subsidies. Adjustment to other subsidies would therefore lead to reduce of the fiscal deficit. When this is achieved, resources can be used on other priorities that can drive significant growth in the future — like health and education — and enable reduction of deficit. Medas highlighted that tax revenue in Nigeria is one of the lowest in the world, so priorities should be placed on improvement of tax compliance and tax brackets.
IMF, in the Fiscal Monitor report, stated that low-income developing countries have experienced several global shocks, with an inclusion of the COVID-19 Pandemic and the crises of cost of living and food security, which have negatively impacted their public finances. At an average 4.2 percent of Gross Domestic Product (GDP), fiscal deficits in these countries revealed moderate improvement owing to the effects of the pandemic. Increment of fuel subsidies and social spending by countries as response to increasing prices of energy and food import has aided stability of primary spending at 16.9 percent of GDP, on average.
Over 35 countries are either in or near debt distress.
According to the report, there is a projection of continuous rising of debt in some low-income countries, as Nigeria and others have requested debt relief under the Group of Twenty (G20) Common Framework (Chad, Ethiopia, Ghana, Zambia). Victor Gaspar, Director, Fiscal Affairs Department at IMF, commenting on the global perspective, highlighted the complexity of the near-term outlook amid current high inflation, increasing debt and tightening financing conditions. Policymakers are advised to prioritize consistency of fiscal policy with central bank policies to enhance promotion of price and financial stability.
In Gaspar’s statement, reduction of debt vulnerabilities and rebuild of fiscal buffers have been the most important priority for a while. Regardless of the projected gradual fiscal tightening in the future, the director stated that there will be a rise in global public debt, propelled by some advanced and developing market economies. Debt vulnerability concerns have seriously grown in many countries. Higher borrowing costs have affected the public finances of low-income developing countries as over 35 countries are either in or near debt distress.
International cooperation will resolve unsustainable debt burdens.
To reduce debt vulnerabilities and develop necessary room to address future shocks, countries are advised to build enhanced risk-based fiscal frameworks. Combination of strengthened institutions with revised fiscal rules will be done by the fiscal frameworks. Inclusion of credible policy commitment for achievement of debt sustainability is a necessity in the medium-term fiscal plans. Likewise, international cooperation is significant to driving timely and orderly resolution to the unsustainable debt burdens of these countries. This will enable their contribution to sustainable and inclusive development.
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