IMF
IMF warns Nigeria, other developing nations of growing fiscal gap as resource revenue, aid decline
Developing countries, including Nigeria, are facing a worsening fiscal shortfall as income from natural resource extraction shrinks and support from wealthier nations weakens.
This has sparked renewed concern over their ability to finance development priorities.
The warning was underscored in the latest annual update of the International Monetary Fund’s World Revenue Longitudinal Database. According to the update, revenues from extractive industries and foreign aid grants for general government spending have dropped sharply over the past two decades. Combined, these sources have fallen by 3.8 percentage points of GDP since 2000.
Although many countries have strengthened tax collection, the gains—2.6 percentage points of GDP—have offset only about two-thirds of the losses, leaving a widening hole in public finances.
The data show that falling non-tax revenues from extractive industries such as oil, gas, and mining have been the single largest driver of the decline across both low-income countries and emerging markets.
These revenues typically include royalties, profit-sharing arrangements, and dividends from state-owned enterprises.
At the same time, a steady drop in foreign aid grants for general spending has added to the pressure, further tightening fiscal space for governments already struggling with rising development needs.
To close the gap, the IMF notes, countries will need a stronger and more reliable domestic tax base. Without major improvements in tax collection, many affected nations risk missing their economic development goals.
“To succeed, they need sustained investment in domestic tax policy and tax administration, supported by effective institutions,” the report emphasized.
The IMF is supporting member countries through targeted capacity development programs, offering technical assistance and training—often with donor nations and international organizations—to strengthen tax systems and institutions.
These efforts aim to reduce dependence on volatile revenue sources like commodity earnings and external aid, while boosting what is known as domestic revenue mobilization.
This, in turn, improves fiscal resilience and supports more stable long-term growth.
The Fund also highlighted the importance of robust, high-quality data for shaping effective policy responses. Its database, covering 195 economies over several decades, provides detailed insights into both tax and non-tax revenue trends, offering policymakers and researchers a critical tool for benchmarking performance and identifying reform priorities.
As traditional revenue lifelines weaken, the IMF stresses that developing economies must urgently build stronger internal revenue systems or risk deeper fiscal strain in the years ahead.
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