Nigeria’s bleak economy was part of the agenda at the just-concluded IMF/World Bank Spring Meeting in Washington DC, United States. The two major global financial institutions listed key macroeconomic problems facing our economy and made some recommendations. The measures are tax increase, an improved tax system, reduction of the nation’s debt stock currently put at over N46trillion and cautious borrowing. 

  

Others include the removal of petrol subsidy and using such funds to revamp critical development drivers such as health, education and infrastructure. According to the IMF, Nigeria’s economic direction and debt sustainability will depend on the policies of the incoming government. The measures are contained in the IMF’s fiscal monitor, ‘On the Path to Policy Normalisation,’ released at the meeting.

The IMF further states that Nigeria’s debt is projected to continue to be on the rise if effective fiscal and monetary measures are not put in place. The agency argues that raising taxes will create space for the management of the nation’s high debt stock and other priorities. According to it, Nigeria has not benefited from the windfall in the global oil price market because a lot of the revenue has been spent on untargeted energy subsidies, adding that currently, Nigeria has one of the lowest tax revenue in the world in terms of Gross Domestic Product (GDP) ratio.   

There is no doubt that the nation’s economy is wobbling on account of government’s flip-flop policies and mismanagement of resources and loans from domestic and international markets. In this regard, we agree with the IMF that Nigeria should reduce its debt and borrow cautiously and spend prudently. Government will also reduce fiscal buffers over the next few years and develop a more credible risk-based fiscal framework to handle future domestic and external shocks.   

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Surely, an enhanced fiscal framework within government’s medium-term fiscal plans will include credible policy commitment that will be able to achieve debt sustainability, while allowing for flexibility to adjust for possible shocks. The government should muster the political will to significantly reduce the nation’s rising debt. With the outstanding N23trillion Ways and Means from the Central Bank of Nigeria (CBN) to the federal government, the total national debt will hit N77trillion by May this year.   

While IMF’s suggestions for a drastic reduction in Nigeria’s national debt profile, improved tax compliance deserve attention of the incoming administration, we align with the Organised Private Sector (OPS) and Labour that any attempt to raise taxes will impact negatively on businesses, individuals, households and corporate entities. Already, businesses are grappling with energy crisis and high cost of raw materials. Any imposition of additional taxes will make the business community more vulnerable, with a trade-off on growth and job creation. A higher tax regime will adversely affect manufacturing and other businesses.  Besides, more taxes will weaken the purchasing power of Nigerians who are groaning under prevailing economic hardship. It will further burden the taxpayers, and will definitely defeat the government’s earlier plan to widen the tax net. This could lead to tax avoidance and capital flight. The drive for direct foreign investment may be stymied. We, therefore, advise the federal government to be circumspect in implementing the recommendations of the World Bank and the IMF. Some of their suggestions may not work for us in view of our developmental peculiarities.   

Increasing taxation has not been the best way to increase revenue. Rather than increase taxes, government will generate more revenue by widening the tax net and reducing cost of governance. This will reduce the current borrowing binge of the government. We urge the government to put in place an effective tax administration system that will optimise our tax revenues. Nigeria is losing humongous revenues through oil theft, fuel subsidy scam, and endemic corruption in the Ministries, Departments and Agencies (MDAs).   

The Ease of Doing Business (EoDB) remains one critical area to improve upon. There is no doubt that so much work is required to revamp the economy and put it on the path of growth. Let the government reduce inflation, unemployment, poverty and social inequality. It should also ensure exchange rate stability and access to loans by small and medium enterprises at single digit rate. Altogether, charting a new course for the economy is a huge task for the incoming administration, but increasing taxes will not bode well for the distressed economy.