IMF warns of 0.5% GDP revenue loss for Nigeria

Nigeria could suffer a significant blow to its fiscal stability, as the International Monetary Fund (IMF) has projected a potential revenue loss amounting to 0.5 percent of the country’s Gross Domestic Product (GDP). The warning comes in the wake of Nigeria’s decision to delay the implementation of critical tax reforms, including a proposed increase in Value Added Tax (VAT), which was initially designed to enhance revenue mobilisation and reduce budget deficits.

The IMF stated that while the government’s decision may offer temporary relief to households already strained by inflation and economic hardship, it could also hamper Nigeria’s long-term fiscal sustainability. The loss in expected revenue, the IMF noted, could impact the government’s ability to fund key sectors such as healthcare, education, infrastructure, and social welfare, further widening the gap between public needs and government spending capacity.

Nigeria’s revenue-to-GDP ratio is among the lowest in the world, hovering around 7 to 8 percent. This is significantly below the average for sub-Saharan Africa, which stands at about 15 percent. With the country’s population growing rapidly and demands for social services increasing, the fiscal room available to the government remains extremely tight. A 0.5 percent loss in GDP revenue, though it may appear marginal, translates to hundreds of billions of naira—enough to finance several national development initiatives.

The government had earlier planned to increase VAT as part of broader fiscal reforms, but the move was postponed amid rising public opposition and fears of worsening the already high cost of living. Inflation in Nigeria has soared in recent months, driven by the removal of fuel subsidies, currency depreciation, and supply chain disruptions. The IMF, while acknowledging the socio-economic pressures that prompted the delay, urged Nigerian authorities to consider alternative revenue sources or compensatory measures to prevent further fiscal deterioration.

Suggestions from the Fund included widening the tax base, improving compliance, enhancing tax collection efficiency, and phasing out wasteful subsidies. The IMF emphasised the need for a balanced approach that ensures government revenue targets are met without placing excessive burdens on vulnerable segments of the population. The organisation also advised that any future tax measures should be accompanied by social protection programmes such as targeted cash transfers and subsidies for essential goods and services.

Economic analysts within Nigeria echoed similar concerns, warning that the failure to meet revenue targets could force the government to resort to additional borrowing. Nigeria’s debt service-to-revenue ratio remains alarmingly high, with more than half of the country’s revenue currently allocated to debt repayment. This leaves limited space for capital expenditure and essential public investments.

If the projected revenue shortfall materialises, it could also affect Nigeria’s credit rating and investor confidence. Lower revenues could raise concerns among lenders and investors about the government’s ability to meet its financial obligations, potentially leading to higher borrowing costs and reduced foreign direct investment.

To mitigate the effects of the looming shortfall, the Federal Government is reportedly exploring a series of options, including the introduction of new levies on luxury goods, property taxation, digital economy taxes, and the streamlining of non-essential expenditures. There are also efforts to strengthen inter-agency coordination on revenue collection and enforcement.

In addition, discussions are ongoing between federal and state governments on ways to harmonise tax systems and improve internally generated revenue. Fiscal policy experts have pointed out that greater revenue autonomy at the subnational level could help reduce overreliance on federal allocations and oil income, which have proven volatile and insufficient to meet Nigeria’s growing needs.

Despite the IMF’s warning, government officials remain cautious about rushing into new tax regimes without fully assessing the socio-economic impact. Policymakers have reiterated that any new measures will be data-driven, inclusive, and designed to avoid exacerbating the burden on ordinary citizens.

Some officials also argue that aggressive tax reform without simultaneous improvements in governance, transparency, and service delivery could erode public trust and trigger backlash. As such, there is increasing advocacy for a more transparent linkage between taxes collected and tangible public benefits, including roads, schools, hospitals, and security.

Meanwhile, civil society groups have called on the government to prioritise accountability and efficiency in public spending before implementing additional tax measures. They argue that significant revenue could be recovered through improved anti-corruption efforts, elimination of ghost workers, and the review of inflated procurement contracts.

As Nigeria continues to grapple with economic challenges, the IMF’s warning serves as a critical reminder of the delicate balance between fiscal prudence and social stability. While the deferment of tax reforms may offer temporary political and social relief, it also underscores the urgent need for a coherent and sustainable revenue strategy.

The path forward will require bold yet inclusive fiscal decisions, underpinned by trust, communication, and an unwavering commitment to long-term economic resilience. Whether Nigeria heeds this warning and acts accordingly may determine not just its revenue trajectory, but the broader future of its economic development.