Stop tax wavier to fix debt crisis, IMF tells Nigeria

The International Monetary Fund (IMF) has recommended that Nigeria and other Sub-Saharan African nations prioritize the removal of tax exemptions and enhance domestic revenue generation to mitigate their fiscal deficits.

In their publication titled ‘Avoiding a Debt Crisis in Sub-Saharan Africa,’ the international body contended that opting for this strategy, instead of reducing fiscal spending, could safeguard economic growth.

The statement reads in part: “Sub-Saharan African countries tend to rely excessively on expenditure cuts to reduce their fiscal deficits. Although this may be warranted in some circumstances, revenue measures, like eliminating tax exemptions or digitalising filing and payment systems, should play a greater role.

“Mobilising domestic revenue is less detrimental to growth in countries where initial tax levels are low, whereas the cost associated with reducing expenditures is particularly high given Africa’s large development needs. While difficult to achieve, large and rapid increases in revenue have been observed in some countries like The Gambia, Rwanda, Senegal, and Uganda, which relied on a mix of revenue administration and tax policy measures.”

Inclusive Workforce to Boost GDP

According to the IMF, inclusive participation in the labour force, particularly of women, could lead to an approximately 8% growth in the Gross Domestic Product (GDP) of developing countries in the coming years.

In a weekly chart released on Wednesday on its website, the IMF highlighted the significance of addressing the disparity between male and female employment. It suggested that this reform is vital for rejuvenating economies, especially given the bleakest medium-term growth projection in over 30 years.

“We estimate that emerging and developing economies could boost gross domestic product by about 8 per cent over the next few years by raising the rate of female labour force participation by 5.9% points—the average amount by which the top 5% of countries reduced the participation gap during 2014-19,” the IMF said.

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Earlier, the IMF stated that Nigeria’s fiscal deficit to Gross Domestic Product, GDP, ratio fell to 5% in 2022 from 6.3% in 2021.

As a solution, the IMF advised Nigeria and Sub-Saharan countries to set a course by re-anchoring fiscal policy through a credible medium-term strategy and prepare by undertaking fiscal adjustment to bring debt back to a safer level.

“IMF staff analysis shows that most countries in the region must reduce their fiscal deficits in the coming years. The average country’s adjustment amount is about 2 to 3% of GDP.

“This adjustment seems feasible given historical experience in the past, countries in sub-Saharan African countries improved their primary balance by 1% of GDP a year over two to three years,” it said.

What you should know

According to the latest report by the Debt Management Organization (DMO), Nigeria’s total foreign debt for the period ending March 31, 2023, has risen to N49.85 trillion ($108.30 billion) from N46.25 trillion as of December 21st 2022.

DMO disclosed that the total public debt containing the external and domestic debts of the Federal Government, the 36 states, and the Federal Capital Territory was N49.85 trillion.