SWITZERLAND, DECEMBER 12 – With high poverty rates and only a gradual recovery in prospect, revenue mobilisation will need to rely initially on progressive and efficiency-enhancing measures, with higher VAT and excise rates awaiting until stronger economic recovery takes root, the International Monetary Fund has told the Nigerian government.
The International bank also said it is important for Nigeria to ensure significant revenue mobilisation to reduce its debt vulnerabilities.
It also said while the country’s economy was expected to begin its recovery process in 2021, it was expected to experience more recovery in 2022.
The organisation said these on Friday in a statement titled ‘IMF staff completes 2020 article IV mission to Nigeria’.
Part of the statement read, “Significant revenue mobilisation – including through tax policy and administration improvements – is required to create space for higher social spending and reduce fiscal risks and debt vulnerabilities.
“With high poverty rates and only a gradual recovery in prospect, revenue mobilisation will need to rely initially on progressive and efficiency-enhancing measures, with higher VAT and excise rates awaiting until stronger economic recovery takes root.”
The IMF noted that the country’s real Gross Domestic Product was contracting, inflation was increasing, and external vulnerabilities remained large.
Exchange rate and monetary policy reforms, increased revenue mobilisation and structural reforms would help to unlock Nigeria’s growth potential, it added.
It said, “The COVID-19 global pandemic is exacting a heavy toll on the Nigerian economy, which was already experiencing falling per capita income and double-digit inflation, with limited buffers and structural bottlenecks.
“Low oil prices and sharp capital outflows have significantly increased balance of payments pressures and, together with the pandemic-related lockdown, have led to a large output contraction and increased unemployment.
“Supply shortages have pushed up headline inflation to a 30-month high. Under current policies, the outlook is challenging. Real GDP is projected to contract by 3.4 per cent in 2020.
“The recovery is projected to start in 2021, with subdued growth of 1.5 per cent and output recovering to its pre-pandemic level only in 2022.”
The IMF emphasised the need for major policy adjustments and embracing broad market reforms.