Nigeria’s revenue to GDP too low, IMF warns

The International Monetary Fund (IMF) expressed concern about Nigeria’s low revenue-to-GDP ratio, urging the government to prioritize raising revenue to address high inflation and create fiscal space for social and development spending.

“9 percent of GDP is a very low revenue to GDP ratio, and it is really not high enough to be able to support strong social safety nets, and development spending, to help protect vulnerable households and also to meet Nigeria’s development needs,” said Julie Kozak, Director of the IMF’s Communications Department on Thursday.

Low revenue

In June, the Debt Management Office warned that Nigeria could spend more than its entire revenue on debt payment by 2025 if the current revenue levels do not improve. Nigeria’s total public debt stood at around N25 trillion or $103.11 billion by December 2022.

In his budget proposal for 2024, totalling N27.5 trillion, President Bola Tinubu said his government aims to nearly double its revenue in 2024 to N17 trillion, the country’s highest ever, to reduce the budget deficit from 6.1% of gross domestic product (GDP) this year to approximately 3.9% next year.

The government counts on higher oil production and tax collection.

The IMF in September advised African nations to cut deficit by generating more money, rather than by reducing spending.

“Sub-Saharan African countries tend to rely excessively on expenditure cuts to reduce their fiscal deficits. 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,” said an IMF six-member team led by Fabio Comelli.

Countries that have adopted that approach are The Gambia, Rwanda, Senegal, and Uganda, which relied on a mix of revenue administration and tax policy measures.

Realizing it?

But achieving more revenue from oil could be problematic for Nigeria as it has for months missed OPEC quota due to low oil production and theft.

The presidency said the country expects to lift oil production to 2.1 million barrels per day (bpd) by the end of 2024 after oil companies operating in the country committed investments of $13.5 billion in the short term.