DMO raises debt sustainability concerns

Nigeria is facing a critical juncture as the Debt Management Office (DMO) raises concerns over the nation's debt sustainability. In a recent interview on CNBC Africa, Kenneth Erikume, Partner and Director of Tax Reporting and Strategy at PriceWaterhouseCoopers, sheds light on the urgent need for a stronger revenue base to address the looming debt crisis. Erikume acknowledges that Nigeria has long been grappling with a revenue-based challenge that threatens the country's debt sustainability. The DMO's Head highlighted the low revenue base as a significant obstacle, pointing out that even if Nigeria were to achieve its revenue targets, the income generated would still fall below what is required for a country of its size. The crux of the issue lies in Nigeria's debt service to revenue equation, which currently exceeds 100%. Erikume explains that a staggering 120% of the country's revenue is being used for debt service, leaving little room for economic growth and development. To combat this predicament, he emphasizes the importance of boosting revenue generation and optimizing cost profiles to reduce expenditure. One key solution proposed by Erikume is to enhance tax administration and compliance. He notes that countries with tax-to-GDP ratios above 20% have effective systems in place to identify individuals and assets, enabling them to enforce tax laws rigorously. However, Nigeria's tax revenue remains limited due to challenges in data collection and compliance enforcement. Despite efforts to introduce new taxes and increase existing rates, Erikume underscores the need for a comprehensive long-term investment in technology and infrastructure. While some progress has been made at the federal and state levels, he highlights the disparity in capabilities among different states, calling for a national strategy to bolster tax administration nationwide. Furthermore, Erikume stresses the critical role of identity management in taxation, citing examples from countries like Ghana and South Africa where central identification systems facilitate efficient tax collection. He advocates for a centralized database that consolidates individual and asset information to streamline tax administration and enhance revenue mobilization. As Nigeria navigates its debt sustainability challenges, the urgency for immediate action is paramount. While short-term measures such as tax reforms and technological upgrades offer some relief, a long-term investment in infrastructure and data management is essential to fortify the country's fiscal resilience. In conclusion, Erikume's insights underscore the complexities of Nigeria's debt sustainability crisis and the multifaceted approach required to address the underlying revenue challenges. As the nation seeks to chart a path towards financial stability, collaborative efforts between government stakeholders, tax authorities, and private sector experts will be crucial in driving sustainable economic growth.