Despite our contrarian view on IMF’s recommendation, we agree that Nigeria’s debt position puts the economy at the edge of a fiscal crisis if the government does not find ways to manage its fiscal position. Nigeria’s tax revenue to GDP ratio remains one of the smallest in the world which implies there exists a strong revenue potential from taxes.
However, we believe this should be achieved by expanding the tax net rather than raising tax rates. Tax evasion still remains prevalent in Nigeria.
We believe improved transparency and efficiency in the tax collection process would also provide a significant boost for government revenue given that many people and institutions are still outside the tax net.
Finally, we believe the Federal Government needs to rein in on its “wishful” spending habits. The irony of having one of the highest cost of governance in a country where many live under extreme poverty conditions continues to impact on recurrent spending.
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Furthermore, attempts by the government to bear a significant portion of the burden of bridging the infrastructure gap is unhealthy for its finances. In our view, the federal government needs the back seat as a policymaker and regulator while creating policies that will encourage the influx of private capital into sectors where key infrastructure needs revamping.
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