Nigeria Targets Remarkable Fiscal Shift: Revenue to GDP Ratio Set to Surge from 8% to 25% in 3 Years, Announces Finance Minister

Infostride News reported that Nigeria’s Minister of Finance and Coordinating Minister for the Economy, Wale Edun, has outlined ambitious plans for the nation’s economic future. During a presentation at the launch of Afrinvest’s 2023 Nigerian banking sector report on November 15, 2023, in Lagos, Edun expressed confidence in the successful implementation of ongoing domestic reforms, projecting a substantial increase in Nigeria’s revenue to Gross Domestic Product (GDP) ratio over the next three years.

Represented by Armstrong Takang, the Managing Director of the Ministry of Finance Incorporated, Edun revealed that the revenue-to-GDP ratio is anticipated to surge to 25% by 2026, a significant jump from the current 8% in 2023. Furthermore, he highlighted the government’s goal to elevate the tax-to-GDP ratio from the present 10% to an impressive 18% by 2026 through the effective execution of comprehensive reforms.

Edun emphasized that the ongoing reforms play a pivotal role in restoring macroeconomic stability, forming a crucial foundation for sustainable and inclusive economic growth. Some of the identified benefits of these reforms include facilitating forward sales transactions, attracting international capital flows through advance funding arrangements, issuing executive orders to boost the domestic supply of foreign exchange, and reforming foreign exchange (FX) markets.

In particular, Edun pointed out that the ongoing reforms have already yielded positive outcomes, such as increased revenue resulting from the removal of the petrol subsidy. Additionally, the establishment of a fiscal policy and tax reforms committee, coupled with efforts to eliminate smuggling and theft through rigorous application of existing rules, has contributed to the overall positive trajectory.

Edun stressed the significance of attracting international investments, utilizing both foreign direct investments (FDI) and foreign portfolio investments (FPI) as integral components of the ongoing domestic reforms aimed at fostering economic growth in Nigeria.

On the sidelines of the event, Abiodun Keripe, the Group Managing Director of Afrinvest, shared insights on the challenges faced by the private sector in Nigeria’s capital market. Keripe expressed concerns about the government’s reliance on the capital market to fund its activities, stating that alternative sources of income should be explored. According to Keripe, the government’s dominance in the capital market, where government bonds offer attractive yields averaging 15-16%, has led to the crowding out of the private sector. Investors prefer the perceived safety of government securities, creating a scenario where private sector entities struggle to compete on rates.

Keripe highlighted the difficulty faced by private sector players in passing down the high cost of borrowing to their customers, making it challenging for them to offer competitive rates compared to government bonds. This has led to an imbalance, with investors favoring government securities over private sector investments in the capital market.

In related developments, the newly appointed Chairman of the Federal Inland Revenue Service (FIRS), Zacch Adedeji, declared in September 2023 his commitment to surpass Africa’s tax-to-GDP ratio of 16% and elevate Nigeria’s ratio to 18%. This commitment follows the achievements of the immediate past FIRS Chairman, Muhammed Nami, who had earlier stated that the service successfully increased the Tax-to-GDP ratio to 10.86% within a span of two years, surpassing the initial promise to achieve this in four years.