By Dipo Olowookere
The International Monetary Fund (IMF) has advised Nigeria to consider further increasing the value-added tax (VAT) from the existing 7.5 per cent in order to improve revenue.
The global lender said this would be necessary because the current consolidated government revenue-to-gross domestic product (GDP) ratio at 7.5 per cent “remains among the lowest in the world.”
According to the organisation, if the Nigerian government fails to implement these and other suggestions, some significant risks could put pressure on the nation’s economy.
In the third quarter of 2020, Nigeria slipped into another recession under President Muhammadu Buhari but in the next quarter, it exited and since then, it has been struggling to recover fully.
Last month, the Executive Board of the IMF concluded its consultation with Nigeria and on Monday, February 7, 2022, a statement was released containing the thoughts of the team on the nation.
In the statement obtained by Business Post, the financial institution said socio-economic conditions remain a challenge in the country as levels of food insecurity have risen and the poverty rate is estimated to have risen during the pandemic as “a worsening of violence and insecurity could also derail the [economic] recovery.”
But in order to absorb these shocks, the IMF advised the authorities to carry out major reforms in the fiscal, exchange rate, trade, and governance areas.
It also urged the government to urgently “create policy space and reduce debt sustainability risks,” calling for “significant domestic revenue mobilization, including by further increasing the value-added tax rate, improving tax compliance, and rationalizing tax incentives.”
The IMF further advised Nigeria to remove “untargeted fuel subsidies, with compensatory measures for the poor and transparent use of saved resources.”
On the exchange rate reforms, it said this “should be accompanied by macroeconomic policies to contain inflation, structural reforms to improve transparency and governance, and clear communications regarding exchange rate policy.”
However, the global bank commended the authorities for the proactive approach it took to contain COVID-19 infection rates and fatalities in the country, though it stressed that low vaccination rates expose Nigeria to future pandemic waves and new variants, including the ongoing Omicron variant.
The IMF also said Nigeria’s ratification of the African Continental Free Trade Agreement (AfCFTA) could also yield a positive boost to the non-oil sector while oil production could rebound, supported by the more generous terms of the Petroleum Industry Act (PIA).
