Amidst growing concerns about Nigeria’s public debt, the International Monetary Fund (IMF) has issued a warning, emphasizing that the country’s total public debt of N87.3 trillion ($113.4 billion) is sustainable for now. However, the IMF has raised a red flag regarding the rising cost of debt servicing in Nigeria, urging the country to take urgent measures to bolster its economic stability.
Struggle to Generate Tax Revenue
Abebe Selassie, Director of the IMF African Department, voiced his apprehension during the presentation of the Economic Outlook for Sub-Saharan Africa at the IMF/World Bank Annual Meetings. Selassie pointed out that Nigeria is grappling with the challenge of generating sufficient tax revenue to service its debt and undertake essential infrastructure development. Notably, the IMF is not privy to any debt negotiations, debt profiling, or debt restructuring activities in Nigeria.
Addressing the Root Issue
Selassie highlighted the core issue affecting Nigeria’s debt sustainability: the government’s struggle to generate non-oil tax revenues. He stressed that this predicament is the most critical area requiring reform in the country. The IMF representative stated, “The most important cause of the pressures is the fact that the government does not generate enough tax revenue for all the services it needs to provide.” The high proportion of revenue allocated to interest payments leaves limited room for other vital expenditures.
Positive Steps and the Way Forward
The IMF representative also acknowledged recent developments, including the Central Bank of Nigeria’s decision to ease foreign exchange restrictions on 43 previously prohibited items. He praised this move, anticipating that it would strengthen international trade connections. Selassie emphasized that foreign exchange reforms and the elimination of subsidies are heading in the right direction, but fiscal discipline is essential to achieve exchange rate stability.
He concluded by highlighting the need for comprehensive reforms, particularly in unifying exchange rates and tightening monetary policy. The IMF’s call for holistic changes underscores the urgency of addressing Nigeria’s debt servicing challenges to ensure the country’s economic stability.
