Statement at the Conclusion of an IMF Mission to NigeriaPress Release No. 10/459
November 24, 2010
An International Mission Fund (IMF) mission led by Mr. W. Scott Rogers visited Abuja and Lagos during November 4–18, 2010 to conduct the 2010 Article IV Consultation, which involves discussion of economic policies that the IMF regularly holds with each member country. The mission met with Mr. Olusegun Aganga, Minister of Finance; Mr. Sanusi Lamido Sanusi, Governor of the Central Bank of Nigeria (CBN); Dr. Shamsudeen Usman, Minister of National Planning; other senior government officials and representatives of the private sector. Discussions focused on recent developments in the Nigerian economy, the outlook for 2010 and 2011, and the macroeconomic policy framework needed to support the authorities’ long-term goals identified in the Nigeria’s development strategy (Vision 20:2020).
Mr. Scott Rogers, IMF Mission Chief for Nigeria, issued today in Abuja the following statement:
“The Nigerian economy weathered the global economic recession and domestic banking crisis remarkably well. Real Gross Domestic Product growth this year is expected to be exceptionally high on the back of a strong recovery in oil production and continued strong growth in other sectors. However, inflation remains stubbornly high and international reserves continue to fall as the authorities support the exchange rate.
“Looking forward, the IMF team emphasized the importance of developing a consistent macroeconomic policy framework with the fiscal and monetary authorities working closely together to help achieve stability and growth.
“The IMF team supports the authorities’ intended reduction in the fiscal deficit for 2011–13. This would enable the government to rebuild safety buffers, support an expansion of credit to the private sector, and lower inflation. It recommends that expenditures be reallocated from recurrent to capital projects to support economic growth. The medium-term fiscal policy for all levels of government should be anchored by a strong oil-price rule which would align government spending with available resources.
“The proposed Nigeria Sovereign Investment Authority (NSIA) could help the country escape the destabilizing boom-bust cycle it has experienced over the years. Embedding a well-defined oil price rule in legislation could help maintain fiscal discipline. In the mission’s view, federal, state and local government budgets remain the most appropriate vehicles for allocating public resources to domestic infrastructure projects. Expenditures from the proposed domestic infrastructure component of the NSIA would need to be closely coordinated with fiscal and monetary policy, as well as with the investment projects contained in government budgets.
“The team recommended that the CBN conduct monetary policy with a view to reducing inflation to a single-digit level. In this regard, the team supported the recent increase in the monetary policy rate, but noted that the CBN needs to make better use of open market operations to make its policy rate effective. The team understood the concern about the stagnation of aggregate credit to the private sector. Slower growth in credit is not unexpected in the aftermath of the unsustainable credit growth driven by equity-related lending. Efforts to boost lending to small businesses should be promoted through targeted reforms, such as an effective credit risk bureau, better collateral execution and bankruptcy procedures, and improved land tenure system.
“The quick and firm interventions by the CBN were instrumental in stabilizing the financial sector, and the IMF team found that substantial progress is being made in making the Asset Management Corporation of Nigeria (AMCON) operational and in strengthening banking supervision. Recapitalizing the insolvent banks and returning them to private hands as quickly as possible is critical. The team highlighted the importance of establishing clear criteria for eligible assets and ensuring full transparency and accountability of AMCON’s operations and financial results.
“Key target in the Vision 20:2020 strategy is to transform Nigeria into a one of the world’s top 20 economies by the year 2020. The team supported the strategy’s emphasis on the importance of a sound macroeconomic environment to promote private sector growth. However, achieving the high level of public investment outlined in the strategy will require a major shift in public resources from recurrent to capital spending, substantial increase non-oil revenue, and substantial expansion in budget implementation capacity. It will be very important, therefore, that the public capital projects be clearly prioritized in the event that fiscal resources are inadequate to fully implement the Vision.”