*The International Monetary Fund cautions the Nigerian Government against fuel subsidy payments on petroleum products averaging N500 billion monthly as total expenditure on subsidy could hit N6trillion by end of 2022

Isola Moses | ConsumerConnect

Urging the West African country to mobilise more revenue in order to attain macroeconomic stability,

the International Monetary Fund (IMF) has cautioned the Nigerian Government may spend nearly 100 percent of its revenue on debt servicing by 2026.

President Muhammadu Buhari

ConsumerConnect learnt the IMF raised concerns over the country’s fiscal conditions.

Ari Aisen, Resident Representative for Nigeria,  stated this  development earlier in the week in Abuja, FCT, while presenting the Fund’s latest Sub-Saharan Africa Regional Economic Outlook report.

The country currently spends 89 percent of its revenue on debt, disclosed the Breton Woods financial institution.

The Fund also warned that with fuel subsidy payments on petroleum products averaging N500 billion monthly, total expenditure on subsidy could hit a record N6 trillion by the year end.

Aisen said: “I think the biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue, almost 100 percent, is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed, and this, without considering any shock, is that most of the revenues of the federal government are now in fact 89 percent and it will continue, if nothing is done, to be taken by debt service.”

The IMF further noted that the situation it is a reflection of the low revenue of the country.

The Federal Government needs to mobilise more revenue to be able to have macroeconomic stability, it advised.

“It has become an existential issue for Nigeria,” Mr Aisen warned.

As regards subsidy payments, the IMF Country Representative as well lamented that as an oil exporter, Nigeria is unable to take advantage of the current global high oil prices to build reserves. The country is equally confronted by low earnings due to the subsidy on petroleum products, he said.

Earlier April 2022, the Nigerian Senate approved N4 trillion for petrol subsidy in 2022, following two separate requests by the Nigerian President to the National Assembly (NASS).

The government had shelved a planned move to suspend the subsidy payment a few weeks earlier, according to report.

However, amid the uncertainties, the World Bank Group urged Nigeria to rethink its fuel subsidy regime and multiple exchange rates policy. Speaking during a media briefing at the World Bank/International Monetary Fund Spring Meetings in Washington, D.C., the President of the World Bank Group, Mr. David Malpass, said that resources being expended on subsidy could be channeled to other sectors of the economy to accelerate growth.

The IMF chief also explained that generalised subsidies have significant negatives effects on any system, and the ripple effect isn’t healthy for the economy.

He said: “One is that they are expensive because they go to everyone and they are often used by people with upper incomes than by people with lower incomes so they are not targeted.

“So, we encourage that when there is need for subsidy, either food or for fuel, that it should be carefully targeted at those most in need of it.

“And so, we have encouraged Nigeria to rethink its subsidy effort.”

In its intervention Monday, May 30, 2022, the IMF official reiterated the World Bank’s warning, adding that subsidy payments could worsen the country’s fiscal challenges due to poor earnings from oil.

Speaking on the economic outlook for the African continent, Malpass urged governments across the region to reduce debt vulnerabilities, balance inflation and growth, and manage foreign exchange rate pressures.

“Unrivalled potential for renewable energy and an abundance of minerals, a successful transition offers opportunities for diversification and job creation; ensuring the green transition is also a just transition,” said he.