IMF Asks Nigeria, Others To Reduce Fiscal Deficits

International Monetary Fund (IMF) asked Nigeria alongside other Sub-Saharan African countries to reduce their fiscal deficits by eliminating tax exemptions and mobilizing domestic revenue.

IMF issued a paper titled, "How to avoid a debt crisis in Sub-Saharan Africa" noting that these countries "rely excessively on expenditure cuts to reduce their fiscal deficits." Instead, they should be eliminating tax exemptions or digitalizing filing and payment systems.

The paper, issued on Tuesday, further shared that "mobilizing domestic revenue is less detrimental to growth in countries where initial tax levels are low, whereas the cost associated with reducing expenditures is particularly high given Africa's large development needs."

IMF noted that this might be difficult to achieve but large and rapid increases in revenue have been observed in several countries including The Gambia, Rwanda, Senegal, and Uganda as they relied on a mix of revenue administration and tax policy measures.

The financial agency also noted that these developing countries including Nigeria can increase their Gross Domestic Product (GDP) by eight percent in the next few years if they increase women's participation by 5.9 percent in the labor force.

According to the financial institution's separate report, titled "Navigating Fiscal Challenges in Sub-Saharan Africa", these countries need to reduce their fiscal deficit by three percent in the next five years.

"This adjustment seems feasible given historical experience—in the past, countries in the region have been able to improve their primary balance by 1 percent of GDP a year over two to three years," IMF noted.

It added, "Looking ahead, the ability to pursue a gradual adjustment will be largely determined by global financial conditions, the growth outlook, and the availability of donor financing."

However, IMF shared that not all countries are in the same boat as some countries need moderate fiscal adjustments while others require very large adjustments.

IMF revealed in July that a 10 percent increase in U.S. dollar value impacts emerging market economies like Nigeria by decreasing their output by 1.9 percent.

"Emerging market economies also tend to suffer disproportionately across other key metrics: worsening credit availability, diminished capital inflows, tighter monetary policy on impact, and bigger stock-market declines," IMF had said at that time.

Nigerians have been dealing with financial crises since demonetization (currency redesign policy), which mopped up over 70 percent of cash from the country. Reportedly, it has caused an estimated loss of N20 trillion.

Furthermore, the country is also facing hiked fuel and food prices as President Bola Ahmed Tinubu announced fuel subsidy removal in May.