IMF Executive Board Completes the Second Review under the Policy Support Instrument for NigeriaPress Release No. 06/293
December 20, 2006
The Executive Board of the International Monetary Fund (IMF) today completed the second review under a two-year Policy Support Instrument (PSI) for Nigeria. The PSI was approved on October 17, 2005 (see Press Release No. 05/229).
The IMF's framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. Members' performance under a PSI is reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).
In commenting on the Executive Board decision, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, made the following statement:
"The authorities are to be commended for Nigeria's continued positive economic performance and their commitment to the program, as demonstrated by the successful completion of the second review. The program, which meets upper credit tranche conditionality, continues to be guided by the National Economic Empowerment and Development Strategy (NEEDS), and aims to balance spending needs with maintaining macroeconomic stability. Non-oil GDP growth prospects remain robust, external vulnerabilities have decreased with the external debt reduction stemming from the agreements with Paris Club and London Club creditors, and reserves continue to grow. Inflation has been in single-digits since mid-2006, although higher core inflation indicates some underlying pressures. Good progress has also been made with the ambitious structural reform agenda, despite some delays.
"The authorities are committed to addressing the considerable challenges that lie ahead. While infrastructure spending is clearly justified, a further fiscal expansion needs to be resisted, including from potential pre-election spending pressures. Continued adherence to the budgetary oil price rule will be essential. As the burden of macroeconomic stability will fall on monetary policy, liquidity management should be improved. Establishment of a liquidity assessment group and full implementation of the new standing facility and the new monetary policy rate by the central bank could assist in this regard. Improving the quality and accuracy of macroeconomic data would also help support decision making.
"To safeguard Nigeria's oil wealth, oil savings management guidelines will be needed, and thorough cost-benefit analyses for project selection will need to be undertaken. Improvements in public financial management and due-process procedures, and the design of prudent international reserves management regulations, will help to ensure the effective allocation of resources and combat waste. External borrowing should be on concessional terms, in order to preserve debt sustainability.
"The authorities' focus on institutionalizing structural reforms in 2007 is welcome. Right-sizing ministries, restructuring parastatals, building a more skilled civil service, and privatization will all contribute to a more effective public administration. Timely passage of important legislation by the National Assembly, including the Fiscal Responsibility Bill, would help to sustain recent reforms," Mr. Lipsky said.