The International Monetary Fund has said that Nigeria’s “over-Optimistic” revenue assumptions has made the government dependent on expensive borrowing from the Central Bank of Nigeria.
The IMF stated that plans to increase Value Added Tax and minimum wage would also halt the current deceleration of the country’s inflation rate.
A statement by the IMF said, “Over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in over-reliance on the expensive borrowing from the central bank to finance the deficit.
“Inflation will likely pick up in 2020 following rising minimum wages and a higher VAT rate, despite a tight monetary policy.”
In the spending plan for 2020 released by President Muhammadu Buhari, the government intends to increase the present value added tax rate by 50 per cent from its present five per cent.
This will force Nigerians to pay more for goods and services, leading to an increase in the rate at which prices will rise in the coming year.
While noting that Nigeria’s economy was recovering slowly after a 2016 recession, the IMF stated that bigger deficits make monetary policy complex owing to the government’s reliance on the CBN for funding.