Kunle Aderinokun, Chika Amanze-Nwachuku, Obinna Chima and Nume Ekeghe in Washington DC
The International Monetary Fund has advised the Nigerian government to vigorously pursue strategies that would strengthen its weak revenue base in order to develop critical infrastructure needed for the growth of the countryâ€™s economy. The Director of IMF’s African Department, Mr. Abebe Selassie, said this while responding to questions at a media briefing on the sidelines of the IMF-World Bank Annual Meetings in Washington DC. Selassie applauded the governmentâ€™s effort to increase tax revenue and urged it to continue to the current tax reforms so as to raise the country’s non-oil revenue.
According to the IMF director, “There is going to be need for tax policy changes for Nigeria, which has a very low level of revenue mobilisation, to improve that. Again, I come back to the point that these resources are needed to help strengthen infrastructure gap in Nigeria and many schools that have to be built and the conditions of schools as well as improving healthcare delivery.
“Now, in terms of designing tax policies, there is a way to do it. We indeed advise countries and provide technical assistance in a way that is progressive, so taxes are collected by people of the richer segment of the society. There is a lot of technical work that needs to be done.
“The decision on the tax policy changes would be the governmentsâ€™ and their parliamentsâ€™, but we would be providing a lot of support on policy advice. I cannot stress again that the key remains Nigeria needs to do a lot more investments in human capital.â€
Selassie stressed the need for the Central Bank of Nigeria to ensure that reforms in the foreign exchange market were geared towards narrowing the gap between the parallel and interbank forex rates. He urged the apex bank to create a liquid, single forex market regime going forward.
Commenting on activities in Nigeria’s agricultural sector, Selassie noted that given the large size of the economy and its huge potential, the sector should be doing much better than it is doing presently.
He stated, “On the macro side, I think what is needed in Nigeria at this moment is mobilising more revenues. That is important to help the government invest more in health and education and building infrastructure that is going to be important for other sectors, like agriculture and manufacturing to take off.
“Without energy it’s difficult to have higher productive activities. Some processing is going to be important. So, addressing the energy issue, all of this, I think requires a lot more public investment and so the revenue mobilisation angle is important.
“Second, I think also other policy uncertainties are there. But on the fiscal side, there is also a need to further improve the allocation of foreign exchange systems. There has been a strong improvement in that. But I think just creating liquid and deep foreign exchange markets, financing the reforms that have been taking place encouragingly in the last couple of months is going to be important. I think once the macro environment is stable then policies can shift to how to better promote the specific sectors.â€
On his assessment of activities in the continent, the IMF official said, “If they fail to do the adjustment that they have already planned, we will see public debt going up at the same elevated pace that it has been growing in the last couple of years. Beyond fiscal policy, there are a number of things that can be done to strengthen the recovery. First, in terms of the way fiscal reforms are to be pursued, adjustment is on the cards in many countries now. So we’ve been asking ourselves and looking into how best these reforms can be designed to minimise the negative effect that they can have on growth.
“And what the experience in the region has shown is that adjustment based on revenue mobilisation is generally likely to have smaller effects on growth than those adjustments based on cutting spending. Importantly, there is ample potential to raise additional revenue in many countries from 3.5 to five percentage points of GDP in many cases, and emphasising revenue mobilisation in coming years, I think, will have the benefit of containing fiscal deficits while maintaining spending envelopes to help address development spending.
“We’ve also been looking at what is needed to help diversify the region’s economies given that reliance on commodity prices has again been a source of difficulty in many countries. In general, the picture of the region’s economic diversification record to date, average numbers show that diversification has been limited.
“But this is mainly being driven by developments in commodity exports, which have seen their economies increasingly more concentrated and relying on natural resources over the last decade or so due to the higher commodity prices and discovery of new natural resources.”