Nigeria and other developing economies may face tougher financial conditions as the International Monetary Fund (IMF) warns that rising debt costs and shrinking access to foreign funding are putting pressure on governments to find new sources of revenue and investment.
The warning was issued by IMF Managing Director Kristalina Georgieva after the G20 Finance Ministers and Central Bank Governors Meeting in Asheville, North Carolina, where she discussed the major challenges confronting the global economy.
Georgieva said governments in emerging and low-income economies were being squeezed by the cost of servicing existing debts at a time when obtaining new financing had become increasingly difficult.
She noted that borrowing costs had remained high because of interest rates in advanced economies, making it more expensive for developing countries to refinance their obligations.
At the same time, she said the decline in external financing had left many poorer countries with fewer options for funding development programmes and responding to economic shocks.
The IMF chief warned that the pressure could have serious consequences for public spending because governments forced to devote more money to debt servicing could have less available for infrastructure, healthcare, education and other essential services.
“Public debt—at almost 100 percent of GDP worldwide—now exceeds its post-World War II highs and is set to climb further,” Georgieva said.
She said the debt situation in emerging and low-income economies had improved in recent years, but stressed that the progress was not uniform and that some countries continued to face serious debt problems.
According to her, the reduction in official development assistance, alongside weaker financing from non-Paris Club creditors, had further narrowed the financial space available to low-income countries.
Georgieva argued that countries whose debts were no longer sustainable would require faster and more decisive intervention.
She also called for improvements in the process used to restructure sovereign debt, stressing that vulnerable economies should not remain stuck for years while trying to resolve debt problems.
For countries that still have sustainable debt positions, the IMF chief urged faster implementation of the IMF-World Bank Three-Pillar Approach.
She said governments also needed to improve their domestic policies, particularly those relating to revenue collection and economic growth, while creating an environment capable of attracting private investment.
The issue has particular implications for Nigeria, where the IMF has already been pressing for stronger revenue mobilisation as the government seeks to increase spending while managing fiscal pressures.
In its 2026 Article IV Consultation report on Nigeria, the Fund recommended a number of additional tax measures, including changes involving VAT, fuel products and telecommunications services.
“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 IMF said.
The Fund, however, recognised the social risks associated with introducing additional taxes in Nigeria.
It warned that the government would have to consider the country’s poverty and food insecurity situation before implementing further measures.
“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 added.
The IMF’s revenue recommendations come against the backdrop of widespread concerns over the cost of living in Nigeria, with households facing pressure from higher food and transportation costs as well as insecurity in several parts of the country.
The telecommunications sector has previously resisted additional taxation, particularly the proposed five per cent excise duty on telecom services. Operators, subscribers and consumer groups opposed the measure, which was eventually suspended and later scrapped.
Telecom operators had argued that the industry was already burdened by multiple taxes and other rising operating costs, including energy expenses, foreign exchange challenges and infrastructure deficiencies.
They warned that imposing additional charges could ultimately lead to higher prices for calls and data services.
Additional taxation on fuel products has also faced opposition from labour and private-sector organisations, particularly because of the effect of petrol subsidy removal on household expenses and businesses.
Despite the concerns, the IMF believes Nigeria has considerable room to increase government revenue through a combination of tax policy changes and improved administration.
The Fund estimated that revenue-enhancing tax policies could raise additional revenue equivalent to 3.9 per cent of GDP within three years.
A proposed two-percentage-point increase in VAT was identified as the biggest single contributor, with the IMF estimating that it could generate 0.8 per cent of GDP.
The Fund also identified the removal of pioneer status incentives and changes to free-zone regulations as potential sources of additional revenue, estimating a combined gain of 0.7 per cent of GDP.
Changes to capital gains taxation and personal income tax bands, allowances and rates were each projected to contribute 0.6 per cent of GDP.
A top-up tax on multinational companies and large firms was estimated to raise another 0.5 per cent of GDP, while rationalising investment allowances could provide 0.4 per cent.
Measures under the category described as “others”, including telecom excise duties and a carbon tax on fuel, were projected to generate another 0.4 per cent of GDP.
The IMF said Nigeria could also make significant gains without relying entirely on new taxes by improving tax administration.
It projected that better compliance, stronger enforcement and efforts to bring more businesses into the formal tax system could generate another 3.1 per cent of GDP.
Fiscalisation, electronic invoicing and cross-checking of tax deductions were estimated to account for 1.5 per cent of GDP, while expanded taxpayer registration and the consolidation of taxpayer databases could provide another 1.6 per cent.
The Fund acknowledged that some of Nigeria’s recent tax reforms would initially reduce government revenue because they were designed to provide relief to households and smaller businesses.
Those revenue-reducing measures were estimated to cost about 2.4 per cent of GDP, mainly through expanded VAT input credits, additional zero-rated items and exemptions for basic consumption goods.
Lower corporate income tax obligations for smaller businesses and reduced personal income tax rates and expanded exemptions for low-income earners were also identified as factors that could reduce revenue.
Overall, however, the IMF estimated that Nigeria could record a net increase in government revenue equivalent to 4.6 per cent of GDP over the medium term when revenue-enhancing measures, administrative reforms and revenue-reducing policies are considered together.
Beyond Nigeria’s fiscal challenges, Georgieva warned that the global economy was entering a period in which governments would have to contend with several overlapping risks.
She identified possible energy shocks, difficulties in bringing inflation fully under control and uncertainty surrounding the effect of artificial intelligence on productivity and financial stability among the major concerns.
The IMF still expects the global economy to grow by about three per cent in 2026, with Georgieva saying economic activity had remained more resilient than initially expected.
However, she cautioned that the overall growth outlook should not obscure the difficulties confronting individual countries, particularly economies with weak public finances and limited access to international funding.
She called for governments to establish credible medium-term plans for strengthening their finances and urged central banks to continue prioritising price stability.
According to Georgieva, structural reforms that encourage investment and economic activity would also be necessary because stronger growth could improve countries’ ability to service their debts.
She further warned that growing economic imbalances between countries could pose a threat to global trade and financial stability.
The IMF said global imbalances increased by 0.7 per cent of global GDP in 2025, marking the biggest increase in a decade.
Georgieva said countries with large surpluses and those running major deficits would both need to take corrective measures to reduce the risks created by those imbalances.