The IMF on Wednesday urged Nigeria and other African nations to enhance their tax systems to be more efficient, equitable, and progressive.
The Director of the Fiscal Affairs Department, Davide Furceri, made this disclosure during a media briefing at the IMF/World Bank Annual Meetings in Washington, highlighting the necessity for improved revenue mobilization strategies to address growing fiscal deficits.
Both Nigeria’s Finance Minister, Wale Edun, and IMF Managing Director Kristalina Georgieva, expressed their commitment to strengthening Africa’s economic resilience, especially in light of geopolitical challenges, high borrowing costs, and ongoing inflation.
The IMF emphasized the importance of timely fiscal reforms and leveraging technology to improve governance across the region.
Davide Furceri noted that many countries, including Nigeria, face very low revenue-to-GDP ratios, with Nigeria’s standing at just 10 per cent. This low ratio limits the government’s capacity to invest in development and manage debt sustainably, making it essential for Nigeria to enhance its revenue mobilization efforts.
Furceri said, “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 raised concerns about the rising debt service obligations of many low-income countries in the region, noting that approximately 15 percent of revenue is currently allocated to debt service.
This situation significantly reduces the fiscal space available for vital investments in infrastructure, education, and healthcare, hindering overall development efforts.
“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,” he added.
In addressing these challenges, Furceri underscored the IMF’s commitment to supporting African economies through policy guidance, capacity building, and financial assistance.
He highlighted that over the past four years, the IMF has allocated $60 billion to African countries while also providing technical support to improve public finance management and tackle climate change issues.
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 at the media briefing, Director of the IMF’s Fiscal Affairs Department, Vitor Gaspar, emphasized that delaying necessary fiscal adjustments in the region could hinder development and increase 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.”
He stated that fiscal adjustments need to be decisive, well-designed, and clearly communicated to preserve public trust and support.
He cautioned that countries should not delay reforms, particularly as many in the region face low revenue-to-GDP ratios and increasing 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.”
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.”
