Nigeria’s debt sustainability in jeopardy, cause for concern, says IMF – Arise News

The International Monetary Fund (IMF) has said that Nigeria’s debt sustainability is under threat and is causing much concern and long-term unease. The IMF reiterated the need for the Nigerian government to implement fiscal reforms in a timely manner.

The IMF Mission Chief for Nigeria, Ms. Jesmin Rahman, said so on Thursday, during a virtual press conference on Nigeria’s 2021 Article IV Advisory Services report.

Rahman noted that the increase in public debt had grown rapidly in 10 years and was approaching the time when the country would devote all of its revenue to servicing the debt. She stressed the need for urgent tax reforms.

Rahman explained, “But what we need to take away here and the elements that jeopardize Nigeria’s debt sustainability are: we have seen a rapid increase in public debt over the past 10 years or so and that is due to budget deficits.

“So the momentum is not that great. And there are a few other points that we should remember; that is, Nigeria’s debt carrying capacity is very weak. For us, the Income levels are low compared to a typical emerging country that spends less than 10% of its income on interest payments.

“In the case of Nigeria, this ratio, if you take only the federal government, it is more than 80% of the income, if you take the consolidated, it is about a third, but the federal government is responsible for the payment of this debt service. So that’s a point.

“The second point is on the access side. Market access for Nigeria, i.e. access to the international market, like the Eurobond, etc., is highly dependent on what happens to oil prices, more so than some other oil exporters raw materials and oil exporters. So that makes Nigeria quite vulnerable.
Rahman said that going forward, the IMF predicted a continued increase in public debt for Nigeria.

“So we project that you will see public debt rise from 36% of GDP to almost 43% of GDP over the medium term,” she said. “And so it increases and it gets to that level where you should be concerned, everyone should be concerned,” she added.

According to her, “Nigeria has a favorable momentum in the sense that high inflation and low interest rates keep that momentum in favor of Nigeria, okay. But if that were to change because growth rates are not high, you could see the public debt increase very quickly”.

Responding to a survey by THISDAY on the impact that removing fuel subsidies and Value Added Tax (VAT) would have on the masses, Rahman explained that tax reforms were a necessity to increase the country’s revenue.

She also reaffirmed the need for the federal government to remove fuel subsidies, saying they are costly and regressive.
Rahman said, “A country that has little fiscal space to have a subsidy that mainly benefits the rich doesn’t make sense. There are therefore economic and social reasons for abolishing this subsidy.

“Of course it will have an impact on the poor, because it is a universal subsidy, it also affects the poor. Thus, the removal of subsidies would have an impact on poverty.

The IMF official added: “And if you look at Nigeria’s past attempts to remove fuel subsidies, it has always been difficult. But it would be important that in addition to having social assistance, targeted social assistance for the vulnerable and the poor and that it also needed strong political will and a well-designed public campaign to demonstrate the merits of this reform and total transparency in the use of resources. Without this important reform, there is again a risk of reversal.

Nume Ekeghe

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