Nigeria’s Fiscal Adjustment: A Necessary Evil?

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Recently, both the fiscal and monetary authorities in Nigeria seem to agree on one thing – “There is a Revenue problem.” This was exacerbated by the upward revision in the minimum wage to N30,000. At the previous N18,000, many of the 36 sub-national governments which are not viable for debt issuance, are struggling with salary payment.

Meanwhile, for the Federal Government (FG), the headroom for borrowing is thinning out amid consistent oil revenue shortfalls. The rising debt concern amid growing expenditure profile seemed to be compelling the FG to consider some fiscal adjustment, going forward. Notably, the fiscal team have rolled-out plans to ramp up non-oil revenue via increase in tax revenue and debt recovery while pushing for a cost reflective tariff in the power sector, to lessen the burden of government’s intervention.

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Specifically, the Minister of Finance has announced plans to increase Value Added Tax from 5.0% to 7.5% by 2020. At 7.5%, VAT in Nigeria would still be significantly lower, compared to its African peers – with an average standard rate of 15.8%. Thus, looking at current realities, the ongoing fiscal adjustments are a necessary evil for revenue growth and fiscal expansion which can support investment in infrastructure.

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