IMF: Nigeria’s socio-economic conditions remain a challenge

The Executive Board of the International Monetary Fund (IMF) recently concluded its Article IV consultation with Nigeria, highlighting that despite recent growth rates, the country's socio-economic conditions remain a challenge. Ari Aisen, the IMF's Resident Representative for Nigeria, shared insights on the Nigerian economy's gradual recovery from the pandemic and the need for reforms to sustain growth. Aisen noted that the proactive approach to containing the COVID-19 pandemic in Nigeria had some positive outcomes, with the economy projected to have grown by at least 3% in 2021. However, the IMF forecasts a slightly lower growth rate of 2.7% for 2022, citing the favorable base effects that contributed to higher growth in 2021. One of the key areas of focus for the IMF is the implementation of reforms to drive sustained growth in Nigeria. Specifically, Aisen highlighted the importance of exchange rate reforms and policies to contain inflation. The IMF emphasizes the need for greater fiscal space for public investments and social spending, as well as increased access to foreign exchange for the private sector to leverage higher oil prices. Aisen underscored the significance of trade-oriented policies and the reduction of restrictions on trade to unlock Nigeria's growth potential. By creating a more conducive environment for foreign exchange availability and implementing structural reforms, Nigeria could achieve higher growth rates. In terms of government revenues and funding the 2022 budget, the IMF offered recommendations to enhance revenue generation and reduce the fiscal deficit. While acknowledging the ongoing fragile economic recovery, the IMF advised against an immediate increase in VAT rates. However, the government's target of raising the revenue to GDP ratio to 15% by 2025 would necessitate eventual VAT rate adjustments. Aisen stressed the importance of improving tax administration and compliance to boost revenue mobilization in Nigeria. Enhancing VAT efficiency and removing exemptions, along with tightening tax compliance measures, were identified as key strategies to create fiscal space and strengthen the country's fiscal position. As Nigeria navigates its economic recovery and seeks to sustain growth momentum, the IMF's recommendations underscore the importance of implementing targeted reforms and revenue-enhancing measures to address fiscal sustainability risks and unlock the country's economic potential.