According to data from the International Monetary Fund, Nigeria’s income is insufficient to cover its development needs. The country’s 9% revenue to GDP ratio, according to the IMF, is incredibly low and insufficient to pay for social safety nets, development expenses, and the protection of the most vulnerable citizens.The Director of the IMF’s Communications Department, Julie Kozak, revealed this during a press briefing on Thursday.
In response to a question about Nigeria during the briefing, she stated, “As we mentioned in our Article IV Consultation, which was held in February of 2023, raising revenue from the very current low revenue to GDP ratio of nine per cent is essential to create fiscal space for social and development spending.”
“Nine per cent of GDP is a very low revenue to GDP ratio, and it is really not high enough to be able to support strong social safety nets, and development spending, to help protect vulnerable households and also to meet Nigeria’s development needs.”
She, however, noted that Nigeria’s 2024 budget hopes to prioritise priority spending, both on the social and development side.
She stated, “The 2024 budget aims to reduce the fiscal deficit while also creating space for these priority spendings, both on the social side and also on the development side.”
Low revenue has become a concerning in Nigeria, with the Federal Government recently moving to improve its revenue to GDP ratio.
During the 2024 budget presentation, the Minister of Budget and Economic Planning, Abubakar Bagudu, said, “Revenue generation remains the major fiscal constraint to Nigeria’s fiscal viability. However, government is reviewing current tax and fiscal policies with a view to improving revenue generation.
“The target is to increase the ratio of revenue to GDP from less than 10 percent currently to 18 percent within the current term of this Administration. Efforts will however focus on improving tax administration and collection efficiency.”
At the World Bank/IMF Annual Meetings in Marrakesh, Morocco, in October, the Assistant Director, Fiscal Affairs Department, IMF, Era Dabla-Norris, declared that Nigeria’s revenue-to-GDP ratio is quite low relative to other emerging markets and developing countries.
Further commenting on Nigeria at the press briefing, the Director of the IMF’s Communications Department, Kozak, noted that inflation in the country is very high, crossing the 27 per cent mark in October. She stated that the IMF expects the CBN to hike rates further at its next MPC meeting.
She declared, “The Central bank, under its new leadership, has started to withdraw excess liquidity that was in the system and contributing to high inflation. The next Monetary Policy Committee meeting should further raise policy interest rate. So, the Central bank is taking action to try to address the high inflation problem.”
However, it remains to be seen whether the CBN will hike its rates considering its governor’s stance on interest rates.
At the Chartered Institute of Bankers of Nigeria’s annual dinner held recently in Lagos, Olayemi Cardoso, said, “Our monetary policies will aim to achieve price stability, foster sustainable economic growth, stabilize the exchange rate of the naira, and reduce interest rates to facilitate borrowing and investments in the real sector.”
It might also be until 2024 before the next MPC meeting, with Cardoso, stating, “For the avoidance of doubt, the Central Bank of Nigeria Act 2007 requires that the meeting of the Monetary Policy Committee of the Bank be held at least four times a year, and the Bank has satisfied this requirement for 2023. Our focus has been on ensuring these meetings are useful and effective.”
In its new outlook, global rating agency, Moody declared that high inflation in Nigeria is raising the risk of social unrest.
It said, “Increasingly high inflation generates spending pressure on the government and raises social risks, while the extent of fiscal relief from the removal of the oil subsidy remains unclear at this stage.”
