Concerns have been voiced by the International Monetary Fund (IMF) over the Nigerian National Petroleum Company’s (NNPC) level of gasoline consumption and tax write-offs (NNPC).
After completing its yearly mission exercise in Nigeria, the IMF issued the announcement.
The group demanded an investigation of NNPC’s gasoline subsidy information and its financial payments to the federation.
“High fiscal deficits, high debt payment costs, and expected medium-term growth in public debt put state finances under strain.”
“It leaves little money in the budget for crucial social expenditures like education and healthcare, two areas where Nigeria performs badly when compared
“The General Government (GG) budget deficit is predicted to increase to 6.2 per cent of Gross Domestic Product (GDP) in 2022, mostly owing to fuel subsidy expenses, despite stronger non-oil income compared to 2021.
In the medium run, expensive fuel subsidies and growing debt servicing costs will sustain total fiscal deficits of over 6% of GDP, increasing state debt to nearly 43% of GDP by 2027, absent more aggressive revenue collection initiatives.
It suggested boosting agriculture, arguing that an additional 25 million jobs will be required in 10 years to accommodate the influx of new workers.
In addition, the IMF expressed concern over rising inflation, fuel subsidies, and the foreign exchange problem.
According to the report, the current flooding, high fertilizer costs, and other problems might worsen and harm agricultural output and food prices in 2023.
Price pressures may become more intense due to volatility in the parallel FX market and prolonged reliance on CBN funding of the budget deficit.
The international organization suggested revenue mobilization, fuel subsidy changes, and two other reforms as a priority to reduce government expenditure by about 6 percentage points of GDP between 2023 and 2027 while simultaneously freeing up additional funds for social spending.
Nigeria was encouraged by the IMF to end its gasoline subsidies and handle oil theft since subsidies only benefit the wealthy.
The expedition underscored the urgent need to completely and permanently eliminate fuel subsidies, which disproportionately benefit the wealthy, by mid-2023 as scheduled.
To get oil output back to pre-pandemic levels, the government should give attention to governance problems and oil thefts.
Nigeria must also accelerate tax administration reforms by automating taxes, extending coverage, modernizing customs operations, and enhancing inter-agency coordination and data sharing. It must also improve the effectiveness of the State Internal Revenue Service’s administration of the Pay-As-You-Earn (PAYE) system.
IMF Additionally, when compliance increases, Nigeria must raise tax rates “to levels equivalent to the average in the Economic Community of West African States (ECOWAS)”. This entails gradually raising the Value Added Tax (VAT) rate to 15% by 2027 while removing several VAT exemptions. Additionally, Nigeria should extend the base, reduce waivers, and raise excise rates on cigarette and alcoholic items.
The IMF also encouraged Nigeria to expand targeted social assistance to minimize food insecurity and mitigate the effects of rising inflation and the elimination of fuel subsidies for the underprivileged.
