Press Release: IMF Executive Board Completes the First Review under the Policy Support Instrument for Nigeria
April 17, 2006Press Release No. 06/73
The Executive Board of the International Monetary Fund (IMF) today completed the first 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, Ms. Anne O. Krueger, First Deputy Managing Director and Acting Chair, made the following statement:
"The authorities are to be commended for Nigeria's performance under their program, which the Fund is supporting with a Policy Support Instrument (PSI). Strong macroeconomic performance and the implementation of an ambitious reform agenda are improving the environment for private sector growth and increasing investor confidence. Non-oil sector GDP growth has accelerated and inflationary pressures have subsided, while the reform efforts have also laid the foundation for a debt relief agreement between Nigeria and its Paris Club creditors, which will free up resources to address social and infrastructure needs. Looking ahead, the authorities are committed to continue the ambitious macroeconomic and structural policies to entrench macroeconomic stability, strengthen public financial management, and reduce the costs of doing business further.
"The 2006 budget envisages increased outlays in social areas and for major infrastructure projects, which will promote medium-term growth and help achieve the Millennium Development Goals, but will require careful public financial management, also at the state level. In this context, it will be important that safeguards are in place to ensure that fiscal targets are met and that the additional spending is well-focused. Meanwhile, adherence to the fiscal rule will ensure that all three tiers of government set aside oil revenue in excess of the reference oil price.
"Monetary policy is anchoring macroeconomic stability. Sales of foreign exchange through auctions and the issuance of CBN and Treasury bills play an important role in this regard, and the authorities are encouraged to increase the use of these indirect policy instruments and to allow greater exchange rate and interest rate flexibility to dampen inflationary pressures effectively.
"Substantial progress has been made in implementing the authorities structural agenda, including an ambitious bank consolidation, the liberalization of Nigeria's import tariff regime, the introduction of a wholesale auction for foreign exchange, continued efforts to reduce corruption, and progress in restructuring and privatizing state-owned enterprises. The authorities will continue their strong structural agenda including by further efforts to remove impediments to growth, and by strengthening institutions through the passage of a Fiscal Responsibility Bill, a public sector and civil service reform, improved governance and transparency in the oil and gas sector, and the continued privatization or strengthening of state-owned enterprises," Ms. Krueger said.