Nigeria should widen its tax revenue base to finance growthenhancing upgrades to the nation’s infrastructure and social programmes, the International Monetary Fund (IMF) has said. Nigeria should widen its tax revenue base to finance growth-enhancing upgrades to the nation’s infrastructure and social programmes, the International Monetary Fund (IMF) has said.
The Fund, which released its economic out-look for Sub Saharan Africa yesterday, stated that Nigeria needs a higher revenue base to drive its reform efforts.
It also warned that nations in the region are at growing risk of debt distress because of heavy borrowing and gaping deficits, despite an overall uptick in economic growth.
It cautioned that refinancing that debt could soon become more costly.
The Director of Africa Department at the IMF, Abebe Aemro Selassie, stated that while the current administration has made progress in addressing issues such as corruption, Nigeria needs to pick up its reform efforts if it wants to boost economic growth.
“To address the education, health, road, electricity and other infrastructure needs they have, they have to have a much higher revenue base than they do now,” he was quoted by Bloomberg.
Citing property tax as an example, he pointed out that there was tremendous scope for Nigeria to broaden its tax base.
The IMF official restated the Fund’s call that Nigeria should move to a single unified foreign-exchange rate, adding that even though the gap between the official and parallel market rates has narrowed in recent months, a unified forex market will positively impact the country’s economy.
“They have reduced the gap between the parallel market and the official market significantly, so that’s a movement in the right direction, but there are still several foreign-exchange rates. Even though the gap is narrower, the country would strongly benefit from having a unified and liquid single foreign-exchange market,” he said.
According to the Fund, with oil prices rebounding, Nigeria’s recovery is helping drive a “modest” upswing in sub-Saharan Africa.
It, however, pointed out that turning the recovery into a prolonged period of strong expansion requires bolder steps to support private investment and lift potential growth.
The fund projects Nigeria’s economy will grow 2.1 per cent this year and 1.9 per cent in 2019 while for sub-Saharan Africa, it predicts that Gross Domestic Product (GDP) will expand 3.4 per cent this year and 3.7 per cent in 2019.
Slower growth in South Africa and Nigeria – the continent’s two largest economies – weighed on the region-wide average, but the IMF expects growth to pick up in around two-thirds of African nations.
However, under current policies, that rate is expected to plateau below four per cent over the medium term.
About 40 per cent of low-income countries in the region are “in debt distress or high risk of debt distress,” the IMF said, adding that delays by oil exporters in adjusting to the crude shock have left some with high debt levels.
Selassie noted the region’s debt levels have recently risen from a relatively “low base.” But it’s still a cause for concern, because countries in the region don’t have ample capacity to service their debts, he said.
The IMF’s assessment comes as African countries continue to tap international debt markets and issue record levels of debt in foreign currencies, spurred on by insatiable investor demand for yields.
African governments issued a record $7.5 billion in sovereign bonds last year, 10 times more than in 2016. And they have issued or plan to issue over $11 billion in additional debt in the first half of 2018 alone, the report said.
Foreign currency debt increased by 40 per cent from 2010 to 2013 to 2017 and now accounts for about 60 per cent of the region’s total public debt on average, IMF data showed.
Average interest payments, meanwhile, increased from four per cent of expenditures in 2013 to 12 per cent in 2017.
Six countries – Chad, Eritrea, Mozambique, Congo Republic, South Sudan and Zimbabwe – were judged to be in debt distress at the end of last year. And the IMF’s ratings for Zambia and Ethiopia were changed from moderate to “high risk of debt distress.”