The International Monetary Fund (IMF) has called on the federal government to do away with any form of Central Bank of Nigeria (CBN) funding of the budget.
An assistant director in the IMF’s Fiscal Affairs department, Era Dabla-Norris, remarked on the sideline of the Fiscal Monitor Press briefing at the ongoing IMF/World Bank annual meeting in Marrakech, Morocco.
The data obtained from CBN’s website showed that the Ways and Means’ debt climbed from N17.5 trillion in December 2021 to N23.8 trillion in October 2022 — an increase of N6.3 trillion in 10 months.
The accumulation saw the Senate approve N23.7 trillion to be securitised, a move that raised Nigeria’s aggregate debt from N46 trillion to N70 trillion.
Nigeria’s debt-to-GDP has now risen from 23.2% to 35.1%, meaning it might need to raise its 40% debt limit soon.
Nigeria’s ‘Ways and Means’ (pejoratively known as ‘money printing’) grew from N790 billion in May 2015 to N23.7 trillion in 2022.
This means the CBN has been lending to the federal government against its laws, which stipulate that the government is not supposed to borrow more than 5% of its previous year’s revenues from the CBN.
The legal constraints also saw the Senate recently approving the upward review of the Ways and Means loan accessible to the federal government from five to 15 per cent.
Era however said the government must make efforts to have appropriate monetary policies in place by “doing away with any kind of central bank financing of the budget and ensuring that policies are working in the same direction to bring inflation down. That is the issue.”
She also said the government must make policies that make room in the budget to protect priority spending. “And that is education, healthcare, and targeting these policies better to protect the most vulnerable group,” she said.
Speaking on the removal of fuel subsidy, she said: “I think that fuel subsidy reform was an important reform Nigeria undertook; the cost to the budget of having this broad base removal of fuel subsidies is quite significant.
“By reducing fuel subsidies, the government has freed up the space for other types of spending. The important thing is to be able to protect the most vulnerable group from higher energy prices.
“From that perspective, this policy creates space, a portion of the revenues, it can be unpopular, it can be a challenging policy, and I think it was the right one, it was the right decision to make at that time. Now the key is to be able to target better.”
She said a suite of other macroeconomic policies is needed to durably bring inflation down.
In the case of Nigeria, she stated that the revenue-to-GDP ratio is quite low relative to other emerging markets and developing countries, adding that efforts will need to be made to increase revenue collection efficiently.
She said: “Our research shows that countries like Nigeria have large untapped tax potential. This is not something that can be done magically overnight, but definitely over the medium term. Expanding tax bases, reducing exemptions in value-added tax, reducing tax expenditures, rationalising other types of taxes, and strengthening the quality of your tax institutions, are all steps that can be taken to effectively mobilise revenues progressively, and then channel that for priority spending.”