FG, economy and IMF’s counsel

AT its recently concluded consultation with Nigerian officials, the International Monetary Fund (IMF) noted that the Nigerian economy exited the COVID-19 pandemic-induced recession in the fourth quarter of 2020. It noted further that Nigeria was recovering and that the recovery process had benefitted from government policy support, rising oil prices and international financial assistance. It commended the authorities’ proactive management of the COVID-19 pandemic and its economic impacts. It noted, however, that the outlook remained subject to significant risks from the pandemic trajectory, oil price uncertainty and security challenges. Indeed, socioeconomic conditions remain a challenge with high and rising levels of food insecurity, rising poverty and high debt service to government revenues. There is a clear risk posed to fiscal sustainability, and a worsening of violence and insecurity could derail the recovery.

The IMF thus called on the government to provide credit to the non-oil sector so that it could benefit from the recent growth momentum and higher production from the new Dangote refinery and take advantage of the African Continental Free Trade Agreement (AFCTA), which Nigeria has ratified. It called for major reforms in the fiscal, exchange rate, trade, and governance areas to ensure long-term inclusive growth. It called for significant domestic revenue mobilisation by further increasing the value-added tax rate, improving tax compliance and rationalising tax incentives. It also urged the removal of untargeted fuel subsidies, with compensatory measures for the poor and transparent use of saved resources. The IMF experts stressed the importance of further strengthening social safety nets. They also emphasised the need for bold reforms in the trade regime and agricultural sector, as well as investments, to promote diversification and job-rich growth and improvement in transparency and governance to strengthen business confidence and public trust.

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Actually, the challenge of reform is better appreciated when it is realised that Nigeria is gradually becoming neck-deep in debt. The IMF has noted that the Federal Government could spend as much as 92.6 per cent of its revenue on debt servicing this year. This is up from last year’s debt servicing-to-revenue ratio which was at 85.5 per cent. When a country expends a significant part of its revenue on servicing huge debts, it has very little left to fund services and development. This in turn affects important social infrastructure such as health and education. Certainly, Nigeria’s debt profile has deteriorated and Nigeria is moving from the status of “a medium-risk of debt distress” to “high risk of debt stress”. There is a clear and present possibility of entry into a major debt trap soon if urgent and adequate measures are not taken to shore up Nigeria’s revenue collection and control borrowing.

The IMF has advised the government to increase the value added tax.  But we disagree. Rather, we call on the government to diversify the economy and cut the cost of governance. Since the 1970s, Nigerian policy makers have recognised the need to diversify the economy, but this policy has not translated into sustained real measures in that direction. Regarding reducing the cost of governance, overloaded bureaucracies, corruption, waste and huge retinue of aides are some of the factors to be addressed. It has been a subject of public concern since the return to democratic rule. Public officers continue to engage in frivolous spending. They acquire a retinue of aides, sometimes running into hundreds. Indeed, the remuneration of public office-holders is several times higher in Nigeria than those of many countries in the developed world.

We call on the current crop of leaders, especially the president, governors and the legislators, to take immediate steps to cut down on the number of aides they employ and the remuneration of public officeholders. They should also reduce corrupt practices that have become the bane of development in Nigeria. The country cannot be accumulating debts while embarking on frivolous spending.  It is tantamount to suicide.