The International Monetary Fund (IMF) has advised the Federal Government to focus its expenditure on protecting disadvantaged segments of the population from the inflationary effects of high energy costs. During a media briefing at the World Bank/IMF Annual Meetings in Marrakesh, Morocco, Era Dabla-Norris, the Assistant Director of the IMF’s Fiscal Affairs Department, commended the government for discontinuing the fuel subsidy. However, she emphasized the need for complementary policies that direct spending towards safeguarding vulnerable groups from the repercussions of elevated energy prices.
Dabla-Norris suggested that, in addition to curtailing inflation post-subsidy removal, Nigeria should consider implementing a range of macroeconomic policies. These policies could include tapping into the country’s untapped tax potential to augment revenue collection and allocate funds for servicing debt.
Protecting the Vulnerable:
Dabla-Norris stated, “Smart policies” should create budget space for critical spending areas like education and healthcare, focusing on safeguarding the most vulnerable segments of society. She acknowledged the significance of the fuel subsidy reform and its impact on freeing up budgetary resources for alternative uses. However, she urged that these savings be channeled towards protecting those most affected by high energy prices.
In addition, Dabla-Norris noted that fuel subsidies often benefit middle or higher income groups and should be prioritized to assist the most vulnerable individuals in society.
Curbing Inflation:
To effectively combat inflation, she highlighted the importance of enhancing revenue collection in an efficient manner. She indicated that Nigeria has substantial untapped tax potential and, over the medium term, expanding tax bases, reducing value-added tax exemptions, and enhancing tax institutions’ quality could help mobilize revenue progressively. Strengthening monetary policies and eliminating central bank financing of the budget were also crucial steps.
Reducing Debt Service:
Dabla-Norris underscored the necessity of sustainable revenue collection and the rationalization of expenditures to address the issue of high debt service. She recommended refocusing spending on priority areas and invigorating economic growth through structural reforms, governance enhancements, and business climate improvements.
Divergent Views on IMF’s Recommendations:
Several analysts and financial experts have expressed varying opinions on the IMF’s recommendations. Mallam Garba Kurfi, CEO of APT Securities & Funds Limited, supported energy sector reform and urged the government to increase crude production and improve power generation. He also advocated for the effective implementation of smart policies, including providing financial relief to public sector employees.
David Adonri, Executive Vice Chairman at HIGHCAP Securities Limited, emphasized that Nigeria’s financial situation is challenging, and the country does not have untapped tax sources. He called for a focus on plugging tax revenue leakages, prioritizing the security and productive sectors, and addressing the excessive burden of debt servicing.
Bolaji Sunmola, President of the National Association of Stevedoring Operators (NASO), expressed support for the IMF’s recommendations and called for decisive action to move the country forward, even in the face of challenges.
The IMF’s counsel raises important considerations for the Nigerian government as it navigates the complex economic landscape.