IMF Executive Board Concludes 2012 Article IV Consultation with Nigeria

Public Information Notice (PIN) No. 13/36
March 28, 2013

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 6, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the 2012 Article IV consultation with Nigeria.1

Background

Macroeconomic performance has been broadly positive over the past year. Real gross domestic product (GDP) growth is projected to have decelerated slightly to 6.3 percent, reflecting the effects of the nationwide strike in early 2012, floods in the fourth quarter of 2012, and continued security problems in the north. Annual inflation increased from 10.3 percent (end-of-period) in 2011 to 12.3 percent in 2012, owing mainly to the adjustment of administrative prices of fuel and electricity; large increases in import tariffs on rice and wheat; and the impact of floods in Q3. The external position has strengthened and international reserves rose from US$32.6 billion at end-2011 to US$44 billion at end-2012 (5½ months of prospective imports), driven by sustained high oil prices, stricter administration of the gasoline subsidy regime, and strong portfolio inflows.

The fiscal policy stance was tightened in 2012 and fiscal buffers are being rebuilt. The non-oil primary deficit of the consolidated government is estimated to have narrowed from about 36 percent of non-oil GDP in 2011 to 30.5 percent in 2012, mainly due to expenditure restraint. Monetary policy remained tight in 2012 in response to inflationary pressures. The central bank kept its policy rate unchanged during the year but raised the cash reserve requirement for banks from 8 percent to 12 percent and lowered allowable open foreign exchange position for banks. Financial soundness indicators point to continued improvements in the health of the banking system.

In 2013, growth is expected to recover to above 7 percent. Inflation is projected to decline below 10 percent, supported by the tight monetary policy stance and ongoing fiscal consolidation. The key downside risks are a large drop in world oil prices; and slow progress in building consensus around key fiscal reforms.

Executive Board Assessment

Executive Directors commended the authorities for prudent macroeconomic policies that have underpinned a strong economic performance in recent years. Looking ahead, Directors agreed that widespread unemployment and poverty remain key challenges for policymakers, and called for renewed efforts to make economic growth more broad-based and inclusive.

Directors supported the authorities’ strategy of consolidating the fiscal position while opening up policy space for needed investment in infrastructure and human capital. To this end, they underscored the need to improve tax administration, better prioritize public expenditure, strengthen public financial management, and improve the fiscal framework. In particular, they encouraged the authorities to reduce poorly-targeted fuel subsidies, adopt a rule to set the reference oil price in the budget, and fully operationalize the Sovereign Wealth Fund as soon as possible. Efforts to mobilize public support for these reforms should be intensified.

Directors considered the current tight monetary stance to be consistent with the authorities’ objective of reducing inflation to single digits. They also took note of the staff’s assessment that the exchange rate in real effective terms is broadly in line with fundamentals.

Directors commended the authorities’ success in restoring financial stability after the 2009 banking crisis. In light of this achievement, they recommended winding down the operations of the asset management company to curb moral hazard and fiscal risks. Directors welcomed the central bank’s commitment to address supervisory and regulatory gaps identified in the Financial Stability Assessment Update, particularly the need to strengthen cross-border supervision and the regime against money laundering and terrorism financing.

Directors concurred that wide-ranging reforms are key to make growth more inclusive. They agreed on the importance of supporting sectors with high employment potential, not through protectionist measures or tax incentives but rather with initiatives to improve governance, the investment climate, and competiveness. Directors welcomed reforms underway in the energy sector, and looked forward to an early passage of the Petroleum Industry Bill which would boost investment, government revenue, and fiscal transparency. They also encouraged the authorities to promote market-based access to credit for small- and medium-sized enterprises.


Nigeria: Selected Economic and Financial Indicators, 2009–2013
 
  2009 2010 2011 2012 2013
  Act. Act. Act. Act. Proj.
 

National income and prices

(Annual percentage change,
Unless otherwise specified)

Real GDP (at 1990 factor cost)

7.0 8.0 7.4 6.3 7.2

Oil and Gas GDP

0.5 5.2 -0.6 1.8 4.9

Non-oil GDP

8.3 8.5 8.9 7.1 7.5

Production of crude oil (million barrels per day)

2.2 2.5 2.4 2.4 2.5

Nominal GDP at market prices (trillions of naira)

25.1 34.4 37.8 43.1 48.1

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

17.7 19.9 22.5 26.9 31.1

Nominal GDP per capita (US$)

1,110 1,465 1,522 1,637 1,686

Consumer price index (end of period)

12.5 13.7 10.8 12.7 8.2

Current account balance (percent of GDP) 1

8.3 5.9 3.6 4.7 4.0

Consolidated government operations

(Percent of GDP)

Total revenues and grants

17.8 20.0 29.9 28.1 26.7

Of which: oil and gas revenue

10.6 14.0 23.4 21.5 19.9

Total expenditure and net lending

27.3 26.9 29.4 27.1 26.7

Overall balance

-9.5 -6.9 0.5 0.9 0.0

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

-26.8 -34.3 -36.0 -30.4 -28.3

Excess Crude Account / SWF (US$ billions) 2

7.1 2.7 4.6 9.7 18.1

Money and credit

(Change in percent of broad money at the beginning of the period, unless otherwise specified)

Broad money

17.1 6.9 15.4 10.0 18.1

Net foreign assets

-10.9 -10.3 5.5 13.9 12.4

Net domestic assets

28.0 17.2 9.9 -3.9 5.7

Treasury bill rate (percent; end of period)

4.0 7.5 14.3 ... ...

External sector

(Annual percentage change,
unless otherwise specified)

Exports of goods and services

-33.4 36.5 20.1 6.5 0.7

Imports of goods and services

-22.6 36.6 27.2 4.2 3.5

Terms of trade

-16.3 10.0 9.1 1.0 -2.1

Price of Nigerian oil (US$ per barrel)

61.8 79.0 109.0 110.1 104.4

Nominal effective exchange rate (end of period)

82.2 83.6 82.2 ... ...

Real effective exchange rate (end of period)

110.0 120.7 119.4

Gross international reserves (US$ billions)

42.4 32.3 32.6 45.9 53.4

(Equivalent months of imports of goods and services)

7.4 4.5 4.3 5.9 6.4
 

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

1Large errors and omissions in the balance of payments suggest that the current account surplus is overestimated by a significant (but unknown) amount.

2Consistent with federal, state, and local governments.


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: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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