IMF Executive Board Concludes 2010 Article IV Consultation with Nigeria

Public Information Notice (PIN) No. 11/25
February 17, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On February 11, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nigeria.1


Nigeria has weathered the global economic recession and its own domestic banking crisis reasonably well. Economic growth in the first half of 2010 remained above 7½ percent and is expected to reach about 8½ percent for the whole year on the back of a recovery in oil production and continued strong growth in other sectors. However, inflation has been stuck in the low double digits for the past two years and foreign reserves have been falling as the Central Bank of Nigeria has focused on maintaining exchange rate stability and low interest rates.

The fiscal stimulus intensified in 2010, notwithstanding the already solid growth performance and high inflation. After rising by 10 percent in 2009, consolidated public spending increased by 37 percent in 2010. The non-oil primary deficit has increased by 5 percentage points to 32 percent of non-oil GDP. Despite world oil prices well in excess of the budget benchmark price, the government spent all current oil revenues and drew on savings in the Excess Crude Account, at a time when stabilization called for a rebuilding of buffers. Despite high inflation, the CBN reduced the rate on its standing deposit facility. In response to pressure on the currency, the CBN sold reserves rather than raise interest rate or let the exchange rate depreciate. The CBN recently raised interest rates, but short-term real interest rates remain negative.

The economic outlook remains positive and risks are generally balanced. Nigeria’s economy is projected to grow by 7 percent in 2011, moderating gradually in subsequent years. Inflation is projected to decline to 9 percent by the end of 2011. Near-term risks to growth mostly relate to domestic factors. On the upside, a shift in government spending towards capital formation and planned reforms in the power sector could boost growth, and passage of the Petroleum Industry Bill could unlock additional investments in the oil sector. On the downside, there is a greater risk of lower rather than higher oil production. The inflation risk hinges crucially on the 2011 budget. The National Assembly could pass a more expansionary budget for 2011 than was submitted, undermining the CBN’s ability to deliver on inflation. Finally, speculation against the naira could become intense should reserves continue to fall.

Executive Board Assessment

Executive Directors noted that Nigeria’s strong external position and low debt helped mitigate the impact of the global financial crisis. However, a pro-cyclical fiscal stance and an accommodative monetary policy have resulted in high inflation and a loss in international reserves.

Directors supported the authorities’ planned fiscal consolidation to rebuild fiscal space and contain price pressures. They welcomed efforts underway to strengthen nonoil revenues, as well as the draft budget for 2011, which aims to reverse the expansion in real public spending in 2010. Directors also saw the need for a strong oil-revenue rule to prevent policy pro-cyclicality going forward. In this regard, they welcomed the authorities’ intention to establish sovereign wealth funds under the Nigerian Sovereign Investment Authority (NSIA) to shield the budget from oil-revenue volatility and enhance the management of oil wealth. However, noting that one of the NSIA funds would finance infrastructure projects, they encouraged the authorities to channel such expenditures through the budget in order to safeguard the stabilization function of the NSIA and the quality of public investment.

Directors considered the central bank’s recent increase in policy rates appropriate. Further monetary tightening may be needed should inflation pressures continue. Directors took note of the staff’s assessment of an overvaluation of the naira, and stressed that greater exchange rate flexibility would prevent one-way bets in the foreign exchange market and cushion external shocks.

Directors expressed concerns about potentially conflicting objectives of monetary policy and advised that the policy framework should focus more clearly on price stability. They generally agreed that moving gradually toward an inflation-targeting regime, once the necessary institutional underpinnings are in place, would help anchor inflation expectations. Directors generally supported scaling back the central bank’s development finance initiatives as soon as feasible while protecting the central bank’s balance sheet and pursuing reforms to deepen capital markets.

Directors commended the authorities for their actions to stabilize the financial sector. They welcomed the establishment of an asset management corporation to clean up bank balance sheets and encouraged the authorities to maintain full transparency in bank resolution.

Nigeria: Selected Economic and Financial Indicators, 2007–10
  2007 2008 2009

National income and prices

(Annual percentage change, unless otherwise specified)

Real GDP (at 1990 factor cost)

6.4 6.0 7.0 8.4

   Oil and Gas GDP

-4.5 -6.2 0.5 11.1

   Non-oil GDP

9.5 9.0 8.3 7.9

Production of crude oil (million barrels per day)

2.21 2.09 2.16 2.36

Nominal GDP at market prices (trillions of naira)

20.9 24.6 25.1 32.3

Nominal non-oil GDP at factor cost (trillions of naira)

13.1 15.2 17.4 21.4

Nominal GDP per capita (US$)

1,153 1,401 1,112 1,387

Consumer price index (annual average)

5.4 11.6 12.5 13.8

Consumer price index (end of period)

6.6 15.1 13.9 12.8

Consolidated government operations

(Percent of GDP)

Total revenues and grants

28.4 32.8 19.9 25.5

   Of which: oil and gas revenue

21.9 26.6 13.0 19.0

Total expenditure and net lending

28.7 28.2 30.4 32.3

Overall balance

-0.4 4.6 -10.4 -6.9

Non-oil primary balance (percent of non-oil GDP)

-29.1 -28.4 -27.3 -32.2

Excess Crude Account / Sovereign Wealth Fund (US$ billions) 1

14.2 19.7 7.1 3.4

Money and credit

(Change in percent of broad money at the beginning of the period)

Broad money

44.2 57.8 17.5 12.1

Net foreign assets

23.5 23.3 -10.9 -12.0

Net domestic assets

20.8 34.5 28.4 24.1

Credit to consolidated government

-10.5 -11.7 10.5 18.1

Credit to the rest of the economy

59.6 50.6 21.7 3.3

Treasury bill rate (percent; end of period)

8.7 5.4 3.4 ...
  Percentage change, unless otherwise specified)

Current account balance (percent of GDP) 2

18.7 15.7 13.3 6.6

Exports, f.o.b.

14.1 26.9 -28.0 24.1

   Oil and gas export volume

4.2 -7.5 11.1 -2.5

Imports, f.o.b.

49.5 24.0 -12.7 37.5

Terms of trade

1.2 16.6 -21.6 13.0

   Price of Nigerian oil (US$ per barrel)

71.1 97.0 61.8 78.9

Nominal effective exchange rate (end of period)

99.8 100.6 82.2 ...

Real effective exchange rate (end of period)

109.5 123.8 109.7

External debt outstanding (US$ billions)

4.0 4.5 4.0 4.8

Gross international reserves (US$ billions) 3

51.3 53.0 42.4 34.1

(equivalent months of imports of goods and services)

10.1 13.1 8.0 6.6

Sources: Nigerian authorities; and IMF staff estimates and projections.

1 Includes all components of the proposed sovereign wealth fund.

2 Large errors and omissions in the balance of payments suggest that the current account surplus is overestimated by a significant (but unknown) amount.

3 Includes $2.6 billion in 2009 on account of the SDR allocation.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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