IMF warning: Experts say Nigeria not exploring tax revenue sources

By Philip Shimnom Clement

Experts have advised the federal government to explore alternative sources of revenue to reduce the country’s debt burden.

This is coming on the heels of a fresh borrowing request sent to the National Assembly by President Muhammadu Buhari last week for a new domestic borrowing of about N965 billion.

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According to Buhari, the total 2022 budget deficit is expected to increase by N965.42 billion to N7.35 trillion.

The incremental deficit, which represents 3.99% of the country is projected to be financed by new borrowings from the domestic market.

Meanwhile, experts have reacted to the fresh borrowing plan amidst the recent warning by the International Monetary Fund (IMF) that Nigeria and 72 other countries are at high risk of debt distress.

In a report, titled “Restructuring debt of poorer nations requires more efficient coordination,” the IMF had stated that low-income countries face fewer debt challenges today than they did 25 years ago, thanks in particular to the Heavily Indebted Poor Countries initiative, which slashed unmanageable debt burdens across sub-Saharan Africa and other regions.

The report noted that although debt ratios were lower than in the mid-1990s, the debts have increased in the last ten years and the changing structure of creditors could make restructurings more difficult

The report added that “About 60 per cent of DSSI countries are at high risk of debt distress or already in debt distress—when a country has started or is about to start, a debt restructuring, or when a country is accumulating arrears.”

Speaking to Daily Trust, economist and Chief Executive Officer of Global Analytics Consulting Ltd, Dr Tope Fasua said the IMF’s warning was coming at the right time owing to the macroeconomic challenges the country is facing”

He said: “Unlike in the past, most of Nigeria’s loans are now in Eurobonds from commercial banks and other international institutions that may not be able to cancel the loans or even reduce the rates as the case may be, which is why the IMF projections could be right,”

Fasua stated that the rhetoric of it is good to borrow has been Nigeria’s problem.

On alternative sources of funding the budget, He said: “Our tax percentage is very low and we need to improve on it. Nigeria is doing about 6 to 7 per cent of tax to GDP while countries like Egypt are doing, 15 per cent, Ghana about 16 per cent, Algeria about 20 per cent and Kenya about 17 per cent.”

He however blamed tax avoidance by many businesses to the inability of successive governments to justify what those monies are being used for.

In the same vein, Senior Economist with SPM Professionals, Mr  Paul Alaje believes that any further borrowing by the federal either to fund the budget or any other reason is ill-advised as Nigeria’s debt profile is nearing N40 trillion while the annual budget is not even half of that amount.

On the insinuation by the federal government that the GDP ratio to debt service is on the same page, he argued that “GDP is stock variable while debt is flow variable, which means that GDP has nothing to do with the ability to repay as the ability to repay is what a country is reckoned with and not GDP figure.

“For debt service to revenue, Nigeria has surpassed the global benchmark of 33 per cent and it’s now nearing 60 per cent. So does it make sense to still borrow whether domestic or foreign borrowing?” He said.

According to Mr Alaje, the end product of any further borrowing from the government “Will lead to economic quagmire” which is why the IMF is already sending warning signals.

On ways to improve revenue, he advised the government to leverage on technology to boost revenue.

“Also, there must be a convergence of policies to ensure that there is synergy among government agencies in improving the economy. For instance, the CBN recently launched an initiative to repatriate $200 billion but the policy may not be the effective, reason being that monetary authorities cannot influence trade policy.  We need fiscal authorities like the ministry of trade and investment to do the needful so that there will be policy convergence for the needed results to be achieved,” Mr Alaje further stated.

Nigeria’s total debt stock is likely to reach N46 trillion if the National Assembly approves the N965.42 billion loan request sent by the president, which will make the 2022 total budget deficit to stand at N7.35 trillion.