The International Monetary Fund (IMF) has urged the Nigerian government to exercise caution in its aggressive tax drive due to the impact of the COVID-19 on businesses and households in the country.
The director of the IMF’s African Department, Abebe Selassie, made this known on Monday during a media briefing on the latest Regional Economic Outlook for Sub-Saharan Africa.
The briefing was held in Washington, United States of America.
The IMF urged the Nigerian government to continue to facilitate policies that will support efforts of the citizens and businesses to cushion the impact of the pandemic.
“Nigeria is an oil exporting country,” began Mr Selassie, “so, the impact of the pandemic is being compounded by the sharp decline in oil prices. We are projecting that Gross Domestic Product (GDP) growth would contract around 5.4 per cent this year; so, it’s a very significant hit to income.
“It will be very important to have very nimble policy response to ensure that the hit to the economy is not compounded by policy challenges.
“This is not the time to be aggressively introducing new tax measures but there is a long-standing challenge on the fiscal side of needing to have sufficient resources generated by the government from non-oil sources to provide investments in health, education, and infrastructure. So, there is that long-term agenda that needs to be addressed. Right now, fiscal policy can be supportive and needs to be supportive.”
Monetary, exchange rates
On the monetary and exchange rate concerns, the IMF official noted that there is a response that will facilitate the much-needed adjustment of the economy to the real shocks.
He noted that IMF’s projection of -5.4 per cent decline in the nation’s GDP outlook is contingent on an in-built policy response and it avoided some of the challenges that were experienced when oil prices declined in 2016 which caused GDP to be depressed for an extended period.
“Subject to a flexible and nimble policy response, we expect that there would be some recovery but this year would be a difficult one for the country,” he said.
Last week, the organisation said the Nigerian economy will contract by 5.4 per cent in 2020.
The chief economist and director of the research department at the organisation, Gita Gopinath, announced the projection during an online press conference on the latest World Economic Outlook (WEO).
The new projection, the IMF said, is lower than the 3.4 per cent negative growth it had estimated for the country in April.
Speaking on the outlook for Nigeria, Ms Gopinath said the projection for sub-Saharan Africa overall is -3.2 per cent in 2020 with recovery in 2021 at 3.4 per cent.
But on Monday, Mr Selassie commended sub-Saharan African countries for responding swiftly to the disruptions brought about by the pandemic.
“Monetary and prudential policies have been eased, with countries adopting a mix of reduced policy rates, added injections of liquidity, greater exchange-rate flexibility and a temporary relaxation of regulatory and prudential norms, depending on country circumstances.
“On the fiscal side, however, responses have often been more constrained. Even before the crisis, debt levels were elevated for many countries in the region.
“In this context, and in light of collapsing tax revenues, the ability of governments to increase spending has been limited. “To date, countries in the region have announced COVID-19-related fiscal packages averaging three per cent of GDP. This effort has been indispensable. But it has often come at the expense of other priorities, such as public investment, and is markedly less than the response seen in other emerging markets or advanced economies.”
The IMF official noted that authorities in sub-Saharan Africa face a distinct challenge in getting support to those who need it most. He noted that 90 per cent of non-agricultural employment is in the informal sector, where participants are usually not covered by the social safety net.
“Moreover,” he explained, “a large proportion of this activity centres on the provision of services, which have been particularly hard hit by the crisis. Further, informal workers typically have few savings and limited access to finance. So, staying at home is often not an option; complicating the authorities’ efforts to maintain an effective lockdown.”
In proffering solutions to the uncertainties, Mr Selassie spoke about possible policy concerns that Nigeria and other countries in the region should push through.
“First and foremost, the immediate priority remains the preservation of health and lives,” he said. “But as the region starts to recover, authorities should gradually shift from broad fiscal support to more affordable, targeted policies; concentrating in particular on the poorest households and those sectors hit hardest by the crisis.
“Looking even further forward, and once the crisis has waned, countries should refocus their attention on transforming their economies, creating jobs and boosting living standards clawing back some of the ground lost during the current crisis.
“As before the crisis, part of this effort will require putting fiscal positions back on a path consistent with debt sustainability; which will in turn require a renewed determination to implement revenue-mobilisation, debt-management, and public financial management reforms. In addition, sustainable, job-rich, and inclusive growth will require private-sector investment.”
In February, the Washington-based institution announced a downward review of its 2020 growth forecast for Nigeria to two per cent from the 2.5 per cent it predicted earlier.
Led by the Senior Resident Representative and Mission Chief for Nigeria, Amine Mati, officials of the global financial institution visited Lagos and Abuja between January 29 and February 12, for discussions on Nigeria’s economy.
In its report, the IMF noted that Nigeria’s pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity. Inflation, which it said was driven by higher food prices, had risen, marking the end of the disinflationary trend seen in 2019.
The IMF also said external vulnerabilities were increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals even though the exchange rate has remained stable, helped by steady sales of foreign exchange in various windows.
Since the outbreak of the coronavirus, economic activities in many nations of the world have slowed amid lockdown measures put in place to contain the spread of the virus.