Menu Close

IMF urges Nigeria to remove fuel subsidy, increase VAT for sustainable growth

*The Executive Board of the International Monetary Fund has advised the Federal Government to urgently consolidate its fiscal policies to create space, reduce debt sustainability risks by increasing Value-Added Tax, improving tax compliance, and rationalising tax incentives

Isola Moses | ConsumerConnect

For the West African country to enhance long-term, inclusive socio-economic growth, the International Monetary Fund (IMF) has advised the Federal Government to urgently consolidate its fiscal policies to create space and reduce debt sustainability risks.

ConsumerConnect reports the global lender specifically urged the Nigerian Government to increase Value Added Tax (VAT) from current 7.5 percent and remove fuel subsidy without further delay, for  enhanced development in the long run.

The IMF position on the two item were contained in the 2021 IMF Executive Board Article IV Consultation with Nigeria, concluded January 31, 2022, and released Tuesday, February 8.

The Fund’s report stated: “Nigerian economy is recovering from a historic downturn benefiting from government policy support, rising oil prices, and international financial assistance.”

It said there is a need for “major reforms in the fiscal, exchange rate, trade, and governance areas to lift long-term, inclusive growth.”

The IMF Executive Board, while highlighting the urgency of fiscal consolidation to create policy space and reduce debt sustainability risks in the country, “called for significant domestic revenue mobilisation, including by further increasing the value-added tax rate, improving tax compliance, and rationalising tax incentives.”

The Fund’s Directors also “urged the removal of untargeted fuel subsidies, with compensatory measures for the poor and transparent use of saved resources.

“They stressed the importance of further strengthening social safety nets.”

Commending the authorities’ proactive management of the COVID-19 pandemic and its economic impacts, they however, that the outlook remains subject to significant risks, including from the pandemic trajectory, oil price uncertainty, and security challenges.

Despite the recovery in oil prices, the IMF noted that the general government fiscal deficit was projected to widen 2021 to 5.9 percent of GDP, reflecting implicit fuel subsidies and higher security spending, and projected at 3 percent for 2021.

The Fund further stated: “Moreover, the consolidated government revenue-to-GDP ratio at 7.5 percent remains among the lowest in the world.”

Kindly Share This Story

 

 

Kindly share this story