IMF Nigeria - Afrikan Heroes

IMF Warns That Nigeria’s Debt To GDP Ratio Stifling Development

May 31, 2022

The International Monetary Fund (IMF) has decried the 76 per cent debt service to revenue ratio of Nigeria as at 2021, expressing concern that it might rise to almost 100 per cent by 2026. Also, the Fund acknowledged that although the public debt is still at a moderate level, the critical aspect is the revenue servicing side, which is projected to rise astronomically if urgent measures are not put in place to grow revenue.

This was disclosed by Mr Ari Aisen, International Monetary Fund (IMF) Resident Representative for Nigeria in Abuja on Monday at the public presentation of the Spring 2022 issue of the Regional Economic Outlook (REO) for Sub-Saharan Africa.

Mr Aisen advised the Federal Government to grow its revenue ratio to GDP to at least 15 per cent by 2025 to enable it to embark on more social spending that would better a lot of the vulnerable segments of the populace.

The Fund projected Nigeria’s Gross Domestic Product (GDP) to hit 3.4 per cent but added that debt would continue to grow as long as the government cannot generate enough revenue to fund its expenditure.

The Director-General, Budget Office of the Federation, Mr Ben Akabueze agreed that the 76 per cent debt to revenue recorded in 2021 was high as the government is targeting not more than 30 per cent.

Acknowledging the situation, Mr Akabueze said “we are already in deficit territory. That is why the thrust of gov4is to grow revenue. The total public expenditure to GDP ratio is among the lowest in the world. It is an existential issue for Nigeria. We are not in a position where the government is spending too much, although experiencing a major shortfall in delivering infrastructure”.

He informed that the Federal Government is doing everything possible to generate more revenue through the strategic revenue mobilisation scheme.

Mr Aisen, while presenting the Regional Economic Outlook for April, Sub-Saharan Africa said “The economic recovery in sub-Saharan Africa surprised on the upside in the second half of 2021, prompting a significant upward revision in last year’s estimated growth, from 3.7 to 4.5 per cent.

“This year, however, that progress has been jeopardized by the Russian invasion of Ukraine which has triggered a global economic shock that is hitting the region at a time when countries’ policy space to respond to it is minimal to nonexistent.

“Most notably, surging oil and food prices are straining the external and fiscal balances of commodity-importing countries and have increased food security concerns in the region”.

The International Monetary Fund (IMF) Resident Representative for Nigeria noted that “moreover, the shock compounds some of the region’s most pressing policy challenges, including the COVID-19 pandemic’s social and economic legacy, climate change, heightened security risks in the Sahel, and the ongoing tightening of monetary policy in the United States”.

He submitted that because of this, the growth momentum for the region has weakened this year with economic activity expected to expand by 3.8 per cent, while the economic recovery is projected to accelerate in 2023 to about 4 per cent over the medium term, noting that this pace is not enough to make up for lost ground from the pandemic.

Besides accelerating the COVID-19 vaccination campaign, Mr Aisen averred that immediate policy priorities include helping the most vulnerable households cope with high food and energy costs without adding to existing debt vulnerabilities, containing inflation pressures, and managing exchange rate adjustments.

He reiterated that looking beyond the pandemic and current geopolitical tensions, job creation and meeting the Sustainable Development Goals will require strong, inclusive, and sustainable growth in the region.

To this end, he pointed out that “decisive policy action is needed to enhance economic diversification, unleash the private sector’s potential, and address the challenges posed by climate change”.

Mr Aisen disclosed that within a space of two years, from 2020 the IMF has provided the sum of $6.8 billion in soft loans to Nigeria for sundry purposes.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

How Nigerian Economy Can Survive Covid-19 Induced Depression By Kelechi Deca

May 1, 2020

In the letter of intent submitted by the Nigerian government to the International Monetary Fund (IMF) requesting for assistance to tackle the impacts of the Covid-19 pandemic on its economy. The government highlighted three key decisions it would undertake as part of efforts to kickstart the much-clamoured need for economic reforms.

First was the removal of petroleum subsidy which the Group Managing Director of the Nigeria National Petroleum Corporation (NNPC) announced a week ago. Second is the reduction of federal government workforce through the implementation of the Orosanye Report which will see to the collapsing of agencies, especially those whose mandates overlap. Third, which many say will be harder, is the floating of the exchange rate of the naira, which may lead to the abolishment of the multiple exchange rates.

These formed the basis of engagement with the IMF because the global lender has been pressuring the Nigerian government on these issues for over a decade running. Interestingly, the government chose to embark of the much needed reforms on a bended knee.

One organization that has been at the forefront of bringing the need for economic reforms to the attention of the government and stakeholders is the Nigerian Natural Resources Charter (NNRC). The NNRC, a not for profit policy institute that champions the need to ensure that Nigeria’s natural resource wealth is utilised in ways that it will be for general good of the citizenry has urged the Nigerian government to act quickly on a number of reform items, long on the drawing board, if the country “is to minimize the effects of the inevitable recession contributed by falling oil prices, depreciating revenues, and rising debt ratio,” that are aggravated by the rampaging global pandemic known as the Novel Coronavirus Disease 2019 (COVID-19 for short).

Drawing on the the gaps identified in its recently published 2019 Benchmarking Exercise Report (BER), the Charter acknowledges the government’s recent steps; “to deregulate the downstream sector, re-open bid rounds of marginal fields, cut the 2020 budget, contemplate privatization of the refineries and others”.

But “to optimize the opportunities from oil and gas exploitation to withstand the prevailing COVID-19 shocks and its after effects”, the Charter urges, “Nigeria must consider the following policy options to stabilize the sector, maintain revenue flows, attract investment and drive growth. To achieve this, the group calls for the maintainpeace and stability in the Niger Delta to sustain revenue flows from oil production. Sustaining benefit transfer schemes by NDDC, MNDA and other interventions will support the government’s stabilization efforts.

It also demands for improved coordination between federal and Niger Delta state governments on the response to the COVID-19 pandemic including the design and implementation of stimulus plans and liberalize the downstream sector to allow market forces determine pump prices for petroleum and other products. This will ensure the availability of revenues necessary for more critical areas of the economy. Equally important on its menu is the need to improve the efficiency of the downstream oil sector by reviewing its policies, regulations and operational guidelines to ensure profitability, improved private sector participation and improved employment, especially at a time job losses have become the order of the day.

And to ensure that Nigeria doesn’t find itself in a situation where it would be going cap in hand from one multilateral organization to another begging for funds to mend its leaky roof in the next rainy day, the NNRC calls for the adoption and constitutionalization of a savings mechanism with clear and transparent operational rules. This, it emphasises, could be by retaining the more effective sovereign wealth fund (SWF) in the NSIA and transferring funds from the Excess Crude Account, the stabilization fund and other similar funds to the SWF. This will help fortify the Nigerian economy from oil price volatilities and other economic shocks.

To aid the economic diversification dream, it calls for the ramping up of, and prioritizing domestic gas-based industrialization projects, to diversify Nigeria’s energy supply, increase local employment and reduce domestic demand and Nigeria’s reliance on oil and to support a major and urgent shift to gas in terms of investment focus. Gas supply to domestic market for power, industrial & manufacturing feedstock and enabler to economic development. Emphatic shift to the gas value chain offers Nigeria the leverage for socio-economic development in the medium to long term.

Nigeria, according to experts, will not have full benefits of its natural resource wealth, especially oil and gas if the Petroleum Industry Bill (PIB) is not passed and signed into law. The Bill which unfortunately, has become a contentious issue between government and stakeholders going to two decades holds the key to Nigeria’s economic growth. To this end, the need to fast-track the passage of the Bill to bring about the fiscal, governance and regulatory clarity required to monetize Nigeria’s 200 Trillion cubic feet of gas reserves cannot be overstated.

A speedy passage of the Petroleum Industry Bill will provide a clearer strategic direction to the entire industry, re-engender trust, thereby increasing investments which will in turn increase national revenues required for development. It will also help for the review of the existing fiscal framework to ensure competitiveness and support Nigeria’s ability to attract investments into the upstream sector, effectively shoring up Nigeria’s diminished reserves.

The PIB will institutionalize cost management strategies within the sector with the overall objective of reducing the high unit production cost of crude thereby improving governments revenue from the sector. And immediately privatize refineries as stated by NNPC to improve Nigeria’s access to finished products in country, reducing potential for over reliance on external support for products, to preserve Nigeria’s sovereignty. The need for immediate sell off of unviable government owned oil assets to raise revenue and boost efficiency in the short to medium term is of utmost importance.

“Adopting these reforms will improve Nigeria’s competitiveness, revenue inflows and improve her ability to survive and subsequently recover from the effects of COVID-19 on the global economy”, so says the NNRC Program Coordinator, Tengi George-Ikoli, asking that the government be consultative in its approach to reforms, transparent and inclusive to increase likelihood of acceptance and implementation.

“Prioritizing these reforms are necessary while Nigeria considers other medium to long term reform plans simultaneously. The NNRC’s 2019 Benchmarking Exercise Report (BER) outlines other sector gaps to be focused on in the medium to long term to improve Nigeria’s oil sector performance”, she added.

Kelechi Deca