Nigeria is grappling with a revenue crisis as its debt profile continues to widen, which has seen policymakers take decisions that have, so far, failed to yield desired results.
President Bola Ahmed Tinubu, this week, has expressed his commitment to breaking the vicious cycle of overreliance on borrowing for public spending.
According to him, and he is very right, overreliance on borrowing for public spending results in more borrowing that, invariably, makes management of Nigeria’s limited government revenues very difficult.
Sadly, global agencies continue to warn Nigeria of the dangers of its mounting debt and just as unrepentantly the previous governments persisted on a two-track trajectory of acquiring more debt and simultaneously downplaying the peril.
Two alerts in succession by the World Bank, one that debt servicing would continue to increase and balloon to 160 per cent in 2027, and another that high repayment cost in 2023 could plunge the country into crisis, demand a change in strategy by the Tinubu-led administration.
The global bank’s Country Director for Nigeria, Shubham Chaudhuri, noted, recently, that the country’s interest payment to revenue ratio would continue to rise steadily. He said this would sustain stagnation and could send the economy spiralling to the bottom.
To halt this foreseeable negative trend, Tinubu, inaugurating the Presidential Committee on Fiscal Policy and Tax Reforms chaired by Mr Taiwo Oyedele, therefore, charged the committee to improve the country’s revenue profile and business environment.
The federal government, the President said, is working very hard to achieve an 18% Tax-to-GDP ratio within three years.
The aim of establishing the committee includes transforming the tax system to support sustainable development while achieving a minimum of 18% tax-to-GDP ratio within the next three years because, without revenue, the government cannot provide adequate social services to the people it is entrusted to serve.
The Committee, in the first instance, is expected to deliver a schedule of quick reforms that can be implemented within thirty days. Critical reform measures should be recommended within six months, and full implementation will take place within one calendar year
The President directed the committee to achieve its one-year mandate, which is divided into three main areas: fiscal governance, tax reforms, and growth facilitation.
He also directed all government ministries and departments to cooperate fully with the committee towards achieving their mandate.
No doubt, a critical factor that underscores the debt crisis is that the debt has become unsustainable even though debt ratios are below 50% of GDP.
The debt crisis in Nigeria is already well underway. The only question is how deep it will cut into the development agenda of Nigeria and the answer is, as the President has pointed out, deep.
The challenges with debts include the fact that they limit the resources available to the government and they are also directly linked to the populace that is living in extreme poverty because the government lacks the wherewithal to rescue them.
Yet, to come anywhere near achieving the target of eliminating poverty, as per the United Nations’ development goals, Nigeria would need to attain a GDP growth rate of at least 16%. The reality is that the country is averaging growth of less than 5% lately.
Thus, the solution lies in Nigeria taking control of its destiny by replacing the much anticipated but unrealisable goal of achieving foreign direct investment with local direct investment.
The country must direct resources towards production in agriculture and manufacturing and improve its capacity for global competitiveness and import only advanced technologies and expertise.
Essentially, there should be new measures to improve revenue, cut costs and waste and free revenue for productive and job-creating activities.
The Tinubu-led government should review the funding thrust of spending to emphasise equity financing and de-emphasise debt financing. The government should infuse prudence in public finances.
Of course, despite the difficulty in attracting Foreign Direct Investment, Nigeria, still desperately needs that and it must work to attract that by improving the operating business environment, improving its tax collection machinery and resolving the energy crises.
The power sector quagmire should be resolved, as well as the irrational dependence on imported refined petroleum products. The Tinubu-led administration should sell recovered stolen funds and property and privatise all state-owned commercial assets.
There should be concessions to reputable international investors to run the airports, seaports and power transmission to instil efficiency and new infrastructure and maximise their revenue-earning potential.
As the President stated, in the end, the Committee’s members should understand the significance of their assignment, as his administration carries the burden of expectations from citizens who want their government to make their lives better.
”We cannot blame the people for expecting much from us,” he said. “To whom much is given, much is expected… I have committed myself to use every minute I spend in this office to work to improve the quality of life of our people.”
Sadly, plenty needs to be done for the committee to achieve its objectives. As the chairman of the committee has noted, “Many of our existing laws are outdated, hence they require comprehensive updates to achieve full harmonisation to address the multiplicity of taxes and to remove the burden on the poor and vulnerable while addressing the concerns of all investors, big and small.”
