Press Release: Statement by IMF Staff Mission at the Conclusion of 2005 Article IV Consultation Discussions with Nigeria
March 29, 2005
"A staff team from the International Monetary Fund, led by Mr. Menachem Katz, visited Nigeria during March 8 -25, 2005 to conduct the 2005 Article IV consultation discussions, review performance in 2004 under Nigeria's home-grown program (NEEDS), and discuss the outlook for 2005 and the medium term. The team met with President Olusegun Obasanjo; the Minister of Finance, Dr. (Mrs.) Ngozi Okonjo-Iweala; the Governor of the Central Bank of Nigeria (CBN), Professor Charles Soludo; other senior officials of the government; representatives of the private sector, including the banking industry; and members of civil society and the international community. Overall, policy performance in 2004 was commendable. The authorities' macroeconomic policy framework in 2005, which builds on the unprecedented achievements of 2004, is consistent with continued macroeconomic stability.
"In 2004, policy implementation under NEEDS signaled a clear break from past imprudent practices. The key objectives of the 2004 program were achieved, namely to restore macroeconomic stability, enhance predictability and transparency of policies, and reduce the economy's vulnerability to oil price shocks. As a result, foreign direct investment expanded in 2004 and real GDP is estimated by the Federal Office of Statistics to have increased by 6 percent and non-oil GDP by 7.4 percent. Prudent fiscal management and savings by all tiers of government of the significant oil revenue windfall, along with tight monetary policy, contributed to lower inflation, a more stable exchange rate, and a significant build-up of international reserves. Several important reforms have also been initiated to enhance the transparency and accountability of public sector policies and institutions and to address Nigeria's deep-rooted macroeconomic and structural challenges; these reforms include implementation of the Extractive Industries Transparency Initiative (EITI) in Nigeria, the publication of monthly oil revenue distributed to the three tiers of government, a crackdown on corruption, civil service reform, and the passage of the Power Bill and the Public-Private Partnerships Bill.
"The outlook for 2005 remains positive, with real GDP projected to grow by 7 percent on the basis of higher crude oil and gas production and non-oil GDP by 5 percent. The mission stressed the need for the authorities to build on the macroeconomic achievements of 2004 to lay the foundation for faster growth and poverty reduction and to help achieve the Millennium Development Goals. The administration recognizes that the 2005 appropriation bill passed by the National Assembly is highly expansionary and has resolved to ensure that fiscal policy is consistent with the objective of maintaining macroeconomic stability in 2005. The spending increase, which is explained by Nigeria's enormous development needs, will require careful macroeconomic management if it is to be absorbed effectively. In particular, monetary policy will need to continue to be tight, targeting a 15 percent increase in broad money in 2005. In light of the envisaged increase in fiscal spending, more of the burden of consolidating macroeconomic stability will fall on the central bank. Overall, macroeconomic policies are consistent with the objectives of maintaining inflation below 10 percent and continued build up of international reserves.
"On the structural front, the mission agrees with the authorities' focus on improving governance and transparency, enhancing the efficiency of the public sector, strengthening the financial sector and improving the business environment, including plans to institutionalize reforms with several important bills such as the Fiscal Responsibility Bill, the CBN bill, Banking and Other Financial Institutions, procurement, EITI, and tax reform bills. The mission also supports the common external customs tariff scheduled to go into effect on July 1, 2005 in the context of the Economic Community for West African States (ECOWAS), as well as plans to phase out import bans by January 2007 and to re-energize the privatization process.
"The mission encourages the authorities to regularize relations with external creditors. The debt sustainability analysis prepared by the mission suggests that Nigeria's external debt is sustainable at current high oil prices. However, sensitivity analysis shows that the debt situation becomes unsustainable at historical oil prices (US$21 per barrel on average in 2006-25 as compared with US$37 in the baseline).
"The authorities reiterated their intention to continue with the current practice of intensified surveillance by the IMF. Fund staff will continue monitoring the authorities' quarterly fiscal and monetary targets, as well as key structural reform measures. The IMF's Executive Board is expected to discuss the staff's report on the 2005 Article IV consultation with Nigeria within the next few months. Nigeria has no outstanding obligations to the Fund."