…States that loan repayment obligations are too high and insists there will be no debt restructuring negotiations
Fund tells Nigeria to look domestically for financing, foreign financing will be scarce and costly
The Federal Government will collect more taxes to finance the national budget and pay down public debt, the International Monetary Fund said on Friday, to link Nigeria’s fuel subsidy removal policy and foreign currency unification initiative to economic growth and stability. Said it was necessary.
IMF Africa Director Abebe Selassie made this position at a press conference on the economic outlook for sub-Saharan Africa at the ongoing World Bank Group/International Monetary Fund meeting in Marrakech, Morocco.
He spoke against the backdrop of Nigeria’s difficult economic situation, including the abolition of fuel subsidies and the unification of foreign currencies by President Bola Tinubu after taking office at the end of May.
With the deregulation of the downstream petroleum sector, the price of petrol has increased from about N185/litre to about N600/litre, which is causing pain and untold hardship to more Nigerians.
Separately, a policy announced by the government in early June aimed at unifying the official and parallel market rates of the naira has further exacerbated the sharp rise in prices of goods and services due to soaring petrol pump prices. Ta.
Despite initial savings from the removal of federal fuel subsidies, more than 90 percent of government revenues still go toward debt servicing, leaving only a small amount to support major economic growth and development projects. Not yet.
However, the IMF said on Friday that Nigeria’s policymakers urgently need to complement the removal of fuel subsidies with a set of policies that can ameliorate the economic challenges facing the country.
Mr Selassie said: “The exchange rate reform that the government has done was very welcome as it seeks to unify rates, similar to fuel subsidies. But unless monetary policy is tightened, it will not help and will not take hold. Unless something is done to mobilize more tax revenue. So what we need is a comprehensive reform package.
“So it’s a lot of things that are rooted primarily in the non-tax fiscal challenges that Nigeria faces. At the same time, this is a country with incredible potential. Yes, we have seen in recent months that reforms are moving in the right direction. We feel that what is needed is for them to be holistic and mutually reinforcing. I think there is scope for reforms to make each other stronger, just as they were not mutually reinforcing.”
The IMF Director noted that Nigeria is overly dependent on oil revenues, making it difficult to tap into its potential in other areas.
He said, “Why isn’t there enough tax revenue?” I think in the past, when prices were high, we were overly dependent on oil. Second, of course, there is the subsidy system, which also involves government resources being invested in places where they should not be, resulting in considerable losses. So I think these are all interconnected issues, including the causes of the kind of inflation we’re seeing now. This is because, given the difficulty in accessing international capital markets, governments have had to rely more on domestic finance. The private sector, or of course triggered the currency injection, which again depreciated the exchange rate. ”
But Selassie added that the leaders of Nigeria’s central bank and the Ministry of Finance are new and need to be given more time to act.
He expressed confidence in their ability to make the right economic decisions, saying, “I think we also need to give the new government some time. I mean, the central bank governor has just been appointed.” The finance minister has only been in office for a few weeks. We therefore look forward to the Government moving in the right direction and stand by to provide any policy advice it may require. ”
story about debt
On Nigeria’s debt, the IMF director said that world leaders had not yet begun discussions on debt cancellation or forgiveness.
According to data from the Debt Management Office, as of June 30, 2023, Nigeria’s total debt was $113.4 billion.
The IMF Director said: “I am not aware of any discussions going on in Nigeria about debt profiling and restructuring. Of course, as elsewhere in the region, debt pressures exist. And most of the pressures in Nigeria I think the key culprit is the fact that the government does not generate enough tax revenue for all the services it needs to provide, so interest payments are a very high proportion of its income and it can be spent on other issues. There’s not a lot of room. I think that’s the key issue and the issue that needs to be addressed.”
He also noted that Nigeria’s debt is still manageable, but more revenue needs to be generated to service the debt.
“If you look at Nigeria’s debt, we feel that stocks are manageable overall. What is much more difficult is debt repayment. And as I said earlier, if the country Debt repayments are being hampered because we are not generating enough tax revenue. I think that is the most important area of reform and the most important area of work for any government in Nigeria,” said Selassie. he added.
Lifting of foreign exchange ban
The IMF supported the CBN’s lifting of foreign exchange bans on 43 items.
“In terms of trade restrictions, our view is that in Nigeria, as in many other cases, the economy has become very sophisticated and very complex,” Selassie said. I don’t think such restrictions will work. The best way to manage modern economies is for government officials to use both fiscal and monetary policy to influence appropriate outcomes, rather than suddenly saying, “I don’t like this, so I don’t like it.” It’s about giving. I want you to come in.
“It tends to create distortions that are not helpful. But in general, I think the direction the CBN has taken is beneficial.”
look inward
Meanwhile, the IMF has advised the Nigerian government and other economies in sub-Saharan Africa to look domestically for financing, noting that foreign loans are scarce and costly.
This was stated in the regional outlook report.
The report states: “Sub-Saharan Africa is recovering from a series of unprecedented global shocks, but remains severely underfunded. On the positive side, global inflation has receded and International financial conditions are starting to ease. However, the underlying financing challenges may still persist. While the economy is shrinking, the risks of relying on unstable private capital markets for development funds have become clear.
“Development finance is likely to become increasingly scarce and increasingly expensive, making it difficult for countries to even maintain current levels of per capita spending on priorities such as health, education, and infrastructure, much less develop It will be even more difficult to increase spending needed to meet the Sustainable Development Goals. ”
It added: “However, the region is by no means powerless. More patient, non-cyclical private investment inflows remain an important but underutilized resource and could benefit from the role of additional public incentives.” With careful consideration, there is significant scope for accelerating investment climate reform in the region.Finally and most importantly, domestic resource mobilization is key to sustainable development.Public It is clear that increasing incomes is crucial. But it is also essential to widen the pool of private savings, and to this end developing financial markets and promoting financial inclusion should also be a priority.”
Finance Minister and Economic Coordination Minister Wale Edun said on Tuesday that the government will explore new ways to collect tax revenue more efficiently.
Also on Thursday, new CBN Governor Olayemi Cardoso lifted an eight-year foreign exchange ban on 43 items.
Chinese lending declines
Meanwhile, the IMF said Nigeria and other sub-Saharan African countries are at a crossroads in their relations with China as Beijing begins to reduce its exposure on the continent.
The IMF said in a report titled “At a Crossroads: Sub-Saharan Africa and China Relations” released on Friday that African countries now need to seek domestic financing.
The report states: “Sub-Saharan Africa has had an extensive and beneficial economic relationship with China over the past two decades. China is the region’s largest trading partner, a major credit provider and an important source of foreign direct investment. However, China’s aid to Africa has been criticized.Recently, China has scaled back its lending activities in sub-Saharan Africa due to slowing growth and declining risk appetite.
“The projected future slowdown in China’s growth is likely to have a negative impact on Africa’s trading partners in the medium term, primarily through reduced trade. It is critical to strengthen resilience and implement structural reforms to deepen economic growth, strengthen competitiveness and foster domestic growth.”
In response to these developments, the IMF report recommended that African countries, including Nigeria, reconsider their economic policies in light of China’s scaling back on the continent.
The report goes on to say, “Sub-Saharan Africa needs to adapt to evolving economic relationships. Sub-Saharan Africa has benefited from China’s growth trajectory, but the region is facing slowdown in China’s growth and economic involvement. Amid global uncertainty and increasing geoeconomic fragmentation, navigating these new realities requires building resilience, diversification and competitiveness. There is a need to implement structural reforms that encourage alternative sources of growth.
“Building resilience will help cushion the negative spillovers from China’s decline in growth. Increased regional trade integration will provide African countries with opportunities to diversify their export destinations and import sources. Yes, the African Continental Free Trade Area is particularly promising, but its realization will require significant reductions in trade barriers and broader improvements to the trade environment, including the reduction of non-tariff trade barriers. For example, median merchandise trade within Africa could increase by 53%, and merchandise trade with the rest of the world could increase by 15%.
“This could raise real GDP per capita in Africa’s median country by more than 10 percent and lift an estimated 30-50 million people out of extreme poverty. Rebuilding buffers and strengthening policy frameworks could help It will help reduce economic vulnerability and external dependence, including increasing spending efficiency and creating alternative and sustainable sources of financing for development priorities, while increasing This includes reviving efforts to increase domestic revenue mobilization to reduce dependence on the United States. Measures include improving revenue management and tax reform.
“Offsetting China’s declining economic engagement in the region requires structural reforms to foster alternative sources of strong, sustainable and inclusive growth, including: promoting economic diversification; is essential for forging new trade relationships beyond China and can reduce the impact of ‘changing global trade patterns. Oil exporting countries need to gradually wean themselves from over-reliance on Chinese demand.
“Furthermore, as the world embraces the transition to green energy, the region stands to seize opportunities amid strong demand for critical mineral exports that support renewable energy development. While transitioning, efforts can be made to develop more local processing capacity. Capturing potential benefits and maximizing economic returns can include adopting best practices in mining law and strengthening public financial management. Substantive reform is essential.”
