IMF says Nigerian economy at ‘critical juncture’

Ø  Urges VAT hike

The International Monetary Fund, (IMF), yesterday said the Nigerian economy is at a critical juncture, having been weakened by falling per capita income, double-digit inflation, limited buffers, significant governance vulnerabilities, and the global pandemic.

The IMF said plunging oil prices and sharp capital outflows in the first quarter of 2020 significantly increased balance of payments pressures that caused output contraction, thus, exposing the economy to risks.

In a report released yesterday, which follows consultation with authorities in Nigeria, the IMF emphasised the need for urgent policy adjustment and more fundamental reforms to sustain macroeconomic stability and lift growth and employment.

With the consolidated government revenue-to-GDP ratio at 8 per cent in 2019, said to be among the lowest in the world, the IMF said there is limited policy space to respond to the crisis in the economy.

In light of high poverty, the IMF recommended revenue measures that are progressive and efficiency-enhancing, drawing on previous IMF technical assistance recommendations. These, it said, include increasing the Value Added Tax (VAT) rate to at least 10 percent by 2022 and 15 percent by 2025. Last year, Nigeria raised its VAT rate to 7.5 percent from 5 percent, amid public outcry.

Recall that the Nigerian economy slipped into its second recession in five years last November, as the gross domestic product contracted for the second consecutive quarter. The National Bureau of Statistics, (NBS), have also said the nation’s GDP recorded negative growth of 3.62 percent in the third quarter of 2020, having recorded a 6.10 percent contraction in the second quarter.

It is the nation’s second recession since 2016, and the worst economic decline in almost four decades.

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