Economy

Debt Servicing Impeding Nigeria’s Socioeconomic Progress – IMF

Written by Agboola Oluwafemi on October 25, 2024

News Views: 464

International Monetary Fund (IMF) has highlighted that Nigeria dedicates a substantial portion of its revenue to debt servicing, significantly limiting resources for essential development projects.

During the Fiscal Monitor press briefing at the ongoing IMF/World Bank Annual Meetings in Washington, DC, Davide Furceri, Division Chief of the IMF’s Fiscal Affairs Department, underscored the urgency for Nigeria to adopt more robust revenue mobilisation strategies to mitigate its fiscal strain

Furceri reported that Nigeria’s debt service-to-revenue ratio is currently around 60%, which severely hampers the government’s capacity to fund vital social and economic initiatives. Although the debt service-to-GDP ratio has reduced from nearly 100% to 60%, Furceri advised that further reductions are essential, specifically by expanding the nation’s tax base.

He added that, “There is a need to grow the revenue-to-GDP ratio. For a country Like Nigeria, the Debt Service-to-Revenue is about 60 per cent. What that means is that a larger part of the revenue of the country goes into debt servicing. What we recommend for countries like Nigeria, if they can improve their revenue mobilisation, they will be able to reduce the portion of the revenue that goes into debt servicing.

It is important to broaden the tax base in order to have more revenue and especially in Nigeria to put in place a system and mechanism that is transparent and efficient to assist the government in collecting more revenue.”

The IMF’s latest Fiscal Monitor Report also projects a downward trend in Nigeria’s debt-to-GDP ratio, which, currently at 50.7%, is expected to fall to 49.6% by 2025.

This report clarifies that Nigeria’s public debt includes overdrafts from the Central Bank of Nigeria and obligations from the Asset Management Corporation of Nigeria. “The overdrafts and government deposits at the Central Bank of Nigeria almost cancel each other out, and the Asset Management Corporation of Nigeria debt is roughly halved,” the report explains.

Further predictions show the debt-to-GDP ratio reducing to 48.5% by 2026 and 48.2% in 2027, followed by a marginal increase to 48.8% in 2028 and 49.1% in 2029. Additionally, the IMF emphasized that Nigeria’s government must not only aim for revenue growth but also implement focused social safety nets to help protect vulnerable groups from inflationary pressures and environmental challenges.