Minimum Wage, VAT Increases To Drive Up Inflation, IMF Warns

The International Monetary Fund (IMF) has said that the Federal Government’s implementation of N30,000 new national minimum wage and increase in value-added tax (VAT) rate from 5% to 7.5% will drive up inflation in 2020.

President Muhammadu Buhari on Tuesday presented N10.33 trillion 2020 budget to the National Assembly, saying the 2020 Appropriation Bill is based on this new VAT rate of 7.5%. He noted that additional revenues from VAT will be used to fund health, education and infrastructure programmes. He also earmarked N620.28 billion for the new minimum wage.

IMF also stated that the pace of Nigeria’s economic recovery was slow just as it said the country required “a comprehensive package of measures” to reduce vulnerabilities and raise economic growth in the country.

The IMF stated this in a statement it released Tuesday night at the end of a visit by its team, led by the Senior Resident Representative and Mission Chief for Nigeria, Amine Mati.

IMF staff team led by Mati had visited Lagos and Abuja from September 25 to October 7, 2019, to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.

“Inflation will likely pick up in 2020 following rising minimum wages and a higher VAT rate, despite a tight monetary policy”, the body said, noting that

“the outlook under current policies remains challenging.”

Mati pointed out that the pace of economic recovery remained slow, saying depressed private consumption and investors’ wait-and-see attitude “kept growth in the first half of the year at two percent, a rate significantly below population growth”.

It added: “Headline inflation has fallen, reaching its lowest level since January 2016, helped by lower food price inflation.”

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