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IMF says Nigeria’s ratio of debt servicing to revenue too high

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IMF says Nigeria’s ratio of debt servicing to revenue too high

THE International Monetary Fund (IMF) has described Nigeria’s debt to revenue ratio, which it put at 63 per cent, as being “extremely high” and advised that the country broaden its tax base.

IMF Assistant Director, Fiscal Affairs Department, Mrs. Catherine Pattillo, stated this when she spoke at a press conference on Wednesday on the sidelines of the on-going World Bank Group Spring Meetings in Washington DC.

“The ratio of federal government interest payment on debt to revenue is extremely high, 63 per cent. So there is a need to build revenue so that you have more space to spend for infrastructure, social safety nets etc otherwise interest is eating up most of your revenue.

“So building revenue is key and how do you do that? The recommendation in the IMF staff report is to broaden the tax base by removing exemptions, to rationalize tax incentives, in particular, to strengthen tax compliance and our recommendation to raise the VAT rate,” she said.

Nigeria’s total debt currently is said to stand at N21.7 trillion, but the government has said that it was now shifting from domestic debt accumulation to foreign borrowing to enable it manage the total servicing cost.

Pattillo, in her speech acknowledged the new position of the government as a welcomed development, nothing that “There is merit to that strategy.”

She said, “Factors that support that is that Nigeria’s current external debt to GDP ratio is low so the external interest payments are relatively low. The benefit of that switch is a reduction in overall interest payments and a lengthening of maturities.

READ ALSO: World Bank says Nigeria’s economy will grow poorer than earlier projected

“The emphasis is that countries have these risks of very high interest payments to revenue because of large borrowing and exhibiting change in borrowing. There’s more non-concessionary borrowing, there’s more domestic borrowing so if you have problems repaying your debts then yes, its a risk for future borrowing. People don’t want to lend if they think that there’s some risk that repayment won’t happen.”

In her assessment of the debt profile of countries she said, “Borrowing by countries can create benefits if used for investments of high returns. Our evidence suggests that’s not the case in some countries. So rising debt then create the vulnerabilities. There will be interest rate risks, market risks and large interest burdens that will squeeze out spending priorities. With high debt, countries need to deliver on their fiscal plans for adjustments and use borrowed funds for high return investments.”

 

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