No one would deny the hardship happening in Nigeria. It is tough and amidst this toughness, the International Monetary Fund said on Friday that for Nigeria’s fuel subsidy removal policy and foreign exchange unification initiative to translate to economic growth and stability, the Federal Government must collect more taxes to fund the national budget and pay public debts.
Abebe Selassie, the Director of the IMF Africa Department, emphasised the need for additional policies to address Nigeria’s economic challenges, particularly in light of the removal of fuel subsidies and foreign exchange unification by President Bola Tinubu.
These policy changes have led to significant increases in petrol prices and have created economic difficulties for many Nigerians.
Despite the government’s initial savings from fuel subsidy removal, over 90 percent of its revenue is still allocated to debt servicing, leaving limited resources for crucial economic growth and development initiatives.
“So, you have a medley of things mainly rooted in the fiscal challenges that Nigeria has faced, not having tax revenues. At the same time, this is a country with incredible potential and we have seen reforms moving in the right direction in recent months. What is needed, we feel, is to make the reforms holistic and help reinforce each other. Just as things were not reinforcing each other in the past, I think there is scope to make the reforms reinforce each other.”
The IMF director noted that Nigeria had over-relied on oil revenue, making it difficult to tap its potential in other areas.
He said, “Why are there not enough tax revenues? I think in the past, over-reliance on oil was when prices were high. Second, of course, also there is the subsidy regime, which also entails quite a lot of loss of government resources being directed where they perhaps should not be. So, I think these are all interlinked issues, including causing some of the inflation that you’re seeing, because, given the difficulty to tap international capital markets, the government has had to rely more on domestic financing, which has either crowded out the private sector or of course caused the monetary injection, which again has weakened the exchange rate.”
Selassie, however, said the leaders at the Central Bank of Nigeria and the Ministry of Finance were new, adding that there was a need to give them more time to act.
He expressed confidence in their ability to make the right economic decisions, saying, “I think we have to give a bit of time to the new administration also, I mean, the central bank governor has just been appointed. The Minister of Finance has only been in office for a few weeks. So, we’re hopeful that they will move in the right direction, and we stand there to provide any policy advice the government needs.”
While speaking about Nigeria’s debt, the IMF director said the country’s leaders had yet to initiate any discussion on debt cancellation or forgiveness.
The Debt Management Office data showed that Nigeria had a total debt stock of $113.4bn as of June 30, 2023.
The IMF director said, “I am not aware of any discussions that are going on debt profiling and restructuring in Nigeria. There are, of course, like elsewhere in the region, debt pressures. And I think in Nigeria, by far the most important cause of the pressures is the fact that the government doesn’t generate enough tax revenues for all the services it needs to provide. So, interest payment as a share of revenues is very high and not leave much room to spend on other issues. I think that is the key issue and the one that needs to be worked on.”
He also said Nigeria’s debt was still manageable but noted that more revenue must be generated to service it.
“When we look at the debt in Nigeria, our sense is that the stock is manageable in general. It’s the debt servicing that is much more difficult. And the debt servicing is hampered, as I said earlier, by the country not generating enough non-oil tax revenues. I think that is by far the most important area of reform, by far the most important area of work that there is for any administration in Nigeria,” Selassie added.
The IMF has supported the CBN’s removal of the forex ban on 43 items.
Selassie said, “On the trade restrictions, our view has always been that in Nigeria, as in many other cases, our economies now are so sophisticated and so complex. I don’t think that these kinds of restrictions work. The best way to manage modern economies is for the government authorities to use both the fiscal policy lever and monetary policy lever to affect the right kind of outcomes, rather than going in and saying I don’t like this good, so I don’t want it to come in, et cetera.
“That tends to create unhelpful distortion. But in general, I think the direction that the CBN has moved is a helpful one.”
Meanwhile, the IMF, in its regional outlook report, has recommended that the Nigerian government and other sub-Saharan African economies explore domestic funding sources. This advice comes in response to the increasing scarcity and costliness of foreign loans.
The report read in part, “Sub-Saharan Africa is only now emerging from a series of unprecedented global shocks and is still in the grips of an acute funding squeeze.
On the positive side, global inflation is receding, and international financial conditions are starting to ease. But the underlying funding challenge may still endure—the crisis has demonstrated the risks of relying on volatile private capital markets for development funding, while other traditional sources such as official development assistance and bilateral lending are shrinking.
“Funding for development seems likely to become increasingly scarce and ever more costly, making it more difficult for countries to sustain even current levels of per capita spending on priorities such as health, education, and infrastructure, much less increasing the spending required to meet the Sustainable Development Goals.”
Adding that, “But the region is far from powerless. More patient and less pro-cyclical private investment inflows remain a critical and underused resource, and there is significant scope for the region to accelerate investment climate reforms while carefully considering the role of added public incentives. Ultimately and most important, domestic resource mobilisation is the key to sustainable development. Boosting public revenues is clearly vital. But expanding the pool of private savings is also essential, and to this end, promoting financial market development and financial inclusion should also be a priority.”
The Loan
As regards the Chineseits recent report titled “At Crossroads: Sub-Saharan Africa’s Relations with China,” the International Monetary Fund (IMF) has highlighted the evolving dynamics of the relationship between China and countries in sub-Saharan Africa. The IMF has noted that China is scaling down its involvement on the continent, signalling a significant shift in the economic landscape.
Over the past two decades, Sub-Saharan Africa has developed mutually beneficial economic ties with China. China has become the region’s largest trading partner, a major source of credit, and a significant contributor to foreign direct investment.
However, the IMF report acknowledges that China’s engagement with Africa has faced criticism and, more recently, a reduction in financing activities due to China’s slow economic growth and decreased risk appetite.
The report emphasises the potential negative impact of China’s anticipated economic deceleration on African trading partners, primarily through reduced trade. To address these challenges, the IMF advises countries in the region, including Nigeria, to review and adapt their economic policies in response to China’s changing role in Africa.
One key recommendation is to prioritise regional trade integration, with the African Continental Free Trade Area being a promising initiative.
However, achieving this goal requires substantial efforts to reduce trade barriers, both tariff and non-tariff, to realize its potential benefits, such as a potential 53 percent increase in intra-African goods trade.
Furthermore, the report suggests that implementing these measures could potentially raise the real per capita GDP of the median African country by over 10 percent, lifting an estimated 30 to 50 million people out of extreme poverty.
To offset the impact of China’s reduced economic engagement, the IMF encourages structural reforms to promote alternative sources of sustainable and inclusive growth. This includes diversifying economic relationships beyond China and managing the transition away from heavy reliance on Chinese demand, especially for oil-exporting countries.
Moreover, as the world shifts towards green energy solutions, the report highlights the opportunities in critical mineral exports that support renewable energy development.
The region can leverage these opportunities by developing local processing capabilities and optimizing economic benefits through essential reforms, such as mining laws and public financial management improvements.
