Emmanuel OchayiThe International Monetary Fund (IMF) has called on Nigeria and Sub-Saharan African nations to prioritize the removal of tax exemptions and boost domestic revenue generation as a means to tackle fiscal deficits.
In their recent publication titled ‘Avoiding a Debt Crisis in Sub-Saharan Africa,’ IMF argues that this strategy, instead of slashing fiscal spending, could safeguard economic growth.
“Sub-Saharan African countries tend to rely excessively on expenditure cuts to reduce their fiscal deficits,” part of the report stated.
“Although this may be warranted in some circumstances, revenue measures, like eliminating tax exemptions or digitalizing filing and payment systems, should play a greater role.
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“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.”
Highlighting success stories, the statement continued, “While difficult to achieve, large and rapid increases in revenue have been observed in some countries like The Gambia, Rwanda, Senegal, and Uganda, which relied on a mix of revenue administration and tax policy measures.”
IMF: Inclusive Workforce Key to Growth
The IMF further underlined the critical role of an inclusive workforce, particularly the participation of women, in driving economic growth.
According to a weekly chart released on their website, the IMF estimates that developing countries could witness an approximate 8% boost in their Gross Domestic Product (GDP) in the coming years by addressing the gender employment gap.
“We estimate that emerging and developing economies could boost gross domestic product by about 8 percent over the next few years by raising the rate of female labor force participation by 5.9% points—the average amount by which the top 5% of countries reduced the participation gap during 2014-19,” stated IMF.
This call for inclusivity is seen as vital to reviving economies, particularly in the face of the gloomiest medium-term growth projections in over three decades.
IMF’s Advice for Nigeria and the Region
In an earlier assessment, the IMF reported that Nigeria’s fiscal deficit to Gross Domestic Product (GDP) ratio had declined from 6.3% in 2021 to 5% in 2022. As a solution to further stabilize their fiscal situation, the IMF advised Nigeria and other Sub-Saharan countries to chart a course by re-anchoring fiscal policy through a credible medium-term strategy and preparing for fiscal adjustments to reduce debt levels.
“IMF staff analysis shows that most countries in the region must reduce their fiscal deficits in the coming years. The average country’s adjustment amount is about 2 to 3% of GDP,” remarked the IMF.
“This adjustment seems feasible given historical experience; in the past, countries in Sub-Saharan Africa improved their primary balance by 1% of GDP a year over two to three years.”
Debt on the Rise
Meanwhile, the Debt Management Organization (DMO) recently reported that Nigeria’s total foreign debt for the period ending March 31, 2023, has increased to N49.85 trillion ($108.30 billion) from N46.25 trillion as of December 21, 2022.
This figure encompasses the total public debt, comprising external and domestic debts of the Federal Government, the 36 states, and the Federal Capital Territory.
The rising debt levels further underscore the urgency of implementing the IMF’s recommendations to ensure fiscal stability and economic growth in the region.
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