IMF: Nigeria’s debt service obligations too high, unsustainable

The International Monetary Fund (IMF) had warned that Nigeria’s current sovereign debt servicing obligation was becoming unsustainable compared to its revenue generating capacity.

According to the organisation, the situation may impair infrastructure and social project financing over a short to medium term.

At a press briefing on the release of October 2018 Fiscal Monitor at the annual meetings of the IMF and the World Bank Group in Bali, Indonesia, the IMF Director of Fiscal Affairs, Vitor Gasper, said there was indeed an issue over how Nigeria can increase its revenue base to match a growing infrastructure financing need, stressing that the Fund sees increasing non-oil revenue as a crucial priority for the country.

He said the Nigerian government needs to shore up its tax and non-oil revenue to enable it finance infrastructure and social intervention programmes ahead of a looming global economic meltdown.

“It is time to build fiscal space against the next downturn. Systematic compilation of use of public sector balance sheets can lead to lower debt servicing costs and higher return on assets, better management of risks.

And, overall, it may help to put public wealth to work at the service of societies’ economic and social goals.

Building tax capacity is crucial for enabling state capacity and for achieving the Sustainable Development Goals.” He said

“If one looks at the ratio of interest payments‑to‑revenues for Nigeria, that is quite high. And certainly, increasing revenues is the way in which one creates the space to do social spending, infrastructure, and other types of spending that benefit economic growth. So, clearly, that is a priority.” He said.

On how to improve on its non-oil revenue collection, the IMF director said the Fund has been discussing over the years with the government, and believes there is need to see the priorities in tax administration, but there are also aspects of tax policy that needs be improved to increase tax audits, and the use of e‑filing to a greater extent.

He said there are data matching exercises that can be conducted to generally reduce tax evasion, and possibly corruption as well, which would be priorities on the tax administration side.

On the tax policy side, he said what was recommended in previous discussions was to increase excise taxes on tobacco and alcohol.

Stamp duties is something that can be looked at again, noting that even after boosting revenue side as government needs to improve on the spending side.

According to him, improving the choices that one makes on which infrastructure projects, and how to go about selecting the ones that are really going to boost growth should definitely be seen as a priority to increase revenues and being careful about what ways in which way spending can be made more efficient.

Nigeria’s debt stock increased by 3 percent from N21.68 trillion recorded in December 2017 to N22.4 trillion ($73.21 billion) at the end of June 2018, but the government is spending over 63 percent of its revenue on debt servicing.

“Meanwhile the Fund has alerted on the need for countries across the world to step up revenue collections to match rising global debt which hit an all time high at $182 trillion at the end of 2017.

According to it in the 10 years between the Asian financial crisis and the global financial crisis, global debt has more than doubled with pace of leveraging slowing down after that.

It stated that global debt still increased by more than 50 percent thereafter with China accounting for nearly 40 percent of the U.S. dollar value of the increase over the period. The U.S. and China together represented almost two‑thirds of the increase.

In the Fiscal Monitor, the IMF report show that for a sample of 31 countries, covering 61 percent of global GDP, total assets are worth $101 trillion, or 219 percent of GDP.

In the advanced economies, prior to the global financial crisis, private debt was rising fast while public debt was broadly stable.

After the global financial crisis, we see a role reversal, with fast increases in public debt. The sharp increase in public debt was only partly due to the implementation of fiscal stimulus measures.

China is the main driver of private sector debt growth in emerging market economies, but bear in mind that in China, the border between public and private is blurry.

According to estimates, since 2007, China contributed almost 60 percent to the world’s accumulation of non financial private debt.

In the low income countries, a key challenge is to improve people’s livelihoods by meeting the Sustainable Development Goals by 2030.

Most low‑income developing countries face substantial spending needs to achieve Sustainable Development Goals.

These additional spending needs for some specific sectors represent 14 percentage points of GDP in the aggregate.

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