NIGERIA NOT TAXING OIL REVENUES ENOUGH- IMF

2023 has been a difficult year for the Sub-Saharan region’s economy, with growth slowing to 3.3 percent from 4 percent in 2022 but the International Monetary Fund IMF is cautiously optimistic that there is light on the horizon.
Abebe Aemro Selassie, the Director of the IMF African Department said growth is expected to rebound to 4 percent in 2024 and is set to be broad based. He made this position public while briefing on the Regional Economic Outlook for Sub-Saharan Africa at the annual meetings of the World bank and the IMF in Marrakech Morocco and observed that governments in many countries are working hard to address macroeconomic imbalances. “Fiscal deficits, for example, have been narrowing, helping stabilize public debt in most countries. These outcomes are all the more encouraging given strong external headwinds, such as slower international demand, expensive and difficult access to finance. Still, it is too early to celebrate as many challenges lie ahead. The funding squeeze is not over, and while debt levels have stabilized, the cost of repayments has increased, and high debt service ratios to revenue risk crowding out vital development spending. Inflation still too high with one third of countries having double digit inflation. Policymakers in the region face some of the most daunting policy challenges in the world”, he said.
On the whole, the IMF outlined four ways out to include: addressing inflation in countries with elevated and rising inflation. Further tightening might be warranted.
Second, reducing debt vulnerabilities while creating space for development spending. This requires a delicate balance between raising domestic revenues and reforms to foster growth.
Third, allowing the exchange rate to depreciate where needed. Avoiding depreciation pressures at the cost of exhausting scarce international reserves and eroding competitiveness often ends up causing more challenges later on.
And finally continuing to increase investment in priority areas: health, education, infrastructure – that’s growth enhancing.
Responding to country specific questions, Selassie pinned Nigeria’s revenue shortage and high inflation to the inability of the country to adequately tax most especially oil revenues. He said “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 leaving much room to spend on other issues. I think that is the key issue and the one that needs to be worked on.
“Why are there not enough tax revenues? I think in the past, over reliance on oil, it was when prices were high. Second, of course, also the subsidy regime, which also implies, entails, quite a lot of loss of, government resources being directed where they perhaps should not be”.
Nigeria is doing more domestic borrowing due to her inability to tap international capital markets, Selassie said it is still within safe margins.
On the trade restrictions, the Director said the view has always been that in Nigeria and in many other countries int he region, economies are now so sophisticated and complex that these restrictions don’t work. “The best way to manage modern economies for government authorities, they have fiscal policy lever, monetary policy lever, is to try and use those to affect the kind of outcomes you have, 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. Of course, you have tax policy that you can also use, like if you really want to lean against certain types of import, et cetera. But in general, I think the direction that CBN has moved in, I think is helpful one” he sa