Nigerian Economy At ‘Critical Juncture’ – IMF Says, Urges VAT Hike

The international monetary group advises the government to increase VAT to 15 per cent by 2025. IMF on Monday 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.

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

In a report released on Monday, 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.

World Bank: Nigeria’s Economy At Critical Juncture

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 per cent by 2022 and 15 per cent by 2025.

Last year, Nigeria raised its VAT rate to 7.5 per cent from 5 per cent, amid public outcry.

IMF says Nigeria’s economy doing poorly, cuts growth projection

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 said the nation’s GDP recorded negative growth of 3.62 per cent in the third quarter of 2020, having recorded a 6.10 per cent contraction in the second quarter.