By Judith Ugwumadu | 5 March 2015

Nigeria should curb its dependence on oil revenues and generate additional public finances by pressing ahead with its tax reforms in order improve public services delivery over the medium term, the International Monetary Fund has said.

It warned that vulnerabilities, such as low oil prices, security and the political situation, remained high, adding that broader structural reforms were necessary to build up buffers and meet pressing development needs.

The Nigerian government still lagged behind peers in critical infrastructure and had a high rate of poverty.

‘Directors agreed that mobilising additional non oil revenues is critical to open up fiscal space and improve public service delivery over the medium term. They welcomed ongoing initiatives to strengthen tax administration, and encouraged the authorities to also rein in exemptions, keep tax rates under review, persevere with subsidy reform, and improve the management of oil revenue,’ the IMF said following the conclusion of a Article IV consultation.

‘Nigeria’s longer term prospects rest on lowering oil dependency and strengthening the private sector’s participation in economic activity. Lasting and more inclusive growth calls for improving the business environment, promoting youth and female employment, and advancing human capital development.’

Nigeria has a large and diverse economy that has achieved a decade of strong growth, averaging 6.8% a year. The west African country now accounts to 35% of Sub-Saharan Africa’s gross domestic product. 

The Nigerian government was called on to tighten its fiscal policy and allow the exchange rate to depreciate while using some of the reserve buffer to deal with the recent fall in oil prices.

This will require a careful prioritisation of public spending and a cautious implementation of capital projects, the IMF stressed. It also highlighted the importance of improved budgeting at the level of state and local governments to help better manage their fiscal adjustments.