The International Monetary Fund (IMF) on Monday, June 29, advised the federal government not to introduce new tax measures; due to the difficult economic year wrought by the COVID-19 pandemic.
IMF further explained that Nigeria is in for a difficult year in 2020 with gross domestic product (GDP) growth expected to contract by -5.4 per cent.
This was contained in a statement issued by the director of the IMF’s African Department; Abebe Aemro Selassie, at a press briefing on the Regional Economic Outlook for Sub-Saharan Africa.
Selassie said while it will be very important to have a very nimble policy response to ensure that the hits to the economy are not compounded by policy challenges; this is not the time to be aggressively introducing new tax measures.
“There is a long-standing challenge on the fiscal side of needing to have sufficient resources generated by the government from non-oil sources; to provide investments in health, education, infrastructure so there is that long-term agenda that needs to be addressed.
“Right now, fiscal policy can be supportive and needs to be supportive. On the monetary and exchange rate front; there is a response that will facilitate the much-needed adjustment of the economy to these real shocks.
“Our projection of -5.4 per cent is contingent on in-built policy response and avoiding some of the challenges that were experienced when oil prices declined in 2016 causing GDP to be depressed for an extended period.
“Subject to a flexible and nimble policy response; we expect that there would be some recovery but this year would be a difficult one for the country.
“Nigeria is an oil-exporting country so the impact of the pandemic is being compounded by the sharp decline in oil prices.”
On the pandemic, the IMF director said; “this is a fast-moving crisis and recent developments suggest that the downturn will be significantly larger than we had anticipated only 10 weeks ago.
“The risks we highlighted in April all continue to be a concern; but the deterioration of the global outlook has been particularly striking.
“In line with this new outlook, and consistent with local high-frequency indicators; output in Sub-Saharan Africa is now projected to shrink by 3.2 percent this year, more than double the contraction we had outlined in April. Again, this is set to be the worst outcome on record.”
Selassie said given the region’s already-stretched healthcare capacity; the immediate priority is still to protect lives and to do whatever it takes to strengthen local health systems and contain the outbreak.
The IMF director noted: “On the fiscal side, however, country responses have often been more constrained. Even before the crisis; debt levels were elevated for many countries in the region.
“In this context, and in light of collapsing tax revenues; the ability of governments to increase spending has been limited.
“To date, countries in the region have announced COVID-related fiscal packages averaging three per cent of GDP.”