Nigeria urged to diversify revenues

11 Apr 19

Public services and infrastructure in Nigeria are under strain and the country must diversify its revenue sources says the IMF.

Education and health spending at 1.7% and 0.6% of GDP, respectively, are among the lowest in the world and insufficient to address growing challenges, it warns.

The fund’s latest economic health check of sub-Saharan Africa’s most populous economy argues that the country’s revenue base is simply too low to address its  challenges.

“Identifying two or three big-ticket items could lift revenue sustainably and in a timely manner—other reforms could follow,” said Amine Mati, IMF mission chief and senior resident representative in Nigeria.

Fund economists say diversifying the government’s revenue base through tax reform, increasing non-oil revenues, and securing oil revenues, will all be critical if Nigeria is to maximize the amount it raises for health and education.

Globally, the country ranks first in the number of children out of school. Infant mortality is also high: 12% of all children who die under the age of five are Nigerian.

With rapid population growth that could make Nigeria the third most populous country in the world by 2050, the IMF says these issues will intensify if unaddressed.

Fund economists point out that at 3% to 4% of GDP, Nigeria’s non-oil revenues are among the lowest worldwide, reflecting weaknesses in revenue collection and systemic non-compliance.

Nigeria raises less than 1% of GDP in VAT revenue, for example, compared to 4% in the countries of the Economic Community of West African States (ECOWAS).

International evidence shows that a minimum tax-to-GDP ratio of 12.75% is associated with a significant acceleration in growth and development of state capacity.

Fund economists say comprehensive tax reform in Nigeria could help increase the tax-to-GDP ratio by about 8 percentage points.

It is recommending a broad range of tax policy and revenue administration reforms to broaden the base of income and consumption taxes, improve data collection and monitoring, boost compliance, and help sub-national authorities raise revenues.

“VAT reform would benefit both the federal and sub-national budgets,” said Amine Mati, IMF mission chief and senior resident representative in Nigeria.

The report says new petroleum legislation to ensure the government gains an appropriate share of oil revenues is also important.

  • Gavin O'Toole, expert on Latin America
    Gavin O'Toole

    A freelance journalist. He has written six books about Latin America and taught the politics of the region at Queen Mary, University of London.

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