- says loan servicing obligation too high, insists no debt restructuring talks
- look inwards for funding, foreign loans becoming scarce, costly, Fund tells Nigeria
The International Monetary Fund, on Friday, said 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.
The IMF Africa Department Director, Abebe Selassie, made the
position known during a press briefing on the Sub-Saharan Africa Regional
Economic Outlook at the ongoing World Bank Group/International Monetary Fund
Meeting in Marrakech, Morocco.
He spoke against the backdrop of the harsh economic
conditions in Nigeria on the back of the removal of fuel subsidy and foreign
exchange unification by President Bola Tinubu after taking office in late May.
The deregulation of the downstream oil sector has pushed
petrol prices from about N185/litre to about N600/litre, a development that has
caused pain and untold hardships for more Nigerians.
Aside from this, policies aimed at unifying the official and
parallel market rates of the naira announced in early June by the government
have worsened the sharp rise in the prices of goods and services following the
jump in the pump price of petrol.
Despite the initial savings made from fuel subsidy removal
by the Federal Government, over 90 per cent of government revenue still goes
into debt servicing, leaving it with a meagre amount to cater to major economic
growth and development projects.
However, the IMF said on Friday that Nigerian policymakers
must urgently complement the fuel subsidy removal with a set of policies that
could ameliorate the economic challenges facing the country.
Selassie said, “The exchange rate reforms that the
government did were very, very welcome, trying to unify the rate, similarly the
fuel subsidy. But that will not help and will not stick unless you also are
tightening monetary policy; unless you’re also doing something to mobilise more
tax revenues. So, a holistic package of reforms is what’s needed.
“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 making 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
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.”
Debt talks
On Nigeria’s debt, the IMF director said the country 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.
Forex ban removal
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.”
Look inwards
Meanwhile, the IMF has advised the Nigerian government and
other economies in sub-Saharan Africa to look inwards for funding, pointing out
that foreign loans are becoming scarce and costly.
It said this in its regional outlook report.
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.”
It added, “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 Minister of Finance and Coordinating Minister of the
Economy, Wale Edun, had on Tuesday said the government would explore new ways
to collect tax revenue more efficiently.
Also on Thursday, the new CBN Governor, Olayemi Cardoso,
removed the eight-year forex ban on 43 items.
Chinese loans waning
Meanwhile, the IMF has said Nigeria and other countries in
sub-Saharan Africa are at a crossroads in their relations with China because
the Chinese government is beginning to reduce its exposure on the continent.
In its report released on Friday titled, ‘At crossroads:
Sub-Saharan Africa relations with China’, the IMF said African countries must
now explore domestic funding.
The report read in part, “Sub-Saharan Africa has forged
broadly beneficial economic ties with China over the last two decades. China
has become the region’s largest trading partner, a major credit provider, and a
significant source of foreign direct investment. However, China’s support to
Africa has also faced some criticisms. Recently, China has retrenched its
financing activities in sub-Saharan Africa amid a growth slowdown and reduced
risk appetite.
“The projected future deceleration in China’s growth is
likely to affect African trading partners negatively over the medium term,
mainly through reduced trade. Therefore, it is crucial that countries in the
region strengthen their resilience and implement structural reforms to foster
economic diversification, deepen intraregional trade, enhance competitiveness,
and catalyze domestic growth.”
As a result of the development, the IMF report advised
African countries, including Nigeria, to review their economic policies in view
of China’ scaling down on the continent.
The report added, “Sub-Saharan Africa has to adapt to
evolving economic ties. Sub-Saharan Africa has benefited from China’s growth
takeoff, but the region needs to adapt to China’s growth slowdown and declining
economic engagements. Navigating these new realities in a context of global
uncertainty and amid increasing geo-economic fragmentation will require
building resilience and implementing structural reforms that foster alternative
sources of growth, including through diversification and enhancing
competitiveness.
“Building resilience will help cushion against the negative
spillovers from China’s growth decline. Increasing regional trade integration
offers African countries the opportunity to diversify export destinations and
import sources. The African Continental Free Trade Area is particularly
promising, but its implementation will require substantial reduction of trade barriers
and improvements in the broader trade environment, including reduction of
non-tariff trade barriers. If all are realized, the median goods trade within
Africa could increase by 53 percent and with the rest of the world by 15 per
cent.
“This has the potential to raise the real per capita GDP of
the median African country by more than 10 per cent and lift an estimated 30–50
million people out of extreme poverty. Rebuilding buffers and strengthening
policy frameworks will help reduce macroeconomic vulnerabilities and external
reliance. This includes reviving efforts to boost domestic revenue mobilization
to reduce dependence on external revenue and financing while strengthening
spending efficiency and generating alternative and sustainable sources of funding
for development priorities. Measures include improving revenue administration
and tax policy reforms.
“To offset China’s declining economic engagement in the
region, structural reforms are necessary to foster alternative sources of
strong, sustainable, and inclusive growth, such as: Promoting economic
diversification, which is vital for forging new trade relationships beyond
China and can mitigate the repercussions from changing global trade patterns.
Oil-exporting countries need to gradually manage the transition away from a
heavy reliance on Chinese demand.
“Moreover, as the world embraces the green energy
transition, the region can seize opportunities in the strong demand for
critical mineral exports that support renewable energy development. Countries
can strive to develop more local processing capabilities while moving up higher
value chain segments. Essential reforms—including adopting best practices in
mining laws and enhancing public financial management—are crucial to capturing
the potential windfalls and optimising economic benefits.” -PUNCH