IMF: Nigeria’s Government Policies in Right Direction

*Urges enhanced diversification, tax reforms, insists on subsidy removal

Nume Ekeghe

The International Monetary Fund (IMF) has hailed the reform policies introduced by the Nigerian government, emphasising the need for economic diversification away from oil dependency and the importance of increasing non-oil revenue.
The Director of African Department, IMF, Abebe Aemro Selassie, noted the low tax revenue to GDP ratio in Nigeria and advocated for its improvement to fund essential sectors like education and infrastructure.
He also commended the attempt to remove fuel subsidy in Nigeria and stressed the need for its complete removal, maintaining that fuel subsidy mostly benefits the rich.

Speaking at the Africa Department press briefing, at the ongoing IMF/World Bank Spring Meetings in Washington DC, Selassie said: “The Nigerian government has been pursuing policies that we think are broadly in the right direction. We have provided advice in terms of what the ideal mix of policies would be. Just to be clear, we have many reports on this. I think Nigeria first and foremost needs to diversify its economy.

 “Second, this also applies to resources that the government relies on, which is too much on oil and not enough on non-oil revenue. In a country like Nigeria, Africa’s most populous country with all of those development spending needs, we think it is problematic that tax revenue to GDP is around eight to nine per cent when it should be much higher so that more resources can be spent on building universities and some on building infrastructure.

“Then lastly, on the monetary exchange rate area, we think it is important to have a system that is broadly reflective of supply and demand conditions and I think that’s the direction which the government has moved.”
Speaking on subsidies in Nigeria, he reiterated that the policy was regressive in nature, adding that it primarily benefits the wealthier segments of society while disadvantaging the poor.

 He underscored the importance of subsidy reform to address this imbalance and to redirect resources towards social protection measures for vulnerable households.
The IMF Director said: “At the end of the day, subsidies are about resource allocation internally within Nigeria. So, Nigerians pay for these subsidies. The reason we counsel against such generalised subsidies is very simple: It tends to be highly regressive, meaning the benefits of such fuel subsidies tend to accrue to richer segments; to richer people than the poorer people.

“So, you know, it’s people that are driving large cars, with big houses or when they receive subsidised fuel. They are the ones benefiting relative to the poor and vulnerable in Nigeria. And so, you know, not only do the people pay for the subsidies, it is the poorest segments of society that actually are losing out on resources that could instead be used to improve conditions for poorer people instead of accruing to richer people. That’s why subsidy reform is important.

“We applaud the steps government took to reduce the extent of subsidies I think as oil prices have become volatile, the level of subsidy has also been a bit up and down, but I think the direction to remove the subsidies and use the resources to provide social protection for the most vulnerable households, is the right one.”