IMF Executive Board Completes the Fourth Review Under the Policy Support Instrument for NigeriaPress Release No. 07/230
October 15, 2007
The Executive Board of the International Monetary Fund (IMF) has completed the fourth 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 PSI supported Nigeria's efforts to entrench macroeconomic stability and pursue ongoing strong structural reforms.
In completing the review, the Executive Board commended the strong macroeconomic performance under the PSI and granted waivers for the nonobservance of the assessment criterion on reserve money and for two structural assessment criteria.
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).
Following the Executive Board discussion, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, made the following statement:
"The Nigerian authorities' economic program, which has been supported under the IMF's Policy Support Instrument, is guided by the National Economic Empowerment and Development Strategy. The program succeeded in balancing spending needs with macroeconomic stability, and led to the introduction of broad-based structural reforms.
"The authorities are to be commended for Nigeria's strong macroeconomic performance under the program. Prudent policies and structural reforms—most notably the political accord on the oil price fiscal rule—have been pivotal in delivering robust economic growth, lower inflation, and significantly strengthened fiscal and external positions. Going forward, developing a strong policy framework, supported by continued political commitment, will be critical to preserving the recent macroeconomic gains and achieving Nigeria's social goals.
"Fiscal outcomes in the first half of 2007 were broadly satisfactory. Vigorous implementation of the authorities' planned fiscal measures will be needed to achieve the end-2007 federal government deficit target. In particular, it will be crucial to contain total domestic spending to levels consistent with the authorities' medium-term fiscal targets. The current national discussion on the use of oil revenues and savings offers the prospect of a lasting agreement on a fiscal framework that ensures macroeconomic stability.
"Inflation has been in line with expectations, but the central bank needs to remain vigilant to ensure that inflationary pressures do not reemerge. The monetary data and monetary policy framework have been improved, which should allow monetary targets to be achieved on a more consistent basis. Greater exchange rate flexibility would support meeting the targets.
"The authorities have made significant progress on their ambitious structural reform agenda. Ongoing structural reforms are crucial to support private sector development and reduce poverty. Of particular importance will be the reform of the electricity sector to improve the electricity supply," Mr. Lipsky said.