In a new report, the International Monetary Fund (IMF) highlights the mounting concern about high debt servicing costs faced by Nigeria and other low-income countries.
Although no significant request for debt relief has been made recently, the IMF stresses that the burden of servicing debts remains a pressing issue.
On a positive note, the IMF commends Nigeria and three other countries for their recent subsidy reforms, acknowledging that these measures will create room for development spending.
“Building resilience in the face of these trends requires countries to act,” the report states, highlighting the steps taken by Angola, The Gambia, Nigeria, and Zambia to implement energy subsidy reforms and allocate funds for development.
However, the IMF also expresses worry about countries falling behind in revenue generation efforts, particularly in broadening the tax base, reducing tax exemptions, and improving tax administration efficiency.
Sub-Saharan African countries, for instance, only raised 13% of GDP in revenues in 2022, compared to 18% in other emerging economies and developing countries, and 27% in advanced economies.
The IMF underscores the importance of policy reforms to spur growth, increase revenue capture, and avoid costly debt crises.
Urgent initiatives, including tax reforms, are crucial for capturing more revenue from economic growth, thus improving key debt metrics. Without these measures, high-debt vulnerable countries could face dire consequences.
Debt statistics reveal that Nigeria’s public debt profile grew to N87.91tn by the end of Q3 2023.
The Federal Government’s plan to allocate N8.25tn for debt servicing in 2024, representing 45% of projected income, has drawn criticism from experts, including the World Bank.
These experts warn that Nigeria’s debt service-to-revenue ratio could reach a staggering 160% by 2027 if drastic reforms are not implemented.
The IMF highlights the financing pressures faced by low-income countries, caused by high-interest payments and the rapid pace of debt repayment.
Moreover, these pressures constrain budgets and impede investment in essential services, job creation, prosperity, and climate resilience.
The report emphasizes the urgent need to relieve these burdens and create sustainable debt management strategies.
Overall, the report serves as a call to action for low-income countries to address revenue generation challenges, enact policy reforms, and prioritize growth-oriented measures to prevent a damaging debt crisis.
The time for action is now: by implementing the necessary reforms, countries can safeguard their economic stability and pave the way for a brighter future.
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