By Eshioromeh Sebastian
The International Monetary Fund has warned Nigeria that rising debt servicing costs are threatening to cripple public spending, as it recommends extending value-added tax to fuel products and introducing excise duties on telecommunications services to boost government revenue.
The IMF said in its 2026 Article IV Consultation report on Nigeria that further tax policy changes will likely be needed to sustain the government’s spending plans over the medium term .
“Further tax policy changes will likely be needed—such as increasing the VAT rate, extending VAT to fuel products, rationalising tax expenditures in particular VAT exemptions on extractive industries and some customs duties, and introducing telecom excises—to complement administrative gains,” the Washington-based lender stated .
The recommendation comes as Nigeria faces a severe fiscal squeeze. The IMF projects that the federal government will spend 53.7 percent of its revenue on debt servicing in 2026, up from 40.8 percent in 2024 . While Nigeria’s debt-to-GDP ratio remains in the mid-30 percent range and the risk of sovereign debt distress is considered “moderate,” the high interest-to-revenue ratio presents the real threat to public finances .
Speaking on ARISE Television, IMF Resident Representative for Nigeria, Christian Ebeke, warned that the situation leaves little room for critical public spending.
“When you have more than 50 percent of your tax collection devoted to repaying interest on your federal government debt, it leaves you very little room to actually pay for health, education, cash transfer, including security,” Ebeke said .
Revenue Projections and Tax Recommendations
The IMF estimated that revenue-enhancing tax policies could generate additional revenue equivalent to 3.9 percent of GDP within three years . A proposed two-percentage-point increase in VAT was identified as the single largest contributor, with an estimated revenue gain of 0.8 percent of GDP .
The Fund also projected that removing pioneer status incentives and revising free zone regulations could generate 0.7 percent of GDP, while reforms to capital gains taxation and adjustments to personal income tax bands could each contribute 0.6 percent of GDP .
A top-up tax on multinationals and large firms was estimated to raise 0.5 percent of GDP, while the category labelled “others”—including telecom excise duties and a carbon tax on fuel—was projected to contribute 0.4 percent of GDP .
Beyond new tax measures, the IMF said Nigeria could generate even larger gains through stronger tax administration. It projected that administrative reforms, including fiscalisation, electronic invoicing and expanded taxpayer registration, could yield an additional 3.1 percent of GDP .
Overall, the IMF projected that Nigeria could record a net increase in government revenue equivalent to 4.6 percent of GDP over the medium term when revenue-enhancing measures, administrative reforms and revenue-reducing policies are considered together.
The IMF cautioned that the timing of any new tax measures must take into account Nigeria’s worsening poverty and food insecurity situation .
“The timing of reforms must consider the poverty and food insecurity situation and ensure that the cash transfer system is in place and funded,” the Fund said .
According to the IMF, poverty has reached 63 percent of the population based on the national poverty line, while about 27 million Nigerians faced food insecurity in 2025 .
The Fund also warned that higher global fuel, food and fertiliser prices could worsen living conditions even as they boost export earnings and government revenues .
“Higher global fuel, food and fertilizer prices will improve exports and fiscal revenues, but also give rise to inflationary pressures, potentially aggravating poverty and food insecurity,” the institution said .
The recommendation to extend VAT to fuel products and introduce telecom excise duties is likely to reignite debate over the cost of living in Nigeria.
Applying VAT to petrol and diesel risks feeding directly into transport costs, food prices and household electricity bills . Telecom excise duties, if passed on by operators, would raise the cost of airtime, data and voice calls for the more than 150 million Nigerians who rely on mobile networks for daily communication and commerce .
A previous attempt by the Federal Government to introduce a five percent excise duty on telecom services faced widespread opposition from operators, subscribers and consumer advocacy groups before it was eventually suspended and later scrapped .
Telecommunications companies had argued that the sector was already burdened by multiple taxes, rising energy costs, foreign exchange pressures and infrastructure challenges, warning that any additional levy would ultimately be passed on to consumers .
Experts have also raised concerns over the timing of the proposals. Prof. Uvhe Uwaleke, director of the Institute of Capital Markets Studies at Nasarawa State University, Keffi, described the advice as ill-timed .
“Nigeria is currently experiencing one of the most severe cost-of-living crises in recent history. Households are already contending with elevated food prices, transportation costs, energy costs, housing expenses, and declining purchasing power. Increasing indirect taxes under such circumstances would likely exacerbate economic hardship, weaken consumer demand, and further strain household welfare,” he told Daily Trust .
The IMF’s warning to Nigeria comes amid rising global debt concerns. IMF Managing Director Kristalina Georgieva said public debt, at almost 100 percent of global GDP, has exceeded post-World War II highs and is set to climb further .
Georgieva also warned that rising bond yields in advanced economies threaten to undo progress made by developing countries in reining in their own debts .
“High debt levels in advanced economies, combined with stubborn inflation, could lead to debt service costs going up for everybody, including for the low income, for the emerging markets and developing economies,” she said .
The IMF expects the global economy to grow by about three percent in 2026, but warned that significant divergence remains in economic fortunes while risks to the outlook remain elevated.
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