IMF Advises: Experts Urge Government to Avoid Expensive Foreign Loans and a VAT Increase

By Peter Egwuatu

Capital market operators and economic experts have urged the Federal Government to exercise caution when implementing the International Monetary Fund’s (IMF) policy recommendations, warning against costly foreign loans and a potential increase in Value Added Tax (VAT).

Olatunde Amolegbe, Managing Director/Chief Executive Officer of Arthur Stevens Asset Management and former President of the Chartered Institute of Stockbrokers (CIS), said: “The IMF’s concern about the collateralisation of the proposed facility is understandable. Borrowing against strategic national assets or future revenue streams at a high collateral ratio could heighten fiscal vulnerabilities and restrict future financial flexibility.”

He added that “the assessment should depend on the terms of the facility, the cost of funds, tenor and expected economic returns from the projects to be financed.”

Regarding VAT, Amolegbe warned: “Raising VAT at a time when households and businesses are still adjusting to subsidy removal, exchange‑rate reforms and elevated living costs could further weaken consumption and economic activity.” He advised the government to “broaden the tax base, improve compliance and reduce leakages before considering higher rates.”

On monetary policy, he noted that “while inflation remains a major challenge and the CBN’s tightening measures have helped stabilise the exchange rate, excessive tightening may constrain credit growth and private‑sector investment.”

Amolegbe also supported the IMF’s warning about reliance on foreign portfolio inflows, stressing that sustainable growth requires stronger foreign direct investment, export diversification and increased domestic production.

Tajudeen Olayinka, investment banker and Chartered Stockbroker, urged the government to “move away from expensive loans that can become problematic to the government’s revenue‑generation capacity in the future.” He added: “The IMF concern is valid, as the government has taken too many expensive loans in recent years. That should worry anyone interested in the progress of Nigeria and its economy.”

According to him, “Nigeria should leverage cheaper financing from multilateral institutions to accelerate growth and reduce poverty.”

On VAT, Olayinka said there was no need for an increase while businesses and households were still grappling with the effects of ongoing reforms. He also backed the current monetary policy stance, saying the CBN should maintain it “until such a time that stability is assured around the macroeconomic environment.”

He warned that sudden reversals in portfolio inflows could be devastating and called on the government to strengthen the productive sectors of the economy.

Clifford Egbomeade, economic analyst and communications expert, said: “The IMF is right to highlight the risks associated with Nigeria’s proposed $5 billion Total Return Swap with First Abu Dhabi Bank.” He explained: “With collateral at 133.3 per cent of the loan, Nigeria pledges more than it borrows, and any naira depreciation or rise in interest rates could trigger margin calls that undermine the CBN’s policy independence.”

On VAT, Egbomeade argued that “a VAT hike now is a tax on hardship, not consumption.” He added that “hot money inflates reserve numbers without adding productive value to the economy,” warning against excessive dependence on portfolio inflows.

While supporting expanded cash transfers, he cautioned that “without fixing targeting failures in the social register, additional funding will only lead to leakages.”

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