Nigeria to Spend all Its Revenue on Debt Servicing by 2026 – IMF

 

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The International Monetary Fund (IMF) has warned that Nigerian Government may use nearly 100 per cent of its revenue on debt servicing by 2026.

IMF raised concerns over Nigeria’s fiscal conditions, adding that the nation already spends 89 per cent of its revenue on debt.

This was disclosed on Monday in Abuja, the Nigeria capital, by the IMF’s Resident Representative for Nigeria, Ari Aisen, while presenting the fund’s latest Sub-Saharan Africa Regional Economic Outlook report.

The Bretton Wood institution also warned that with fuel subsidy payments of about N500 billion monthly, total expenditure on subsidy could reach a record of N6 trillion by the end of 2022.

“I think the biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue, almost 100 percent, is projected by 2026 to be taken by debt service,” the IMF official said.

“So, the fiscal space or the amount of revenues that will be needed, and this, without considering any shock, is that most of the revenues of the federal government are now in fact 89 percent and it will continue, if nothing is done, to be taken by debt service.”

The IMF said that it is a reflection of the low revenue of the country, adding that it needs to mobilise more revenue to be able to have macroeconomic stability.

“It has become an existential issue for Nigeria,” Mr Aisen warned.

On Subsidy

Ari Aisen decried how an oil exporting nation like Nigeria is unable to take advantage of the current global high oil prices to build reserves. Despite the hike in oil price Nigeria still records low earnings due to the subsidy on petroleum products.

Nigerian Government had budgeted N4 trillion for petrol subsidy for this year, suspending its earlier plan to remove subsidy on petrol.

Earlier in April, the Nigerian Senate approved N4 trillion for petrol subsidy in 2022, following two separate requests by the Nigerian president to the National Assembly. The government had shelved a planned move to suspend the subsidy payment a few weeks earlier.

To address this issue, the World Bank Group advised Nigeria to rethink its fuel subsidy regime and multiple exchange rates policy, identifying multiple exchange rates policy by CBN is one the reasons Nigeria is not attracting enough foreign direct investments

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During a media briefing at the World Bank/International Monetary Fund Spring Meetings in Washington DC, the president of the World Bank Group, David Malpass, said that resources being expended on subsidy could be channeled to other critical sectors of the economy to accelerate economic growth.

Mr Malpass explained that generalised subsidies have significant negatives effects on any system, and the multiplier effect isn’t healthy for the economy.

“One is that they are expensive because they go to everyone and they are often used by people with upper incomes than by people with lower incomes so they are not targeted,” he said.

“So, we encourage that when there is need for subsidy, either food or for fuel, that it should be carefully targeted at those most in need of it. And so, we have encouraged Nigeria to rethink its subsidy effort.”

In its intervention Monday, the IMF official reiterated the World Bank’s warning, adding that subsidy payments could worsen the nation’s fiscal challenges due to poor earnings from oil.

Speaking on the economic outlook for the continent, the IMF official advised governments across the region to reduce debt vulnerabilities, balance inflation and growth, and manage foreign exchange rate pressures.

“Unrivalled potential for renewable energy and an abundance of minerals, a successful transition offers opportunities for diversification and job creation; ensuring the green transition is also a just transition,” he said.

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