Press Release: Statement at the Conclusion of the 2007 Article IV IMF Staff Mission to Nigeria
November 26, 2007Press Release No.07/274
The following statement was issued today in Abuja after the conclusion of an International Monetary Fund (IMF) staff mission to Nigeria for the 2007 Article IV Consultation:
"An IMF mission led by Mr. David Nellor, Senior Advisor in the African Department, visited Abuja during November 7-20, 2007 to conduct the 2007 Article IV Consultation, which is the process that involves economic analysis and discussion of policies that the IMF regularly conducts with each member country. The mission met with Dr. Shamsuddeen Usman, Minister of Finance; Professor Chukwuma Soludo, Governor of the Central Bank of Nigeria (CBN); other members of the Economic Management Team; and senior officials and representatives of the private sector. Discussions focused on recent developments in the Nigerian economy and the outlook for 2008 and the medium term.
"For several years, Nigeria has achieved strong macroeconomic performance supported by prudent policies and the introduction of broad-based economic reform. These policies and reforms—notably careful management of oil revenues under the oil price fiscal rule—have been the key to accelerating economic growth, declining inflation and much stronger budgetary and external performance. The successful completion of Nigeria's two-year Policy Support Instrument with the IMF in mid-October 2007 is an important milestone. The economic progress and reform gains have transformed the policy environment, and have created new challenges.
"An immediate challenge is to manage Nigeria's oil revenues and saving to preserve macroeconomic stability. The mission welcomes the road map to stability offered by the government's medium-term fiscal strategy, which covers all levels of government. Among the essential features of the strategy are that it proposes spending levels that can be absorbed by the economy while allowing room for infrastructure investment. It is most important that the recent agreement among the three levels of government on the use of the oil saving should be implemented in a way that preserves macroeconomic stability. This would mean that additional allocation from the excess crude account should be saved. If it is decided to increase spending, then the macroeconomic risks could be reduced by undertaking infrastructure spending with a high import content. Large increases in domestic spending would risk sharply higher inflation, much slower growth over the medium term, or both.
"There is scope to pursue Nigeria's ambitious goals for growth, infrastructure development, and the Millennium Development Goals within current spending plans. The government could identify areas where it can reduce or share its role, including through privatization and public-private partnerships. Government spending priorities need to be clearly defined. And the management of public finances at all three tiers of government should be strengthened to yield better value for money from public spending.
"The private sector has a pivotal role in securing sustainable growth. Important progress has been made in creating an enabling environment for private sector activity, but more needs to be done. Elements of a strategy might include: supporting wider financial sector activity throughout the economy; promoting the rule of law and corporate governance; and facilitating trade, for instance by building further on the changes brought about by concessioning the ports.
"In the near term, the mission expects that growth will remain robust, with demand from both public and private sectors contributing to growth. Implementation of the 2008 budget in line with the proposed medium-term fiscal strategy would help to ensure strong growth and single-digit inflation. As the authorities continue to develop new approaches to monetary policy, it will be important to monitor developments carefully, in case inflationary pressures emerge.
"The financial sector is evolving rapidly and the authorities need to enhance their capacity to meet the challenges that this poses. With both domestic and foreign investors increasing their appetite for Nigerian assets, it is essential that market participants and regulators alike have a good grasp of the new instruments and developments in the market. Finalizing and implementing a robust framework for debt management will also help safeguard the strong external position and the domestic financial system."