By Joyce Ekeh
The International Monetary Fund (IMF) has urged the Federal Government to boost revenue mobilisation, improve spending efficiency and build fiscal buffers as Nigeria grapples with rising public debt and debt-servicing costs.
The Fund also backed targeted transport subsidies to cushion vulnerable Nigerians against rising fuel costs, warning that blanket subsidies are expensive and less effective than directing assistance to those who need it most.
Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, and Davide Furceri, a Division Chief in the department, gave the recommendations at a press briefing on the Fund’s October 2026 Fiscal Monitor during the ongoing IMF/World Bank Annual Meetings in Bangkok, Thailand.
The recommendations come amid a sharp rise in Nigeria’s public debt despite a substantial increase in government revenue following tax reforms and the removal of fuel subsidies.
Nigeria’s total public debt rose by 71 per cent to N166.788 trillion at the end of June 2026, from N97.34 trillion at the end of 2023.
This was despite a 112 per cent increase in statutory allocations to the three tiers of government, from N10.9 trillion in 2023 to N23.15 trillion in 2025.
Commenting on Nigeria’s rising debt despite increased revenue, Valdés cautioned against a blanket approach to fiscal consolidation, stressing that countries have different economic circumstances and fiscal needs.
“It’s very important to nuance the message of consolidation now, because not all countries are in the same position,” he said.
“Many major economies need to start consolidation now. But there are other countries that, let me just mention the UK, where our recommendation is stay the course. We’re not saying accelerate the pace of consolidation.”
The IMF’s position underscores the need for Nigeria to balance efforts to rein in debt with the need to sustain economic growth and protect vulnerable households from the impact of rising living costs.
On the political and economic implications of higher fuel prices, Valdés acknowledged the difficulty governments face in managing the impact on households but warned against using scarce public resources to sustain blanket subsidies.
“At the end of the day, it’s very tempting politically speaking because the political effect of the price of oil, of fuels, of gasoline, of diesel is not trivial,” he said.
“But you have to explain that this is a growth shock. Second, it’s very, very expensive for the country not to recognise that shock, and third, it’s much better to use some of that money that you would spend on the subsidies, channelled towards more vulnerable people.”
He argued that governments could provide more focused assistance to cushion the effects of higher fuel prices, particularly through support for public transportation.
“Gasoline could go up, and perhaps bus fees may be subsidised in a way. That is a much better policy at the end of the day than just a blanket subsidy for everybody,” Valdés stated.
The recommendation points to targeted transport support as a possible way to ease the burden of rising fuel costs on vulnerable Nigerians without imposing the full cost of universal subsidies on public finances.
Nigeria needs broader tax base
Furceri said countries with relatively low tax bases, including Nigeria, needed to mobilise sufficient revenue to meet rising interest obligations and finance investments that support economic growth.
“For many countries that are starting from a very low tax base, and this is, for example, the case of Ethiopia, the case of Nigeria, it’s important to have sufficient revenue for two reasons,” he said.
“One, because this revenue will help the countries to pay high interest costs, and second, because it will generate sufficient resources the countries can use to spend on growth.”
He, however, stressed that increasing revenue should not be the sole objective of tax reforms, arguing that removing distortions in existing tax systems could support growth without necessarily increasing the overall tax burden.
“There are many distortions that are in current tax systems. Clearly, removing the distortions can be revenue-neutral, but they can actually increase growth and also address this trade-off,” Furceri said.
His comments highlight the importance of improving the design and efficiency of Nigeria’s tax system while strengthening the government’s capacity to generate revenue.
For Nigeria, the challenge is to mobilise more domestic resources to meet debt obligations while ensuring that tax policies do not unnecessarily constrain investment, business activity and economic expansion.
Prioritise health, education, infrastructure
On expenditure priorities, Furceri urged the Federal Government to redirect resources towards sectors with long-term economic benefits, including health, education and infrastructure.
“Many countries have the scope to reprioritise spending for things that matter for long-term growth. Think about spending on education, spending on health, spending on investment, and, in the current circumstances, to again move away from subsidies to more targeted interventions,” he said.
The IMF’s recommendation suggests that fiscal reforms should focus not only on how much governments spend but also on how effectively public resources are deployed to support growth and improve living standards.
Furceri acknowledged that targeted assistance could be difficult in countries without comprehensive national registries and effective digital payment systems. However, he said governments could use alternative mechanisms while developing the infrastructure needed to deliver support more efficiently.
“Typically, one argument that many countries say is that it’s very difficult to target subsidies because we don’t have a national registry, we have to have digital payment. It is important that countries prepare these systems in the medium term,” he said.
“In the short term, there are alternative ways. Rodrigo mentioned one. For example, school feeding is another one. Doing geographical targeting is another one. If countries have vulnerable farmers, there is scope to compensate them.”
The alternatives include school-feeding programmes, geographically targeted assistance and support for vulnerable farmers.
Such measures could help cushion the effects of rising living costs while limiting the fiscal burden associated with broad-based subsidies.
Global debt pressures mount
The recommendations come as the IMF warns of mounting global fiscal risks, with public debt projected to rise further amid higher borrowing costs and growing demands on government budgets.
The Fund’s October 2026 Fiscal Monitor projects that global public debt could reach 100 per cent of gross domestic product by the end of the decade.
Higher interest rates are also expected to raise debt-servicing costs as existing obligations are refinanced, leaving governments with less room to fund essential services and development priorities.
The IMF estimated that measures used to suppress energy prices cost governments approximately 1.5 per cent of global GDP, warning that broad-based subsidies are fiscally expensive and often regressive.
It called on governments to improve tax systems, make public expenditure more growth-friendly and undertake fiscal consolidation where necessary, supported by credible plans, stronger institutions and greater transparency.
For Nigeria, the challenge is to ensure that rising revenue translates into stronger public finances, lower fiscal pressures and more resources for development.
The IMF’s recommendations point to a combination of improved revenue mobilisation, more efficient spending and targeted social support as governments seek to manage rising debt without worsening the cost-of-living crisis.
