IMF prediction on Nigeria and the implications of 2023 general election on entrepreneurs.
Last week The International Monetary Fund (IMF) predicted that the Nigerian government may spend nearly 100% of its revenue on debt servicing by 2026.
100% of Nigeria’s Revenue to Be Used for Debt Servicing 4 Years From Now
The IMF’s Resident Representative for Nigeria, Ari Aisen, made this known on Monday in Abuja while presenting the fund’s latest Sub-Saharan Africa Regional Economic Outlook report.
The Bretton Wood institution raised concerns over Nigeria’s fiscal conditions, adding the nation spends 89 per cent of its revenue on debt.
IMF also warned that with fuel subsidy payments averaging N500 billion monthly, total expenditure on subsidy could hit a record N6 trillion by the end of the year.
“I think the biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue, almost 100 percent, is projected by 2026 to be taken by debt service,” the IMF official said.
“So, the fiscal space or the amount of revenues that will be needed, and this, without considering any shock, is that most of the revenues of the federal government are now in fact 89 percent and it will continue, if nothing is done, to be taken by debt service.”
The IMF said that it is a reflection of the low revenue of the country, adding that it needs to mobilise more revenue to be able to have macroeconomic stability.
“It has become an existential issue for Nigeria,” Mr Aisen warned.
Fuel Subsidy to Hit 6 Trillion Naira By Year End
The IMF official lamented that as an oil exporter, Nigeria is unable to take advantage of the current global high oil prices to build reserves. The nation is equally confronted by low earnings due to the subsidy on petroleum products, he said.
In the midst of the uncertainties, the World Bank Group urged Nigeria to rethink its fuel subsidy regime and multiple exchange rates policy. Speaking during a media briefing at the World Bank/International Monetary Fund Spring Meetings in Washington DC, the president of the World Bank Group, David Malpass, said that resources being expended on subsidy could be channeled to other sectors of the economy to accelerate growth.
Mr Malpass explained that generalised subsidies have significant negatives effects on any system, and the ripple effect isn’t healthy for the economy.
“One is that they are expensive because they go to everyone and they are often used by people with upper incomes than by people with lower incomes so they are not targeted,” he said.
“So, we encourage that when there is need for subsidy, either food or for fuel, that it should be carefully targeted at those most in need of it. And so, we have encouraged Nigeria to rethink its subsidy effort.”
In its intervention Monday, the IMF official reiterated the World Bank’s warning, adding that subsidy payments could worsen the nation’s fiscal challenges due to poor earnings from oil.
Speaking on the economic outlook for the continent, the IMF official advised governments across the region to reduce debt vulnerabilities, balance inflation and growth, and manage foreign exchange rate pressures.
“Unrivalled potential for renewable energy and an abundance of minerals, a successful transition offers opportunities for diversification and job creation; ensuring the green transition is also a just transition,” he said.
What is the Implication of This Prediction for Entrepreneurs?
If there is an IMF prediction that 100% of the revenue from Nigeria will be used for debt services what does that mean for entrepreneurs? First I must say that such is scary. It is better not to even think about it at all. 100%! Not 25% and not 50%. 100%. That means every single dime generated as it were.
IMF Prediction on Nigeria – Is it Really a Possibility?
Yes, this is only but a prediction. It doesn’t mean it is going to turn out exactly as the prediction is. It can possibly be better. And it can also be worse.
But if the question is whether it is possible, then in my opinion the answer is yes. You only need to look at what the situation is now to know what the future could be. Currently, 89% of the country’s revenue goes into debt servicing. Does it look as if it will improve with all the happenings around? You probably knows the answer.
So we go back to our question – what does this mean for entrepreneurs?
First of all we know that government will be desperate to find new and more ways of making more money. They will want to get all that is possible. And there is absolutely nothing wrong with that. In fact, that is the right thing to do. That is the way out. But here is the problem and why entrepreneurs should be worried with this IMF prediction on Nigeria. History tells us that the people that runs the Nigerian economy as at today are not very innovative? They either don’t like or lack the capacity to think out of the box. Their best bet is to look for the path of least resistance. And what is that path? Impose more tax and levies.
I see a situation where in 2026 entrepreneurs will be paying as much as 200% of whatever they currently pay as tax. Whether you are an importer or a manufacturer or even those in the service sector you will be made to pay more. And of course we all know what the ripple effect of that will be.
IMF Prediction on Nigeria – Businesses are Shutting Down
It is a fact which everyone knows that businesses are closing down on a daily basis in Nigeria. These businesses are not closing for lack of efforts on the side of the entrepreneurs. in fact Nigerian entrepreneurs are known all over the work, for their hard work, resilience, innovation and dynamic nature. So these businesses are actually closing because of tough government policies on SMEs.
The ease of doing business index in Nigeria is still quite low. Nigeria ranked 131st out of 190 countries in 2019. In that ranking, economies ranking from 1 to 20 have simpler and more friendly regulations for businesses.
Similarly, the ease of doing business in Nigeria has continued to go down since 2014.
IMF Prediction on Nigeria – What has it Got to Do with 2023 Elections?
Some persons might be asking what has this got to do with 2023 general elections? Let me explain it to you. The economy is controlled by the government. Business revolves around policies and policies are set by the government the agencies of government. So whoever becomes the president of a nation especially a nation like Nigeria will definitely be the number one determinant of the direction the economy will go. Don’t take this from me, just go and ask Aliko Dangote the implications of government policy on businesses.
So What Should Entrepreneurs Do?
So what should entrepreneurs do? This is not a time to become more innovative. It is not a time to cut expenses. It is not even a time to downsize. this is a time to get involved in the electoral process. Entrepreneurs should know that the days of claiming indifference is long gone. This is a time to play active roles in choosing who leads and who makes the policy that affects our businesses.If you don’t get involved those that have always selected for us will go ahead and do it again and we pay for it for another 4 or 8 years.
How Can You Get Involved?
- Go and get your PVC- Click here to get yours
- Encourage those around you to get theirs too
- Make it compulsory for all your staff and subordinates to get theirs – it is their civic responsibility
- Educate those who don’t understand the importance of this election
- You can volunteer as an ad hoc staff to help INEC with the voters registration
- You can donate your space as a temporary center for registration
- Get ready to vote on the election day
- Stay safe as you go to vote so you can be alive to see the result of your efforts
Who Should You Vote For
That is a decision for you to make. Do you research. Check out for the CVs of the various contestants. Who has the capacity to turn the economy around? Those should be your interest.
The last thing Nigeria needs right now is regional sentiment.
We should care less about where the person is coming from. Our concern should be about his or her ability to deliver our economy from the abyss.
If you can find that person, go ahead and vote him or her. But by all means do yourself a favour. Go and vote.