Subsidy removal will create space for development spending — IMF

The International Monetary Fund has said that even though Nigeria and other low-income debtors have yet to request any debt relief recently, high debt servicing costs remain a growing challenge.

In a new report, the multilateral lender remarked that the good news was that there had not been any notable request by a low-income country for comprehensive debt relief since Ghana’s, more than a year ago.

On policy reforms aimed towards increasing revenue, the IMF commended Nigeria and three other countries for recent subsidy reforms that would create space for development spending.

It said, “Building resilience in the face of these trends requires countries to act. Some countries have made progress— for instance, Angola, The Gambia, Nigeria, and Zambia have taken steps to implement significant energy subsidy reforms to create space for development spending.”

It, however, expressed worry that many countries were lagging behind, especially in efforts to increase revenues, such as broadening the tax base, reducing tax exemptions, and increasing the efficiency of tax administration.

For instance, the typical Sub-Saharan African countries raised only 13 per cent of gross domestic product in revenues in 2022, compared with 18 per cent in other emerging economies and developing countries and 27 per cent in advanced economies.

“And those with high debt vulnerabilities can’t afford to wait. Policy reforms are needed to boost growth and capture more revenue from that growth, for instance, through tax reforms. This will directly improve countries’ key debt metrics and ensure they can avoid a costly debt crisis,” the report read further.

According to the Debt Management Office, Nigeria’s public debt profile increased to N87.91tn at the end of the third quarter of 2023.

In 2024, the Federal Government plans to spend N8.25tn on debt servicing. The figure represents 45 per cent of projected income and has drawn criticism from economic experts, including the World Bank which warned that unless drastic reforms are implemented, Nigeria’s debt service-to-revenue ratio would hit 160 per cent by 2027.

It stated financing pressures due to relatively high-interest payments and the pace at which low-income countries need to repay debt were straining budgets.

That, the lender said, prevented those countries from spending more on essential services or the critical investment needed to attract business, create jobs, improve prosperity, and build climate resilience.

The report read in part, “One important metric is the share of revenues the government collects from its population through taxes and other fees that go to pay its foreign creditors. While the scale of the burden differs greatly across countries, it’s generally about two and a half times higher than a decade earlier.

“This means for a typical low-income borrower the share has risen to about 14 per cent, from about 6 per cent, and as much as 25 per cent, from about 9 per cent in some economies. This is one of the key indicators used in the framework for assessing debt sustainability that signals a country might be at risk of needing financial support from the IMF or of missing a debt payment.”

It, however, expressed worry that many countries were lagging behind, especially in efforts to increase revenues, such as broadening the tax base, reducing tax exemptions, and increasing the efficiency of tax administration.

For instance, the typical Sub-Saharan African countries raised only 13 per cent of gross domestic product in revenues in 2022, compared with 18 per cent in other emerging economies and developing countries and 27 per cent in advanced economies.

“And those with high debt vulnerabilities can’t afford to wait. Policy reforms are needed to boost growth and capture more revenue from that growth, for instance, through tax reforms. This will directly improve countries’ key debt metrics and ensure they can avoid a costly debt crisis,” the report read further.

According to the Debt Management Office, Nigeria’s public debt profile increased to N87.91tn at the end of the third quarter of 2023.

In 2024, the Federal Government plans to spend N8.25tn on debt servicing. The figure represents 45 per cent of projected income and has drawn criticism from economic experts, including the World Bank which warned that unless drastic reforms are implemented, Nigeria’s debt service-to-revenue ratio would hit 160 per cent by 2027.