The International Monetary Fund resident representative for Nigeria, Christian Ebeke raised concerns over the misapplication of the organization’s policy recommendations in Nigeria.
He emphasised the necessity of first providing for the poor and vulnerable before the removal of the expensive subsidies in a chat with the Head of Research, Africa and Middle East, Razia Khan at Standard Chartered during a webinar on Friday, according to Nairametrics.
He said “On the fiscal, you have two big issues. One is as I mentioned, you know, on this expenditure side, how do you provide support to the most vulnerable? Please accelerate that support because it’s very important.
“But then you also have the issue of broader fiscal space and the fuel and electricity subsidies, which are the elephant in the room here. Our recommendation has been very simple. Once you have delivered on the social protection, you can now start phasing out these costly subsidies.
“So here is a sequencing because you know in Nigeria, I think our recommendation has not been well understood. You know what we are saying is not to do the opposite. We are saying you fix, you strengthen social protection, then use that to address the costly fuel electric subsidy.”
In addition, he underlined the fiscal burden of subsidies on the country, which is projected to cost an estimated 3% of Nigeria’s Gross Domestic Product.
He said “For us this year, these two fuel and electricity subsidies amount to 3% of GDP. For a country that last year collected 9% of GDP in taxes, we think that this is not necessarily the best way of using revenues or forgoing revenues at this particular juncture.
“3% of GDP could be used for better allocation, education, health, infrastructure, and security spending rather than having this untargeted policy that benefits the rich. So, the sequencing is there, social protection first, then you address the challenging, costly fuel subsidy issues.”
Commenting on the perceived disconnect between fiscal and monetary policies, Ebeke backed the fiscal argument, pointing out that certain reforms require more time and effort to achieve.
He said “You will hear a lot of people or analysts talking about, you know, the central bank’s effort to deliver and it’s not being matched by the fiscal. I will say this is not true. The Central bank is appropriately tightening financial conditions. The Central bank has the advantage that the internal implementation lags are shorter.
“Right, it is shorter to implement monetary policy decisions than the implementation lags that you have on the fiscal side, right? The fiscal unit, you need the consensus, you need the legislation to be drafted. You need it to go to the National Assembly for review, so it takes more time to implement some fiscal decisions. But I also understand that given the urgency, one would have hoped to see a faster or shorter implementation lags.”
Furthermore, Ebeke lauded the ongoing fiscal reforms, especially efforts to boost revenue through improved compliance and digitalization.
He said that there has been a lot of progress made by the Presidential Committee on Fiscal Policy and Tax Reform.
