The International Monetary Fund (IMF) has identified the major fiscal challenge faced by Nigeria as “its very low revenue” and not its debt burden.
The multilateral lender maintained that low revenue had accounted for low debt-servicing capacity and poor funding of critical sectors of the economy including health, education and social welfare.
It put Nigeria’s public debt stock average at 29 per cent of its Gross Domestic Product (GDP) as of the end of last year compared to the emerging and developing market average, standing at 53 per cent of GDP.
The 29 per cent, according to the Fund, encompasses not only government’s debt but also the entire public sector liabilities like the Central Bank of Nigeria’s overdraft and the Asset Management of Nigeria’s debt among others.
Jesmin Rahman, IMF’s Mission Chief and Senior Resident Representative for Nigeria, made the observations on Tuesday at a webinar organised by the Nigeria Economic Summit Group, Fiscal Policy Roundtable and Tax Investment and Competitiveness Policy Commission.
“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,” she said.
Rahman affirmed that the IMF conducted different stress scenarios in its debt sustainability analysis and public debt did not exceed 50 per cent of GDP in all the scenarios.
“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 added.
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She recommended that Nigeria scale down its risk perception significantly in order to keep borrowing costs low.
Rahman stressed the importance of expanding Nigeria’s revenue, suggesting that strategies should be deployed the number of registered voters commensurate with the percentage of active tax payers, which she said was low.
Similarly, she enjoined government to perfect revenue administration reforms, cut tax exemptions and build trust in public institutions in order to boost tax morale.
“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.”