IMF Urges Nigeria, Others to Make Taxation More Efficient to Boost Revenue

IMF, yesterday, advised Nigeria and other African countries to work towards making tax systems in their countries more efficient, equitable, and progressive.
The Washington-based institution also underscored the importance of timely fiscal reforms and leveraging technology to enhance governance in the region.

Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun, and IMF’s Managing Director, Kristalina Georgieva, reaffirmed their commitment to bolstering Africa’s economic resilience amid a global landscape marked by geopolitical fragmentation, high borrowing costs, and persistent inflation.

IMF’s Fiscal Affairs Department Director, Davide Furceri, gave the advice for African countries to improve their tax systems during a media briefing to launch the updated Fiscal Monitor at the ongoing IMF/World Bank Annual Meetings in Washington DC.
Furceri emphasised the need for Nigeria and other Sub-Saharan African countries to prioritise revenue mobilisation strategies to close their widening fiscal gaps.

He pointed out that many countries, including Nigeria, suffered from extremely low revenue-to-Gross Domestic Product (GDP) ratios, with Nigeria’s just at 10 per cent. He stressed that this hampered the government’s ability to invest in development and manage debt sustainably.
Furceri explained, “Revenue mobilisation is essential, and it should focus on making the tax system more efficient, equitable, and progressive. Policies that broaden the tax base and reduce informalities can go a long way in addressing these challenges.”
Furceri also expressed concern over the increasing debt service obligations faced by many low-income countries in the region, stating that about 15 per cent of revenue in the region is being allocated to debt service. He said this reduced fiscal space for essential investments in infrastructure, education, and healthcare.

Furceri added, “The challenge is that a large part of the revenue goes to finance debt, which constrains the ability of these countries to invest in growth-enhancing initiatives. Addressing this through better revenue collection and debt management strategies is critical.”
In response to the challenges, Furceri highlighted IMF’s ongoing commitment to supporting African economies through policy advice, capacity development, and financial assistance.
He stated that over the past four years, the multilateral institution had provided $60 billion in funding to African countries, while also offering technical support to improve public finance management and climate change-related policies.

Furceri said, “The IMF, as in the past years and as always, has provided significant advice to countries from policy support, policy advice but also financing support. Just to give a number, over the past four years, about $60 billion of funding has been provided to African economies to help their challenge.

“The IMF is also providing a variety of capacity development to support, for example, increase public finance management, improve taxation, revenue mobilisation, as well as new areas that are developing that are becoming more and more important, such as climate change.”

In his remarks during the media briefing, Director of IMF’s Fiscal Affairs Department, Vitor Gaspar, emphasised that delaying necessary fiscal adjustments in the region could hinder development and escalate public debt levels.

Gaspar said, “Delaying adjustment is costly and in Sub-Saharan Africa. I would argue that building fiscal space is not only crucial to limit public debt, but in many countries in Sub-Saharan Africa, it is key to enable the state to play its full role in development, which is, of course, a priority in the regions.”

According to Gaspar, fiscal adjustments must be decisive, well-designed, and effectively communicated to maintain public trust and support.

He warned that countries must not postpone reforms, especially as many in the region continued to grapple with low revenue-to-GDP ratios and rising debt service burdens.

Gaspar reiterated that reforms were essential for long-term stability and growth, saying, “Fiscal adjustment should be timely, should be decisive, should be well-designed, and should be effectively communicated.”

He highlighted the role of technology in improving governance and transparency, a critical need for many developing nations in the region.

Gaspar emphasised the “Three Ts” framework – technology, transparency, and trust – as a blueprint for governments to enhance accountability and foster citizen engagement.

He stated that technology could simplify governance processes, improve public finance management, and even bolster tax compliance.

At the African caucus meeting, Edun and Georgieva reaffirmed their commitment to bolstering Africa’s economic resilience.

In a statement issued after a meeting between the African caucus and the IMF boss, they acknowledged the complex and volatile economic environment facing the continent. Edun, who was Chairman of the African caucus, and Georgieva, emphasised that African economies were grappling with an array of external pressures that complicated policymaking.

The pressures included rising living costs, social instability in some regions, and security challenges that not only harmed populations but also undermined economic growth.

Edun and Georgieva said, in the statement, “Together we are committed to strengthening Africa’s resilience to address the many challenges facing the continent. Policy priorities in the region are focused on securing the economic recovery, continuing to address imbalances, and creating space for much-needed development-focused investment.

“In countries where inflationary pressures are receding and inflation is near target, there is space to gradually ease towards a more neutral stance in close cooperation with other policies.

“In countries where inflation is still elevated, further tightening may be required. The exchange rate, where appropriate, should be allowed to play its shock absorber role while mitigating the second-round effects of depreciation. Fiscal policy needs to find the right balance to address debt vulnerabilities and spending pressures.

“Renewed focus on enhancing domestic resource mobilisation is critical and it should be supported by governance reforms to improve public financial management, fiscal transparency, and enhance accountability.”

They added, “We welcome the launch of the Joint Domestic Resource Mobilisation Initiative (JDRMI) by the IMF and World Bank which seeks to improve domestic revenue mobilisation, enhance spending efficiency, and develop domestic financial markets.

“We support a joint effort to channel more affordable financing for development, including for climate change adaptation and mitigation. This urgent need for scaling up concessional financing for Africa needs the support of all partners.

“The recently approved Review of the Poverty Reduction and Growth Trust (PRGT) allows the Fund to maintain adequate financial support to low-income countries, while restoring the self-sustainability of the Trust. The Review of Charges and the Surcharge Policy has substantially reduced the cost of borrowing.”

The statement added, “Under the General Resource Account (GRA). Once the reform becomes effective on November 1, 2024, eight countries will not be subject to surcharges because their credit outstanding will be below the new threshold, four of which are in Africa.

“The Resilience and Sustainability Trust (RST) is providing longer-term affordable financing to address longer-term challenges, including climate change and pandemic preparedness.

“We encourage continued support to ensure that the RST has the financing available to meet growing needs. We welcome the IMF Executive Board approval of the use of SDRs for the acquisition of hybrid capital instruments issued by prescribed holders. This will allow members to channel SDRs to Multilateral Development Banks as part of their capital.

“We welcome the conclusion of the 16th General Review of Quotas (GRQ) with the approved increase of IMF members’ quotas by 50 per cent. We encourage more work on quota realignment towards developing economies, including through a new quota formula, under the 17th GRQ. We look forward to welcoming the 25th Executive Board Chair intended for sub-Saharan Africa next month.”