## 1. Refined Oil Production—A Potential Game Changer for Nigeria

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### Background: recovering but not fast enough
- Recovery drivers:
  - Oil prices averaging about double their 2016 trough.
  - Tight monetary policy; greater convergence towards a unified exchange rate; increased access to international markets; strides in improving the business climate.
- Persistent constraints:
  - A large infrastructure gap; low revenue mobilization; governance and institutional weaknesses; continued foreign exchange (FX) market restrictions; banking sector vulnerabilities.
- Consequences and context:
  - Growth below historical trends; falling real GDP per capita; weak human development outcomes.
  - Demographic urgency: current trends could make Nigeria the third most populous country in the world by 2050.
  - Political opportunity: reelection of President Buhari and APC parliamentary majority to accelerate ERGP priorities.

### Recent macroeconomic developments (key findings)
- Growth and labor:
  - Real GDP: 1.9 percent in 2018, up from 0.8 percent in 2017.
  - Agricultural sector: about 47 percent of the workforce and 25 percent of GDP; growth below historical trend of 3-4 percent.
  - Unemployment: 23.1 percent in 2018Q3, up from 20.4 percent in 2017Q4.
  - Labor force growth: 4½ percent over the same period.
- Inflation and monetary conditions:
  - Headline inflation: 11.4 percent at end-2018, down from 18½ percent at end-2016.
  - Core inflation: 10.4 percent in 2018.
  - CBN tight monetary policy; credit to private sector continued to contract.
- External buffers and capital flows:
  - Foreign portfolio inflows: record holdings of mostly short-term local debt and equity of about $30 billion at end-March 2018.
  - Gross international reserves: peak of $47.5 billion in April 2018; closed 2018 at $42.5 billion after outflows.
  - Outflows of about $9 billion during April-November 2018.
  - November 2018 Eurobond issuance: $2.86 billion, three-times oversubscribed.
- FX market segmentation and rates:
  - IEFX window: 70-80 percent of transactions; stable at around N/$360-365.
  - CBN official window at N/$305 (mainly for petroleum imports and limited pre-determined quantities).
  - Retail SMIS window at N/$330-345; increased sales at N/$360.
  - CBN shifted from net purchaser earlier in the year to selling about 35-40 percent of FX traded in the IEFX window in late 2018.

### Outlook and projections (under current policies)
- Baseline medium-term projection: growth would hover around 2½ percent absent strong structural reforms, implying no per capita growth.
- Sector outlook:
  - Non-oil non-agricultural growth projected to remain sluggish.
  - Second half of 2018 non-oil non-agriculture growth: 2.7 percent y-o-y.
- CBN policy orientation: focus on exchange rate stability expected to contain inflation but risk worsening competitiveness through an overvalued exchange rate; high financing costs to constrain private sector credit.
- Selected economic indicators (annual percentage change, projections included):
  - Real GDP (at 2010 market prices): -1.6 (2016), 0.8 (2017), 1.9 (2018), 2.1 (2019), 2.5 (2020), 2.4 (2021), 2.7 (2022), 2.6 (2023), 2.6 (2024).
  - Non-oil, non agriculture real GDP: -1.7 (2016), -0.6 (2017), 2.0 (2018), 1.8 (2019), 2.0 (2020), 2.1 (2021), 2.4 (2022), 2.4 (2023), 2.4 (2024).
  - Consumer price index (annual average): 15.7 (2016), 16.5 (2017), 12.1 (2018), 11.7 (2019), 11.7 (2020), 11.3 (2021), 11.4 (2022), 11.1 (2023), 11.0 (2024).
  - Current account balance (percent of GDP): 0.7 (2016), 2.8 (2017), 2.1 (2018), -0.4 (2019), -0.2 (2020), -0.1 (2021), 0.1 (2022), 0.1 (2023), 0.0 (2024).
  - Gross international reserves (US$ billions): 27.6 (2016), 39.8 (2017), 42.6 (2018), 38.5 (2019), 35.6 (2020), 33.3 (2021), 33.4 (2022), 33.8 (2023), 34.6 (2024).
  - Reserves (equivalent months of imports of G&Ss): 6.5 (2016), 7.2 (2017), 7.1 (2018), 6.3 (2019), 5.7 (2020), 5.1 (2021), 5.1 (2022), 4.9 (2023), 4.5 (2024).

### Risks and macro-financial linkages
- Risk tilt: moderately tilted downwards.
- Upside risks:
  - Oil prices rise due to global disruptions or supply bottlenecks.
  - Bold post-election reforms boosting confidence and investment.
  - Increased investments in oil sector and subsiding farmer/herder clashes.
- Downside risks:
  - Delays in reform implementation.
  - Persistent fall in oil prices or reduced oil production.
  - Increased security tensions.
  - Tighter global financial market conditions causing market sell-offs and reserve/FX pressure.
  - Fiscal sustainability risks if interest rate costs rise further.
- Financial sector vulnerability and transmission:
  - Banks’ exposure: about one third of loan book to the oil sector.
  - Possible cascade: oil shocks → higher NPLs in sector → increased bank risk aversion → shrinking private credit → constrained non-oil growth → lower revenues → reduced liquidity and FX availability → worse fiscal outcomes and increased government borrowing → crowding out private credit.

### Box 1 — Refined Oil Production: potential impacts of a new refinery
- Current refining paradox:
  - Crude production: almost 2 million barrels per day (mbpd).
  - Domestic deliveries to refineries (2008–2017 average): about 0.08 mbpd.
  - Theoretical refining capacity: 0.445 mbpd.
- Dangote refinery (under construction near Lagos):
  - Maximum refining capacity: 0.65 mbpd.
  - Expected changes once operational:
    - Reduce imports of refined products by 0.45 mbpd.
    - Increase exports of refined products by 0.2 mbpd.
    - Decrease net exports of crude oil to refine oil by 0.65 mbpd.
  - Projected macro effects under the envisaged product mix:
    - Boost growth by 0.3-0.4 percentage points in 2022.
    - Improve the trade balance by $2 billion per year (net after reducing both net crude exports and refined oil imports).
  - Timing:
    - Benefits could materialize as soon as 2020 (current target), but staff estimates include benefits from 2022 onwards—providing upside potential to baseline projections.
  - Employment and spillovers:
    - Construction stage employment: directly or indirectly over 180,000 people including on-site contractors.
    - Operational stage: additional indirect employment through retail outlets, filling stations, and transport.
    - Potential positive spillovers to West and Central Africa via increased supply and reduced costs for refined products.

### Spillovers and regional implications
- Nigeria accounts for 70 percent of ECOWAS exports; CBN preference for naira stability helps sustain partners’ exports.
- Growth spillover multiplier: a 1 percentage point increase in Nigeria’s growth is estimated to increase regional growth by 1/3 percentage point.
- Remaining FX restrictions have increased food imports in neighboring countries, with a portion reportedly smuggled back into Nigeria.

### Authorities’ views (summarized)
- Authorities see decline in inflation, FX window convergence, and improved external buffers as policy successes.
- Growth expectations: 3 percent in 2019 and close to 4 percent in 2020; acknowledge ERGP’s initial 7 percent target may have been too ambitious.
- Constraints acknowledged: slow business climate reform implementation, power sector delays, insufficient anti-corruption progress, lack of new capital investment to boost oil production.
- Main risks cited: softening oil prices, geopolitical trade tensions, delays in budget execution, persistent security challenges, tightening global conditions.
- Commitment: back structural reforms with adequate legislative provisions to guarantee continuity and consistency.

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### A comprehensive package of urgent policy reforms (staff adjustment scenario and impact)

### Overview and growth impact
- Policy package includes:
  - Revenue-based fiscal consolidation while increasing social and capital spending aligned with improved spending efficiency and strengthened governance.
  - Tight monetary policy while improving the CBN's policy framework.
  - A unified and more flexible exchange rate.
  - A stronger banking sector.
  - Parallel structural reforms to tackle longstanding weaknesses inhibiting diversification.
- Projected impact:
  - Could boost growth to about 4.5 percent within a five-year period—with about +1 ppt from appropriate macroeconomic policies in a context of reduced vulnerabilities.

### A. Fiscal Policy: Increase Non-Oil Revenue and Make Room for Priority Expenditures
- Findings and current position:
  - Provisional federal government (FG) deficit: 4 percent of GDP in 2018.
  - Capital expenditures increased by 35 percent year-on-year in 2018.
  - Interest payments-to-FG revenue ratio: 60 percent in 2018.
  - MTFF projects FG overall fiscal deficit declining by 2.3 percent of GDP in 2019 relying on revenue of 4.8 percent of GDP, driven by oil revenues (+1 ppt) and one-off gains.
  - Absent major revenue reforms, overall FG deficit-to-GDP would expand to 4.7 percent in 2019 and hover around just below 4 percent in medium term.
  - Consolidated government debt-to-GDP would increase to almost 36 percent by 2024 under that scenario; interest payments-to-FG revenue ratio to 74.6 percent.
- Staff adjustment scenario targets:
  - Reduce overall consolidated government non-oil primary deficit from 7.4 percent of GDP in 2018 to 4.1 percent of GDP by 2024.
  - Contain interest payments to below one-third of FG revenue.
  - Improve non-oil revenue-to-GDP ratio by +8 ppt by 2024.
  - Allow higher capital spending (+4½ ppt) and recurrent spending (+½ ppt) once revenue measures are secured.
- Revenue reforms proposed (highlights):
  - Comprehensive VAT reform: move towards a VAT with full crediting of input tax; reform base, remove exemptions, increase threshold, and increase rate to 10 percent (in 2020).
  - Additional excises with broader scope and higher rates increasing to at least ECOWAS levels.
  - Aggressive removal of tax exemptions/incentives; remove customs duty waivers; ensure capital gains tax implemented; reforms to CIT and education tax.
  - Tax administration measures: educate taxpayers; increase use of ITAS; more tax audits; implement Action plan for TADAT weaknesses; develop taxpayer register and arrears management; automated interface between FIRS and TSA.
- Cumulative impact (2019–24) — staff calculations (Percent of GDP):
  - Total Tax Policy and Administration Measures: 7.4
    - VAT: 3.2 (including increasing compliance to 65 percent by 2023 and increasing rate to 10 percent in 2020)
    - CIT and education tax: 1.8
    - Excises and levies: 1.3
    - Removal of customs duty waivers: 0.2
    - FGN Internally Generated Revenue (compliance): 0.4
    - Property Tax: 0.5
  - Other Tax Administration: 2.1
    - Risk-based compliance: 1.1
    - Managing arrears: 0.1
    - Improving filing and registration integrity: 1.0
- SOE and oil revenue governance priorities:
  - Ensure petroleum legislation brings appropriate government take while not discouraging investment; incremental royalty linked to daily production and royalty payments starting on first day of production is welcome.
  - Precede sales of oil assets with PPTA changes to avoid new operator exemptions.
  - Strengthen SOE framework: information sharing, coordination, clear mandate to fund NNPC operations, binding budgetary process for NNPC.
  - Create oversight unit for SOEs to monitor fiscal risks and improve transparency of NNPC joint venture operations.

### Expenditure management, cash and debt management, SLGs
- Shift from non-priority to priority spending; increase public investment efficiency.
- Automatic fuel price-setting mechanism to remove implicit fuel subsidies (0.5 percent of GDP in 2018); compensating the poor would require only a fraction of revenue gain but requires scale up of social safety nets.
- Use idle TSA cash balances more forcefully; coordinate with debt issuances; improve cash flow forecasting; coordinate CBN bills and T-bill issuances.
- Support move towards 60:40 domestic/external debt mix (from 70:30) but caution on exchange rate risk monitoring.
- Authorities plan to clear outstanding stock of domestic arrears (N.2.7 trillion), with N1 trillion through promissory notes already approved.
- State and Local Governments (SLGs): monitor fiscal space, enforce accountability and the 22-point Fiscal Sustainability Plan, increase internal revenue (e.g., property tax).

### Authorities’ stance on fiscal reforms
- Broad agreement with proposed reforms; SRGI and Committee on Minimum Wages expected to help generate sustainable revenues.
- Near-term measures in 2019 planned without new legislation (e.g., higher excise rates).
- Transformative reforms (VAT, capital gains tax, removing exemptions) could come into effect in 2020 after legislative changes.
- Plan to amend PPTA and strengthen cash management.

### B. Monetary and Exchange Rate Policies: Toward an Integrated Framework and Unified Rate
- Overall assessment:
  - Monetary and exchange rate policies can be better aligned to reach inflation target range.
  - Primacy of price stability should be clearly communicated; multiple instruments pursuing different objectives reduce policy effectiveness.
- Monetary policy stance and operations:
  - Policy relatively tight despite unchanged MPR and CRRs.
  - Tightness via overnight rate often above MPR; increased liquidity-draining operations through issuance of CBN Bills at increasing maturities (365 days) costing N1.5 trillion in 2018.
  - Non-traditional methods in 2018: re-introducing special OMOs (unannounced) and asymmetric CRR application (regulatory CRR of 22.5 percent when deposits increase).
- Policy recommendations:
  - Raise the MPR to re-establish the policy rate as the anchor for managing inflation.
  - Adopt a higher and symmetrically applied CRR to all banks; consider widening the interest rate corridor (e.g., to a symmetrical +/-5 percent).
  - Strengthen CBN communication: use MPC communiqué to discuss forward-looking indicators; end unannounced OMOs.
  - Discontinue development financing through the central bank; limit overdrafts to unplanned cash shortfalls.
- Liquidity management and vulnerabilities:
  - Large share of CBN bills held by non-residents (27 percent, about $10 billion at end-2018) increases vulnerability to capital flight.
  - Use CBN bills appropriately for liquidity management—prefer shorter tenors (e.g., 14 days).
  - Conduct transparently-conducted OMOs to remove excess naira liquidity.

### Authorities’ views on monetary/exchange policy (summary)
- Authorities argue CBN policies succeeded in containing inflation while promoting growth, ensuring exchange rate stability, and safeguarding financial stability through heterodox tools.
- CBN operational approach: use of OMOs (including special OMOs) to attract portfolio investment and manage liquidity; targeted sector financing for power and agriculture viewed as necessary.
- On FX policy: authorities favor gradual convergence of exchange rate windows and accumulation of external buffers; do not support removing FX restrictions at this time.
- Staff recommendations to remove MCPs and unify multiple exchange rates around market-based IEFX rate; staff recommends limiting FX interventions and stopping special daily sales facility.

### External buffers and reserve adequacy
- Reserve adequacy:
  - At end-2018, reserves excluding FX swaps and forwards estimated at 70 percent of the ARA metric adjusted for an oil buffer, below suggested adequacy range of 100-150 percent.
  - Adequacy expected to decline over the medium term.
- Risks and recommendation:
  - Portfolio inflows supported reserves but are susceptible to sudden stops.
  - Strengthen external buffers through stronger policies.

### Macro-financial: banking sector condition and policy recommendations
- Asset quality and solvency:
  - NPLs fell to 11.7 percent at end-2018.
  - Restructured loans reportedly average 3 to 30 percent of total loans in some banks.
  - Solvency ratios improved to 15.3 percent by end-2018.
- Systemic vulnerabilities and AMCON:
  - Small and medium banks remain vulnerable.
  - CBN interventions and AMCON bailouts increase moral hazard; AMCON contingent liability risk around 4.8 percent of GDP.
- Staff recommendations to strengthen resilience:
  - Increase capital buffers; extend no dividend distribution rule to all banks with high restructured loans.
  - Retain the 5 percent profit tax imposed by CBN on banks as capital.
  - Conduct an Asset Quality Review of the 10 largest banks (84 percent of banking assets).
  - Strengthen supervision and monitoring; expand stress testing; enhance banking resolution framework (powers to write down capital, override shareholders’ rights, amend liquidation regime).
  - AMCON exit strategy: stop purchase of distressed assets; set a sunset; earmark cash flows to buy back bonds; set annual disposal targets; divest AMCON interests; improve legal recovery powers; gradually phase out.

### Structural reforms to support diversification, inclusive growth, and SDGs
- Key constraints:
  - Corruption (about one third of Nigerians report paying bribes).
  - Infrastructure gap equivalent to 35 percent of GDP compared to emerging market economies.
  - Major electricity sector challenges; low and inefficient capital spending.
  - Human capital: spending at 0.5 percent of GDP on health and 1.7 percent of GDP on education; about 13-15 million out-of-school primary-age children; one in nine children dies before age five (750,000 deaths each year).
- Ongoing reform efforts:
  - PEBEC: 140 reforms implemented and improved Ease of Doing Business score over past three years.
  - Financial inclusion: updated strategy; new payment service regulation allowing telecom companies to acquire mobile payments licenses.
  - Healthcare and education: plans for universal health care fund; Second National Strategic Health Development Plan for 2018-22; school feeding program.
  - Governance: NFIU Act; additional resources for EFCC; Whistle-blower policy; open government initiative; 2019 EITI Board found Nigeria fully addressed corrective actions from first validation.
- Staff priorities:
  - Strengthen business environment: aim for top 100 in Doing Business; pass CAMA and Omnibus bill; deepen Subnational Ease of Doing Business.
  - Increase public investment efficiency: improve procurement and fiscal transparency; develop GIFMIS-based project database; establish single pipeline of appraised projects.
  - Accelerate Power Sector Recovery Plan implementation and ensure government agencies pay their bills.
  - Implement updated financial inclusion strategy: reform regulatory framework, strengthen consumer protection, target women, implement movable property registry.
  - Step up education and health outcomes: increase budget allocations; ensure regular fund release and predictable program implementation.

### Box 2 — Power Sector Reforms—Where Does the Sector Stand?
- Installed electricity generation capacity: about 13,000MW; energy sent out often below 4000 MW/hour.
- Estimated annual economic losses from poor service delivery: about $29 billion (PSRP estimate).
- Key issues:
  - Privatization in 2013 did not close financing gap or improve service delivery.
  - Distribution companies (DISCOS) unable to invest or meet payment obligations, leading to cascade failures in payments to generation companies and gas suppliers.
  - Tariff shortfalls estimated at $2.4 billion in 2015-17; industry analysts estimate at least a 50 percent rate increase may be needed.
- Authorities’ PSRP status:
  - PSRP approved March 2017; financing plan partially implemented; Performance Improvement Plans for DISCOs not started.
  - Sector depends on CBN financing (N701 billion approved to date).
- Urgent reform priorities:
  - Secure funding for tariff shortfalls through the budget, not through the CBN; disburse funds conditional on PSRP implementation.
  - Improve DISCOS’ performance based on Performance Improvement Plans and implement tariff adjustments.
  - Improve governance by appointing Boards of Directors for key sector companies.

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### Debt sustainability, stress tests, reserves, and capacity development highlights

### Annex IV — Debt Sustainability (public and external)
- Public debt key findings:
  - Gross public debt: about 28.4 percent of GDP in 2018.
  - Net debt (adjusting for government deposits and AMCON assets): averages 20.7 percent of GDP in 2018.
  - Public debt forecast: rise to 35.9 percent of GDP in 2024; more than 80 percent of increase driven by federal government.
  - Federal Government interest payments projected to approach 75 percent of FG revenue in 2024 (up from 60 percent in 2018).
  - Under current policies, financing needs will average about 7 percent of GDP in medium term.
- Stress-test results and vulnerabilities:
  - Interest rate shock: FG interest-to-FG revenue ratio would increase to almost 125 percent.
  - Standardized combined macro-fiscal shock: ratio would increase to above 149 percent.
  - Contingency shock: ratio would increase to above 104 percent.
  - Fan charts show symmetric width estimated at some 30 percent of GDP; extreme downside shock (growth to zero) leads to upward-sloping debt path.
- External debt key findings:
  - External debt low: projected at 16 percent of GDP in 2018.
  - External debt-to-exports ratio: around 100 percent in 2018.
  - Gross external financing needs remain small relative to economy and projected below 4 percent of GDP in medium term under baseline.
  - International bond issuance: $4.8 billion in 2017 and $5.3 billion in 2018 contributed to higher external debt stock.

### Stress-test findings for external debt dynamics (selected outcomes)
- Key scenario outcomes (external debt percent of GDP):
  - Baseline: 14.3
  - Interest rate shock: 14.6
  - Non-interest current account (CA) shock: 20.8
  - Combined shock: 18.7
  - Real depreciation shock (one-time 30 percent): 23.7
  - Growth shock: 16.2
- A shock to the non-interest current account (e.g., decline in oil exports) would place external debt-to-GDP on an upward path; combined shocks driven by current account.

### Reserves and adequacy (key findings)
- Gross reserves recovered from less than $24 billion in September 2016 to $42.5 billion at end-December 2018.
- Reserves of $42.5 billion at end-2018 correspond to an ARA metric coverage of about 120 percent (within suggested adequate range of 100-150 percent).
- Excluding FX swaps and forwards, reserves projected at $35.2 billion by year-end (end-2018), representing 100 percent of the ARA metric; adjusted for an oil buffer, this is 70 percent of the ARA metric.
- Under baseline projections, reserves expected to decline to around $35 billion by 2024 (equivalent to 44 percent of the metric correcting for an oil buffer).
- Net inflows and E&Os:
  - Net inflows improved in 2017-18 driven by portfolio inflows through IEFX.
  - Errors and omissions remain around 3 percent of GDP on average, suggesting imprecision.

### Financial development, inclusion, and capacity development
- Financial development:
  - Closing gaps could yield additional real per capita GDP growth of more than 0.8 percentage points per year.
  - Credit to private sector: -3.3 percent in 2017 and an additional -6 percent in 2018.
- Capacity development priorities (Annex VIII):
  - TA priorities: non-oil revenue mobilization; PFM in federal government; banking supervision; macro statistics (government finance, real sector, public debt, balance of payments).
  - Implementation record: good for PFM; weak for tax policy; improving for tax administration.
  - Authorities agree with priorities and appreciate IMF TA and training; request focus, peripatetic experts, and resident expert support.

---

*International Monetary Fund — Nigeria: 2019 Article IV Consultation (Chapter: Refined Oil Production—A Potential Game Changer for Nigeria).*

### 1. Refined Oil Production—A Potential Game Changer for Nigeria  _______________________________ 9

### 1. Refined Oil Production—A Potential Game Changer for Nigeria

### Background: recovering but not fast enough
- Nigeria’s recovery from the mid-2014 oil price shock and the 2016 recession is continuing and accelerated in late 2018.
- Contributing factors to the recovery: oil prices averaging about double their 2016 trough, tight monetary policy, greater convergence towards a unified exchange rate, increased access to international markets, and strides in improving the business climate.
- Persisting structural and policy challenges constraining performance:
  - A large infrastructure gap.
  - Low revenue mobilization.
  - Governance and institutional weaknesses.
  - Continued foreign exchange (FX) market restrictions.
  - Banking sector vulnerabilities.
- Consequences: growth rates below historical trends, falling real GDP per capita, and weak human development outcomes.
- Demographic urgency: current trends could make Nigeria the third most populous country in the world by 2050, increasing the need for faster per capita growth to reduce unemployment and poverty and finance education and health services.
- Political context: reelection of President Buhari for another four-year term and parliamentary majority for the All Progressives Congress (APC) provide an opportunity to accelerate the Economic Recovery and Growth Plan (ERGP) priorities—revenue mobilization, power sector reforms, and anti-corruption—without waiting for a new Cabinet (expected to be sworn in by late May 2019).

### Recent macroeconomic developments (key findings)
- Growth:
  - Real GDP increased by 1.9 percent in 2018, up from 0.8 percent in 2017.
  - Agricultural sector: about 47 percent of the workforce and 25 percent of GDP; growth remained below the historical trend of 3-4 percent due to floods and farmer/herder clashes.
  - Unemployment: 23.1 percent in 2018Q3, up from 20.4 percent in 2017Q4.
  - Labor force growth: 4½ percent over the same period.
- Inflation and monetary conditions:
  - Headline inflation: 11.4 percent at end-2018, down from 18½ percent at end-2016.
  - Core inflation: 10.4 percent in 2018.
  - CBN tight monetary policy, credit to private sector continued to contract.
- External buffers and capital flows:
  - Foreign portfolio inflows: record holdings of mostly short-term local debt and equity of about $30 billion at end-March 2018.
  - Gross international reserves: peak of $47.5 billion in April 2018; closed 2018 at $42.5 billion after outflows.
  - Outflows of about $9 billion during April-November 2018.
  - November 2018 Eurobond issuance: $2.86 billion, three-times oversubscribed.
- FX market:
  - IEFX window represented 70-80 percent of transactions and stayed relatively stable at around N/$360-365.
  - CBN’s official window at N/$305 (mainly for petroleum imports and limited pre-determined quantities for some banks).
  - Retail SMIS window at N/$330-345 and increased sales to invisibles, SMEs, and BDCs mainly at N/$360—market segmentation persists.
  - CBN shifted from net purchaser earlier in the year to selling about 35-40 percent of the FX traded in the IEFX window in late 2018.

### Outlook and projections (under current policies)
- Baseline medium-term projection: growth would hover around 2½ percent absent strong structural reforms, implying no per capita growth.
- Non-oil non-agricultural growth: projected to remain sluggish; second half of 2018 growth recorded 2.7 percent y-o-y in non-oil non-agriculture sectors.
- CBN policy orientation: focus on exchange rate stability expected to contain inflation in the medium term but risk worsening competitiveness through an overvalued exchange rate; high financing costs to constrain private sector credit.
- Selected economic indicators (annual percentage change, unless otherwise specified; projections included):
  - Real GDP (at 2010 market prices): -1.6 (2016), 0.8 (2017), 1.9 (2018), 2.1 (2019), 2.5 (2020), 2.4 (2021), 2.7 (2022), 2.6 (2023), 2.6 (2024).
  - non-oil, non agriculture real GDP: -1.7 (2016), -0.6 (2017), 2.0 (2018), 1.8 (2019), 2.0 (2020), 2.1 (2021), 2.4 (2022), 2.4 (2023), 2.4 (2024).
  - Consumer price index (annual average): 15.7 (2016), 16.5 (2017), 12.1 (2018), 11.7 (2019), 11.7 (2020), 11.3 (2021), 11.4 (2022), 11.1 (2023), 11.0 (2024).
  - Current account balance (percent of GDP): 0.7 (2016), 2.8 (2017), 2.1 (2018), -0.4 (2019), -0.2 (2020), -0.1 (2021), 0.1 (2022), 0.1 (2023), 0.0 (2024).
  - Gross international reserves (US$ billions): 27.6 (2016), 39.8 (2017), 42.6 (2018), 38.5 (2019), 35.6 (2020), 33.3 (2021), 33.4 (2022), 33.8 (2023), 34.6 (2024).
  - Reserves (equivalent months of imports of G&Ss): 6.5 (2016), 7.2 (2017), 7.1 (2018), 6.3 (2019), 5.7 (2020), 5.1 (2021), 5.1 (2022), 4.9 (2023), 4.5 (2024).

### Risks and macro-financial linkages
- Risk tilt: moderately tilted downwards.
- Upside risks:
  - Oil prices could rise due to global disruptions or supply bottlenecks.
  - Bold post-election reforms could boost confidence and investments.
  - Increased investments in the oil sector and subsiding farmer/herder clashes could boost agricultural production.
- Downside risks:
  - Delays in reform implementation.
  - Persistent fall in oil prices or reduced oil production.
  - Increased security tensions.
  - Tighter global financial market conditions leading to market sell-offs and reserve/FX pressure.
  - Fiscal sustainability risks if interest rate costs rise further.
- Financial sector vulnerability:
  - Banks’ exposure: about one third of loan book to the oil sector.
  - Cascading effects from oil shocks: higher NPLs in the sector → worsened bank risk aversion → shrinking private sector credit → constrained non-oil growth → lower oil and non-oil revenues → reduced system liquidity and FX availability → worse fiscal outcomes and increased government borrowing → crowding out of private sector credit through higher bank exposure to zero-risk weighted government bonds.

### Box 1 — Refined Oil Production: potential impacts of a new refinery
- Current refining paradox:
  - Crude production: almost 2 million barrels per day (mbpd).
  - Domestic deliveries to refineries (2008–2017 average): about 0.08 mbpd.
  - Theoretical refining capacity: 0.445 mbpd.
- Dangote refinery (under construction near Lagos):
  - Maximum refining capacity: 0.65 mbpd.
  - Expected changes once operational:
    - Reduce imports of refined products by 0.45 mbpd.
    - Increase exports of refined products by 0.2 mbpd.
    - Decrease net exports of crude oil to refine oil by 0.65 mbpd.
  - Projected macro effects under the envisaged product mix:
    - Boost growth by 0.3-0.4 percentage points in 2022.
    - Improve the trade balance by $2 billion per year (net after reducing both net crude exports and refined oil imports).
  - Timing:
    - Benefits could materialize as soon as 2020 (current target), but staff estimates include benefits from 2022 onwards—providing upside potential to baseline projections.
  - Employment and spillovers:
    - At construction stage, directly or indirectly employing over 180,000 people including on-site contractors.
    - Once operational, additional indirect employment through retail outlets, filling stations, and transport.
    - Potential positive spillovers to West and Central Africa via increased supply and reduced costs for refined products.

### Spillovers and regional implications
- Nigeria accounts for 70 percent of ECOWAS exports; CBN preference for naira stability helps sustain partners’ exports.
- Growth spillover multiplier: a 1 percentage point increase in Nigeria’s growth is estimated to increase regional growth by 1/3 percentage point.
- Remaining FX restrictions have increased food imports in neighboring countries, with a portion reportedly smuggled back into Nigeria.

### Authorities’ views
- Authorities see the decline in inflation, FX window convergence, and improved external buffers as policy successes.
- Growth expectations: 3 percent in 2019 and close to 4 percent in 2020, while acknowledging the ERGP’s initial 7 percent target may have been too ambitious.
- Constraints acknowledged: slow implementation of business climate reforms, power sector reform delays, insufficient anti-corruption progress, and lack of new capital investment to boost oil production.
- Main risks cited by authorities: softening oil prices, geopolitical trade tensions, delays in budget execution, persistent security challenges (insurgency in the Northeast and farmer/herder clashes), and tightening global conditions.
- Authorities’ commitment: back structural reforms with adequate legislative provisions to guarantee continuity and consistency of reform implementation.

*International Monetary Fund — Nigeria: 2019 Article IV Consultation (Chapter: Refined Oil Production—A Potential Game Changer for Nigeria).*

### 14.      A comprehensive package of urgent policy reforms is required to address

### 14.      A comprehensive package of urgent policy reforms is required to address vulnerabilities and raise growth over the medium term

### Overview and Growth Impact
- Proposed reform scenario includes:
  - revenue-based fiscal consolidation while increasing social and capital spending aligned with improved spending efficiency and strengthened governance,
  - tight monetary policy while improving the CBN's policy framework,
  - a unified and more flexible exchange rate,
  - a stronger banking sector,
  - parallel structural reforms to tackle longstanding weaknesses that inhibit economic diversification.
- These policies, consistent with the authorities' ERGP, could boost growth to about 4.5 percent within a five-year period—with about +1 ppt from appropriate macroeconomic policies in a context of reduced vulnerabilities (Annex III).

### A. Fiscal Policy: Increase Non-Oil Revenue and Make Room for Priority Expenditures

Findings and current position
- Provisional federal government (FG) deficit remained flat at 4 percent of GDP in 2018, as higher oil and gas revenue helped offset a 35 percent year-on-year increase in capital expenditures.
- Non-oil revenue collection was lower than budgeted for all items and did not improve further.
- Interest payments-to-FG revenue ratio was high at 60 percent in 2018 (Annex IV).
- Priority expenditure, such as on health and education, remains among the lowest worldwide.
- The MTFF projects the FG’s overall fiscal deficit declining by 2.3 percent of GDP in 2019, relying on revenue increasing to 4.8 percent of GDP, mainly driven by oil revenues (+1 ppt) and one-off gains that are unlikely to materialize in the given timeframe.
- Absent major revenue reforms and accounting for non-budgeted expenditures such as electricity subsidies, the overall FG deficit-to-GDP ratio would expand to 4.7 percent in 2019 and hover around just below 4 percent in the medium term.
- Consolidated government debt-to-GDP ratio would increase to almost 36 percent by 2024 and the interest payments-to-FG revenue ratio to 74.6 percent under that scenario.

Staff adjustment scenario and targets
- Adjustment anchored on reducing the overall consolidated government non-oil primary deficit from 7.4 percent of GDP in 2018 to 4.1 percent of GDP by 2024.
- Target to contain interest payments to below one-third of FG revenue (the 2015 level and in line with the authorities’ target).
- Non-oil revenue-to-GDP ratio would improve by an ambitious +8 ppt by 2024.
- Capacity improvements would allow higher capital spending (+4½ ppt) and recurrent spending (+½ ppt), including on health and education, once revenue measures are secured.

Revenue reforms proposed
- Comprehensive tax reform under the Strategic Revenue Growth Initiative (SRGI) and staff’s proposal to increase the non-oil revenue ratio by 8 percent of GDP by 2024.
- Tax policy measures to consider:
  - comprehensive VAT reform in line with technical assistance advice,
  - move towards a VAT with full crediting of input tax; reform base, remove exemptions, increase threshold, and increase rate to 10 percent (in 2020),
  - additional excises with broader scope of products beyond luxury and higher rates increasing to at least ECOWAS levels,
  - aggressive removal of tax exemptions/incentives and avoid new exemptions (e.g., new VAT exemption for airlines),
  - increase telecom airtime fee (while protecting initial usage for vulnerable households),
  - remove customs duty waivers,
  - ensure capital gains tax is implemented,
  - reforms to CIT and education tax (close loopholes, remove exemptions).
- Tax administration measures:
  - educate taxpayers, increase use of ITAS, more tax audits, greater use of technology including data matching,
  - implement Action plan to address weaknesses identified in TADAT,
  - develop appropriate taxpayer register, filing system and arrears management,
  - put in place a risk-based compliance improvement plan and implement an automated interface between FIRS and the TSA.

Cumulative impact (2019–24) — staff calculations (Percent of GDP)
- Total Tax Policy and Administration Measures: 7.4
  - VAT: 3.2
    - Increase compliance to 65 percent by 2023
    - Reform base, remove exemptions, increase threshold, and increase rate to 10 percent (in 2020)
  - CIT and education tax (close loopholes, remove exemptions): 1.8
  - Excises and levies (rate increase/compliance): 1.3
  - Removal of customs duty waivers: 0.2
  - FGN Internally Generated Revenue (compliance): 0.4
  - Property Tax: 0.5
- Other Tax Administration: 2.1
  - Risk-based compliance: 1.1
  - Managing arrears: 0.1
  - Improving filing and registration integrity: 1.0

Reforms to secure oil revenues and SOE governance
- New funding requirements (cash calls) for joint ventures in the oil sector in 2018 ensured on-time payments for cost recovery and helped avoid new government arrears.
- Priorities:
  - Ensure new petroleum legislation brings an appropriate government take while not discouraging foreign investment. Proposed incremental royalty linked to daily production rate, with royalty payments starting on the first day of production, is welcome.
  - Any sales of oil assets should be preceded by changes in legislation (PPTA) to ensure revenues of the new operator are not exempted.
  - Pass legislative reforms to strengthen the SOE framework: information sharing, coordination among revenue collecting institutions, clear mandate to fund NNPC operations, binding budgetary process for NNPC.
  - Create an oversight unit for SOEs to monitor fiscal risks and improve transparency of NNPC’s joint venture operations, including clear information on revenue flows and transfers.

Expenditure management and public investment
- Staff’s adjustment scenario is based on a broad-based expenditure increase and a shift from non-priority to priority spending.
- Increase in public investment over the past year is welcome but greater efficiency is needed to strengthen governance (¶47).
- An automatic fuel price-setting mechanism would remove inefficiencies from implicit fuel subsidies (0.5 percent of GDP in 2018); compensating the poor for negative impacts would require only a fraction of the revenue gain but requires significant scale up and strengthening of social safety nets (Selected Issues Paper II).
- Explicitly budgeting the loss due to retail fuel distribution would increase fiscal transparency and consistency.

Cash and debt management
- Stronger coordination between the Office of the Accountant General of the Federation, the Debt Management Office and the CBN is necessary for more effective cash management.
- Use idle cash balances at the TSA more forcefully and coordinate with debt issuances; improve cash flow forecasting and coordinate CBN bills and T-bill issuances.
- Strategy to use Eurobond proceeds to retire maturing T-Bills is welcome; staff supports move towards a 60:40 domestic/external debt mix (from 70:30 currently) but cautions on exchange rate risk monitoring.
- Authorities plan to clear outstanding stock of domestic arrears (N.2.7 trillion), of which N1 trillion through promissory notes was already approved by Parliament (Annex IV).

State and Local Governments (SLGs)
- Monitor SLGs closely as lower oil prices and increased minimum wages are expected to affect SLG fiscal space and increase arrears risk.
- Enforce accountability and results framework, ensure better compliance with the 22-point Fiscal Sustainability Plan prior to states receiving additional budget support.
- SLGs should increase internal revenue generation (e.g., property tax) and benefit from automatic revenue increases.

Authorities’ views on fiscal reforms
- Authorities broadly agreed with proposed reforms; SRGI and Committee on Minimum Wages expected to help generate sustainable revenues, optimize capital and recurrent expenditures, and manage risks.
- To generate additional revenue within 2019, they plan measures not requiring new legislation (e.g., higher excise rates or broadened products).
- More transformative reforms (VAT, capital gains tax, removing exemptions) are on the agenda but could come into effect in 2020 after legislative amendments.
- Plan to amend PPTA to ensure sales of oil assets do not generate new tax exemptions and to strengthen cash management to reduce idle TSA balances.

### B. Monetary and Exchange Rate Policies: Toward an Integrated Framework and Unified Rate

Overall assessment
- Monetary and exchange rate policies can be better aligned to reach the desired inflation target range.
- The primacy of price stability should be clearly communicated, including through a transparent and functioning policy instrument.
- Multiple instruments pursuing different objectives reduce policy effectiveness when attempts are made to stimulate growth through targeted interventions.

Monetary policy stance and operations
- Monetary policy has remained relatively tight despite an unchanged monetary policy rate (MPR) and cash reserve requirements (CRRs).
- Tightness materialized via an overnight rate often above the MPR, increased liquidity-draining operations through issuance of CBN Bills at increasing maturities (365 days) costing N1.5 trillion in 2018.
- Non-traditional methods used by CBN in 2018:
  - re-introducing special Open Market Operations (OMOs)—on average, twice per month in December-January—all unannounced and not conducted through auctions albeit at the market rate of the day’s auction;
  - a CRR for banks applied using an asymmetric rule (regulatory CRR of 22.5 percent when deposits increase, but no cash is released when deposits fall), effectively reaching 50-60 percent for certain well-capitalized banks.

Policy recommendations to strengthen framework and transparency
- Raise the MPR to re-establish the policy rate as the anchor for managing inflation, improve signaling, and support a move towards a more flexible exchange rate.
- Adopt a higher and symmetrically applied CRR to all banks; as an interim step, consider widening the interest rate corridor (e.g., to a symmetrical +/-5 percent to replace the current -5/+2 percent corridor) to accommodate adjustment of market rates.
- Strengthen CBN communication policy:
  - use MPC communiqué to discuss forward-looking indicators and reemphasize that the CBN’s objective is to reach its inflation target range and explain how pursuit of multiple objectives remains consistent with that target.
  - end unannounced OMOs as they increase uncertainty and distort liquidity management.
- Discontinue development financing through the central bank, including targeted interventions and ownership of development banks; such interventions should be undertaken by the federal government and transparently costed and budgeted.
- Limit overdrafts to unplanned and unexpected cash shortfalls.

Liquidity management and vulnerabilities
- Large share of CBN bills held by non-residents (27 percent, about $10 billion at end-2018) increases vulnerability to capital flight.
- CBN bills should be used appropriately for liquidity management—prefer shorter tenors (e.g., 14 days) to avoid competing with government NTB space and avoid supporting external reserve accumulation.
- Transparently-conducted OMOs should be used to remove excess naira liquidity; implementation should be carefully managed to avoid short-term adverse effects on reserves and investor confidence.

Authorities’ Views on monetary/exchange policy
- (Content ends with "Authorities’ Views" heading; detailed views not included in the supplied excerpt.)

*Source: IMF staff report excerpt (chapter 14).*

### 30.      The authorities argued that CBN policies succeeded in achieving the bank’s mandate

### 1ngaea2019001 - 30.      The authorities argued that CBN policies succeeded in achieving the bank’s mandate

### CBN policies, liquidity management, and sector financing
- Authorities' view: CBN policies succeeded in containing inflation while promoting growth, ensuring exchange rate stability, and safeguarding financial stability through heterodox tools that do not rely on changes in the policy rate or the regulatory CRR.
- Operational approach: Use of OMOs (including special OMOs) to attract portfolio investment and manage liquidity; special OMOs seen as necessary to keep costs of liquidity management in check.
- Targeted sector financing: Current CBN financing for the power or agricultural sector acknowledged as outside the CBN’s core mandate but viewed by authorities as necessary to maintain electricity generation and boost agricultural production.
- Measures to address excess liquidity (as presented):
  - Issue long-term bonds only if excess liquidity persists.
  - Remove the N 7.5 billion placement limit on the Standing Deposit Facility.
  - Sell government assets on the CBN balance sheet: converted bonds (N 1.6 trillion) and AMCON bonds (N 4.2 trillion).

### Exchange rate policy and FX market unification
- Staff recommendations:
  - Allow greater exchange rate flexibility at a unified rate to respond to shocks.
  - Remove Multiple Currency Practices (MCPs) and unify multiple exchange rates around the market-based IEFX rate while allowing it to move to reflect fundamentals.
  - Limit FX interventions to containing excessive fluctuations to safeguard reserves.
  - Stop the special daily sales facility that was recently reduced from $500,000 to $100,000 at the 305N/$ rate, as it is not used for market transactions except for fuel imports and the budget.
- Recent developments and staff assessment:
  - Retail and wholesale rates have gradually closed the gap with the IEFX rate, which is now close to the parallel market rate.
  - Staff’s assessment suggests Nigeria’s overall external position in 2018 is moderately weak (assessment subject to uncertainty due to FX restrictions and multiple exchange rates).
- Authorities’ views:
  - Favor gradual convergence of exchange rate windows; optimistic that exchange rates could soon be unified around the market-driven I&E FX rate barring unforeseen exogenous shocks.
  - Support accumulation of external buffers and consider recent increases in FX sales necessary to limit excessive fluctuations.
  - Do not support removing FX restrictions at this time while real sector diversification remains a work in progress; skeptical of removing CFM measures such as payment limits on naira-denominated credit cards.

### External buffers and reserve adequacy
- Reserve adequacy:
  - At end-2018, reserves excluding FX swaps and forwards are estimated at 70 percent of the ARA metric adjusted for an oil buffer, below the suggested adequacy range of 100-150 percent.
  - Adequacy is expected to decline over the medium term.
- Risks and recommendations:
  - Portfolio inflows have supported reserves but are susceptible to a sudden stop.
  - Strengthening external buffers through stronger policies can aid reserve accumulation and reduce vulnerabilities to capital flight.

### Macro-financial: banking sector condition and policy recommendations
- Asset quality and solvency:
  - NPLs have fallen to 11.7 percent at end-2018, helped by higher oil prices and sale of NPLs to private AMCs.
  - Restructured loans (particularly in oil and gas) reportedly average 3 to 30 percent of total loans.
  - Solvency ratios improved by 5 percentage points to 15.3 percent by end-2018.
- Profitability and provisioning:
  - Bank profitability remained relatively flat as fees offset declining net interest margins.
  - Introduction of three-year transitional arrangements for IFRS9 reduced immediate additional provisioning costs expected by end-2018.
- Systemic vulnerabilities:
  - Large banks’ resilience has improved; small and medium-sized banks remain vulnerable.
  - CBN interventions: intervened in one private bank; made capital injection into Skye Bank through AMCON, making the CBN formal owner of a non-systemic bank and creating a conflict with regulatory role.
  - Three other insolvent banks and one undercapitalized bank continue to depend on CBN liquidity support and regulatory forbearance; solvency ratios for the banking system would improve by 350 basis points after exclusion of the four undercapitalized banks.
  - AMCON’s use to bail out banks increases moral hazard, exposes the CBN to credit risk, and creates contingent liabilities for the federal government (AMCON contingent liability risk around 4.8 percent of GDP).
- Staff recommendations to strengthen resilience:
  - Increase capital buffers, including extending the no dividend distribution rule to all banks with high restructured loans (not just those with NPLs above 5 percent).
  - Retain the 5 percent profit tax imposed by the CBN on banks as capital instead of earmarking it for sectoral lending.
  - Conduct an Asset Quality Review of the 10 largest banks (84 percent of banking assets).
  - Strengthen supervision and monitoring: fully integrate the early warning system with supervisory and early intervention frameworks; expand stress testing to capture macro-financial linkages; increase transparency around regulatory forbearance and loan restructuring.
  - Enhance the banking resolution framework: provide powers to write down capital, override shareholders’ rights, amend bank liquidation regime; reduce CBN exposure through unsecured lending and act only as Lender of Last Resort; implement credible time-bound recapitalization plans; liquidate small insolvent non-viable banks; avoid use of bridge banks owned by the CBN; improve coordination among CBN, NDIC, and the Ministry of Finance.
  - AMCON exit strategy recommendations: stop the purchase of distressed assets; formally set a sunset; earmark cash flows to buy back bonds; set annual disposal targets; divest AMCON’s interests in companies and banks; improve legal power to recover assets; gradually phase out; transfer CBN ownership in AMCON to fiscal authorities to avoid conflicts; recognize AMCON liabilities as public sector government domestic debt.

### Structural reforms to support diversification, inclusive growth, and SDGs
- Constraints and challenges:
  - Longstanding structural constraints: corruption (every third Nigerian reports having paid bribes), infrastructure gap equivalent to 35 percent of GDP compared to emerging market economies, major electricity sector challenges, low and inefficient capital spending, and transport/port constraints.
  - Human capital: spending at 0.5 percent of GDP on health and 1.7 percent of GDP on education; Nigeria ranks among the bottom six countries on the World Bank Human Capital Index; largest number of out-of-school primary-age children (about 13-15 million); one in nine children dies before age five (750,000 deaths each year).
- Ongoing reform efforts (highlights):
  - Improvements in the business environment via the Presidential Enabling Business Environment Council (PEBEC): 140 reforms implemented and improved Ease of Doing Business score over past three years; introduction of collateral and credit registry; PEBEC terminals; 60-day action plans.
  - Progress in financial inclusion: updated financial inclusion strategy; new payment service regulation allowing telecom companies to acquire licenses for mobile payments.
  - Healthcare and education: plans for a universal health care fund; Second National Strategic Health Development Plan for 2018-22; school feeding program.
  - Governance: NFIU Act, additional resources for the EFCC, Whistle-blower policy, open government initiative; 2019 EITI Board found Nigeria fully addressed corrective actions from first validation and made overall satisfactory progress with implementing the EITI Standard.
- Staff priorities to overcome diversification constraints:
  - Strengthen the business environment: aim for top 100 in Doing Business; pass Companies and Allied Matters Act (CAMA) and the Omnibus bill; deepen Subnational Ease of Doing Business; “naming and shaming” agencies not meeting targets; mainstream PEBEC terminals.
  - Increase public investment efficiency: improve procurement and fiscal transparency; increase fiscal spending on education and health; develop a GIFMIS-based database including all FGN projects; establish a comprehensive single pipeline of appraised projects for project selection.
  - Accelerate implementation of the Power Sector Recovery Plan, including meeting financing shortfalls and ensuring government agencies pay their bills regularly.
  - Implement updated financial inclusion strategy: reform regulatory framework, strengthen consumer protection, target women, and continue implementation of the registry for movable property.
  - Step up efforts to improve education and health outcomes: increase budget allocations and regularly release funds to ensure predictable program implementation; pursue comprehensive service delivery reforms to improve access for poorer families and girls.

*Source: IMF staff estimates.*

### Box 2. Power Sector Reforms—Where Does the Sector Stand?

### Box 2. Power Sector Reforms—Where Does the Sector Stand?

### Context
- Installed electricity generation capacity: about 13,000MW.
- Electricity service delivery remains poor, with energy sent out often below 4000 MW/hour.
- Lack of access to electricity and unreliable supply are key constraints to Doing Business in Nigeria, estimated to result in economic losses of about $29 billion annually (PSRP estimate).

### Challenges / Issues
- Privatization of generation and distribution in 2013 did not close the infrastructure financing gap or improve service delivery.
- Distribution companies (DISCOS) were unable to make investments and meet payment obligations, resulting in insufficient payment to generation companies, which, in turn, could not pay gas suppliers.
- Main reasons include:
  - Insufficient tariffs for cost-recovery after the naira depreciation in 2016.
    - Tariff shortfalls, estimated at $2.4 billion in 2015-17, would need to be addressed through a combination of cost reduction and a tariff adjustment (of at least a 50 percent rate increase according to some industry analysts).
  - Underperformance: DISCOS did not reduce high technical, commercial, and collections losses and did not invest in distribution infrastructure update and expansion.
    - Inadequate enforcement of contracts and government agencies not paying their electricity bills also contributed to underperformance.

### Authorities’ initiatives and implementation status
- The authorities prepared a comprehensive package of policy, legal and regulatory reforms under the Power Sector Recovery Plan (PSRP), approved by the Federal Executive Council in March 2017.
- The PSRP envisaged clearing historical shortfalls while ensuring new “tariff shortfalls” would be fully funded by the government during the transition period, while costs are reduced, service delivery improved, and tariffs gradually adjusted.
- Implementation status:
  - The financing plan has only been partially implemented, as accompanying actions—including implementation of Performance Improvement Plans for DISCOs—have not started.
  - The government has pursued other initiatives—such as the “eligible customer” policy and the meter asset provider program—which may not be enough to ensure sector sustainability and would need to be harmonized with PSRP implementation.
  - In the meantime, the sector depends on CBN financing (N701 billion approved to date) to meet existing shortfalls.

### Urgent reform priorities under the PSRP (policy recommendations)
- Secure funding for tariff shortfalls through the budget, not through the CBN.
  - Funds should be disbursed conditional upon PSRP implementation.
- With tariffs below cost recovery, a sustainable solution to reduce the contribution of the government requires:
  - Improving DISCOS’ performance on the basis of Performance Improvement Plans.
  - Tariff adjustments.
- Improve governance in the sector by appointing the Boards of Directors for key sector companies.

*Source: Box 2. Power Sector Reforms—Where Does the Sector Stand?*

### 66.      It  is recommended that the next Article IV consultation take place on the standard 12-

### 1ngaea2019001 - 66. It is recommended that the next Article IV consultation take place on the standard 12-

### Recommendation
- It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

### Real Sector Developments
- Oil production: "came up at 1.93 mbpd, still lower than pre-2016 levels."
- Overall growth for the year: "1.9 percent" (driven by services, pick-up in last quarter; slower agricultural production weighed down growth).
- Investment: "is expected to continue to be a drag on growth."
- Growth relative to peers: "Growth would remain far below other commodity exporters in the region... while unemployment continues to rise."
- Selected historical and comparative data points shown (figures):
  - Nigeria and Selected Emerging Markets: Real GDP Growth (Percent) — series 2010–2018 shown graphically.
  - Unemployment Rate (Percent) — series through 2018Q3 with average/male/female breakdown.
  - Real GDP Growth: Supply Side Decomposition (Percent) — components Oil, Agriculture, Non-oil non-agriculture, Overall for quarterly series 2014Q1–2018Q4.
  - Real GDP Growth: Demand Side Decomposition (Percent) — components X-Im, C (gov), C (priv), I (gov), I (priv), Y for 2013–2018.
  - Oil Production (With condensates, thousand barrels per day): monthly series with levels around 1,450–2,200 shown; table references production 2016–2024 in Table 1.

### Inflation and Monetary Sector Developments
- Headline and core inflation: "Both headline and core inflation have declined."
- Exchange rate: "helped by a stable exchange rate although the foreign exchange market remains segmented."
- Money market and OMO rates: "have been above the policy rate recently..."
- Monetary growth: "tighter monetary policy contributing to a significant slowdown in monetary growth over the past 18 months."
- Private sector credit: "negative private sector credit growth in nominal terms persists."
- Broad money and reserve money shares: "stabilizing its share in GDP..."
- Selected series and levels:
  - Monetary Growth (Percent) — broad and narrow money monthly series 2013M1–2018M11.
  - Private Sector Credit Growth (Percent) — monthly series 2013M1–2018M11 showing negative values in periods.
  - Broad Money and Reserve Money (Percent of GDP) — series with broad money and reserve money levels.
  - Consumer Price Inflation (y-o-y percent): Headline and Core monthly series through 2019M1.
  - Policy and Overnight Interbank Rates (Percent): Policy Rate, Overnight OBB (14-day moving average), Overnight Call (14-day moving average), 12mo OMO yield — monthly Jan-18 to Feb-19.
  - Exchange Rates (Naira per U.S. dollar): I & E window, CBN official rate, Parallel rate, Retail (SMIS), Wholesale (SMIS) — Jan-16 to Jan-19.

### External Sector Developments
- Current account: "The current account surplus is estimated to have remained stable in 2018..."
- Exports: "as exports recovered on the back of favorable oil prices."
- Financial account: "has benefited from the inflow of sizable Eurobond issuances..."
- Portfolio and FDI: "the stock of foreign portfolio investment has decreased sharply in the second half of 2018... while FDI continues to decline."
- International reserves: "have declined from peak levels earlier in 2018."
- Selected values and series:
  - Trade Balance (Billions of U.S. dollars) — Exports, Imports, Trade Balance, 2014–2018.
  - Net Capital Inflows (Billions of U.S. dollars) — series 2011–2018H1/2018Q3 with FDI inflows, Portfolio liabilities, Other liabilities, Total.
  - International Reserves (Millions of U.S. dollars) — gross reserves and reserves in months of imports (RHS) Jan-14 to Nov-18.
  - Sub-Saharan African Bond Issuance (Millions of U.S. dollars) — comparative series 2014–2018.
  - Current Account (Percent of GDP) — components Goods Trade Balance, Services Trade Balance, Income (net), Current Transfers (net) for 2014–2018.
  - Foreign Portfolio Investment Stock (Billions of U.S. dollars) — Total, Offshore, Bonds, Equities Dec-12 to Dec-18.

### Fiscal Sector Developments
- Revenue mobilization: "Low revenue mobilization has kept the deficit high..."
- Oil revenues: "despite a pick-up in oil revenues within a highly undiversified revenue base."
- Expenditures: "remain low and are largely driven by recent recovery in capital and recurrent expenditures... the latter themselves driven mainly by the interest and wage bill."
- Debt and interest: "The consolidated debt-to-GDP ratio remains low, but interest payments continue to absorb a significant share of Federal Government revenues."
- Medium-term outlook: "Under current policies, the fiscal deficit is projected to remain high over the medium term."
- Table/figures summarize:
  - Share of Oil in Different Aggregates (Percent) and other fiscal series (2012 vs 2018) in Figure 9.
  - Fiscal time-series and projections available in Table 1 (selected items reproduced below).

### Non-Resident Holdings and Drivers
- Non-resident holdings: "have been rising ... but started to reverse recently."
- Drivers: "Oil prices are important ... as well as domestic risk factors."
- Econometric result (ARDL regression) confirms importance of both domestic and global factors:
  - Variables and coefficients (selected):
    - NTB rate: 0.779*** (0.252) in model (1); 0.760*** (0.246) in model (2).
    - ICRG: -3.147 (2.473) in (1); 0.553 (2.745) in (2).
    - Oil price: 0.243 (0.435) in (1); 0.555 (0.379) in (2).
    - VIX: -1.462*** (0.350) in (1); -1.840*** (0.376) in (2).
    - US dep rate: 1.532 (7.866) in (2).
  - Model metrics:
    - ARDL specifications shown: ARDL1,4,0,4,0 and ARDL1,4,5,2,2,1.
    - Observations: 137 (model 1), 136 (model 2).
    - R-squared: 0.491 (model 1), 0.568 (model 2).
    - F-test: 6.354*** (model 1), 7.593*** (model 2).
    - Sample: 2007M1-18M9.

### Financial Sector Developments
- External financing: "tightened for most of 2018, before improving more recently in line with emerging market sentiments."
- CDS and spreads: "CDS spreads have picked up significantly in EMs but Nigeria has not been among the worst affected reflecting its relatively strong external position..."
- Domestic yields: "even as domestic yields are increasing ... High CBN bills sales reflect monetary tightening amidst increasing maturities and yields..."
- Yield curves and OMO: "Short-term yields have risen in response to recent monetary tightening with costs at longer maturities rising over the past year."
- Equity markets: "Record stock market gains have been wiped out in 2018 amidst increasing portfolio outflows."
- Selected series:
  - Sovereign Bond Spreads (Basis points) Jan-14–Jan-19.
  - CDS Spreads (Basis points) Jan-18–Feb-19 across multiple countries including Nigeria.
  - Treasury Bill and Bond Yields (Percent) 91-Day, 182-Day, 365-Day, 5YR (FGN).
  - Open Market Operations (Billions of Naira): OMO issuance and Weighted OMO yields (rhs).
  - Domestic Yield Curves (Percent) by maturity (3M–20YR), Jun-18 vs Jan-19.
  - Equity Price Developments (Base year=2007): Nigeria All-Share Index vs MSCI indices Jan-16–Jan-19.

### Banking Sector Developments
- Credit trends: "Credit to both corporates and households decreased in line with an overall contraction in credit to the private sector."
- NPLs and restructured loans: "NPL ratios improved, albeit these could possibly be higher in view of high restructured loans..."
- Sector concentration: "high concentration in vulnerable sectors, particularly Oil and Gas, Transportation, and Power."
- Profitability and solvency: "Profitability improved steadily during 2018, albeit still slightly below 2017 as net interest margins declined with yields earlier in the year. Solvency continued to improve since 2017 as the economy recovered..."
- Liquidity: "liquidity returned above the 30 percent prudential threshold, after a sharp decline in 2018Q2."
- Selected series and levels:
  - Banking Sector Profitability (Percent): ROA and ROE quarterly 2015–2018Q4.
  - Capital Adequacy Ratios (Percent): CART1 and CAR 2015–2018Q4.
  - Banking Sector Liquidity Ratios (Percent): 2015–2018Q4 showing return above 30 percent.
  - NPLs by Sector, 2018Q4 (Percent of Total Loans within Sector) — Manufacturing, Real Estate, Construction, General Commerce, Oil and Gas, Transport and Storage, Power and Energy.
  - Banking Sector NPLs to Total Loans (Percent): quarterly 2015–2018Q4.
  - Credit Allocation by Corporates and Households (Billions of Naira): 2015–2018.

### Performance of the Five Largest Banks (through September 2018)
- Capital buffers: "remain above the prudential requirement of 15 percent for the largest banks—suggesting they would be able to absorb shocks despite large concentration ratio."
- First Bank: "saw an improvement in its NPLs— which remained 5 times higher than other large banks."
- Liquidity: "has deteriorated for at least two of the largest banks, relative to their 2017 levels— but banks’ liquidity resilience remains strong, helped also by the CBN’s high cash reserve ratio."
- Funding composition: "Deposits remain the main source of funding. Interest bearing deposits, including time deposits, increased representing around 36 percent of total liabilities in Q1 2018 as opposed to 18 percent for demand deposits."
- Loan-to-deposit ratio: "is declining, as shrinking credit growth does not keep pace with deposits."
- Revenue composition: "Interest income contributes to the bulk of profits. Commission fees, however, remains important contributing to more than 14 percent of the five largest banks’ total revenue and gaining momentum since the end of 2017."

### Diversification
- Dependence on oil: "Nigeria’s exports and fiscal revenues are highly dependent on oil."
- Export complexity: "Export complexity has been decreasing over the past two decades."
- Share of Oil in Different Aggregates (Percent) — 2012 vs 2018:
  - Oil Export/Exports: 94.1 (2012)
  - Oil Revenue/Revenues: 57.0 (2012)
  - Real Oil GDP/Real GDP: 8.5 (2012)
  - (Figure shows 2018 levels but numeric values for 2018 shown in figure graphics.)
- Diversification benefits: "Stronger export diversification could boost growth... and reduce output volatility."
- Export Diversification and Real GDP per Capita Growth, 1962-2014 (scatter/relations shown).
- Export Diversification and Output Volatility, 1962-2014 (scatter/relations shown).

### Human Development Indicators
- Human capital: "Human capital outcomes in Nigeria have been weak in absolute terms and compared to peers..."
- Child mortality: "...with child mortality among the highest worldwide..."
- Stunting: "...almost half of kids suffering from stunting."
- Education: "Expected education is lagging being peers... and the quality at which it is provided is relatively poor. Education varies strongly across states."
- Indicators and graphical relations:
  - GDP per Capita (PPP) and Human Capital Index; GDP per Capita (PPP) and Child Mortality.
  - GDP per Capita (PPP) and Stunting; GDP per Capita (PPP) and Years of Education.
  - Expected Years of Education and Quality Adjusted Years of Learning (Years) — Learning-adjusted years vs expected years.
  - Education Index (Higher = better).

### Governance and Transparency
- Corruption perceptions: "Corruption in Nigeria is perceived to be high... and the population is considering corruption one of the most pressing issues for the country."
- Experience with bribery: "About a third of Nigerians have experience with bribes... and have paid it often to speed up procedures..."
- Sectors and reasons:
  - Experience with Bribery by Geographic Zone (Percent) and Reasons for Paying the Bribe (Percent) are shown.
  - Experience with Bribes and Amounts Paid, by Public Official, 2016 (Percent) — average size of bribe examples, e.g., Customs officers (Naira 88.5 thousand).
  - Awareness and Perceived Effectiveness of Anti-corruption agencies (Percent) — list of agencies (BPP, CCB, CCT, EFCC, FHC, FMoJ, HC FCT, ICPC, NEITI, NFIU, NPF, PCC, SCUML, TUGAR) with awareness/effectiveness measures.
- Note in source: "Use of these indicators should be considered carefully, as they reflect perceptions-based data."

### Table 1 — Selected Economic and Financial Indicators, 2016–24 (selected series and exact values)
- Real GDP (at 2010 market prices):
  - 2016: -1.6
  - 2017: 0.8
  - 2018: 1.9
  - 2019: 2.1
  - 2020: 2.5
  - 2021: 2.4
  - 2022: 2.7
  - 2023: 2.6
  - 2024: 2.6
- Oil and Gas GDP:
  - 2016: -14.4
  - 2017: 4.7
  - 2018: 1.1
  - 2019: 4.4
  - 2020: 6.1
  - 2021: 3.0
  - 2022: 3.3
  - 2023: 0.8
  - 2024: 0.8
- Non-oil GDP:
  - 2016: -0.3
  - 2017: 0.5
  - 2018: 2.0
  - 2019: 1.9
  - 2020: 2.2
  - 2021: 2.4
  - 2022: 2.7
  - 2023: 2.7
  - 2024: 2.7
- Production of crude oil (million barrels per day):
  - 2016: 1.81
  - 2017: 1.89
  - 2018: 1.93
  - 2019: 2.00
  - 2020: 2.10
  - 2021: 2.15
  - 2022: 2.20
  - 2023: 2.20
  - 2024: 2.20
- Nominal GDP at market prices (trillions of naira):
  - 2016: 102.6
  - 2017: 114.9
  - 2018: 129.1
  - 2019: 144.6
  - 2020: 161.2
  - 2021: 179.1
  - 2022: 199.5
  - 2023: 221.6
  - 2024: 245.8
- GDP deflator:
  - 2016: 9.5
  - 2017: 11.1
  - 2018: 10.2
  - 2019: 9.6
  - 2020: 8.8
  - 2021: 8.4
  - 2022: 8.4
  - 2023: 8.3
  - 2024: 8.1
- Consumer price index (annual average):
  - 2016: 15.7
  - 2017: 16.5
  - 2018: 12.1
  - 2019: 11.7
  - 2020: 11.7
  - 2021: 11.3
  - 2022: 11.4
  - 2023: 11.1
  - 2024: 11.0
- Consumer price index (end of period):
  - 2016: 18.5
  - 2017: 15.4
  - 2018: 11.4
  - 2019: 12.1
  - 2020: 11.7
  - 2021: 11.5
  - 2022: 11.3
  - 2023: 11.0
  - 2024: 11.0
- Gross national savings:
  - 2016: 16.0
  - 2017: 18.2
  - 2018: 15.8
  - 2019: 13.8
  - 2020: 13.9
  - 2021: 13.9
  - 2022: 14.1
  - 2023: 14.1
  - 2024: 14.0
- Investment:
  - 2016: 15.4
  - 2017: 14.7
  - 2018: 13.2
  - 2019: 13.7
  - 2020: 13.6
  - 2021: 13.5
  - 2022: 13.4
  - 2023: 13.4
  - 2024: 13.4
- Current account balance (percent of GDP):
  - 2016: 0.7
  - 2017: 2.8
  - 2018: 2.1
  - 2019: -0.4
  - 2020: -0.2
  - 2021: -0.1
  - 2022: 0.1
  - 2023: 0.1
  - 2024: 0.0
- Total revenues and grants (percent of GDP):
  - 2016: 5.5
  - 2017: 6.2
  - 2018: 8.0
  - 2019: 7.0
  - 2020: 7.3
  - 2021: 7.2
  - 2022: 7.3
  - 2023: 7.4
  - 2024: 7.5
- Of which: oil and gas revenue (percent of GDP):
  - 2016: 2.1
  - 2017: 2.6
  - 2018: 4.6
  - 2019: 3.2
  - 2020: 3.4
  - 2021: 3.3
  - 2022: 3.4
  - 2023: 3.6
  - 2024: 3.6
- Total expenditure and net lending (percent of GDP):
  - 2016: 9.5
  - 2017: 11.6
  - 2018: 12.5
  - 2019: 12.1
  - 2020: 11.9
  - 2021: 11.7
  - 2022: 11.8
  - 2023: 11.9
  - 2024: 11.9
- Overall balance (percent of GDP):
  - 2016: -4.0
  - 2017: -5.4
  - 2018: -4.5
  - 2019: -5.1
  - 2020: -4.6
  - 2021: -4.5
  - 2022: -4.5
  - 2023: -4.5
  - 2024: -4.4
- Non-oil primary balance (percent of GDP):
  - 2016: -4.8
  - 2017: -6.7
  - 2018: -7.4
  - 2019: -6.8
  - 2020: -6.9
  - 2021: -6.4
  - 2022: -6.2
  - 2023: -6.1
  - 2024: -6.0
- Public gross debt (percent of GDP):
  - 2016: 23.4
  - 2017: 25.3
  - 2018: 28.4
  - 2019: 30.1
  - 2020: 31.4
  - 2021: 32.7
  - 2022: 33.8
  - 2023: 34.9
  - 2024: 35.9
- Of which: FGN debt (percent of GDP):
  - 2016: 20.5
  - 2017: 22.4
  - 2018: 25.2
  - 2019: 26.8
  - 2020: 27.7
  - 2021: 28.5
  - 2022: 29.4
  - 2023: 30.4
  - 2024: 31.3
- FGN interest payments (percent of FGN revenue):
  - 2016: 61.9
  - 2017: 58.4
  - 2018: 60.0
  - 2019: 63.0
  - 2020: 50.7
  - 2021: 58.9
  - 2022: 65.6
  - 2023: 70.6
  - 2024: 74.6
- Broad money (percent change; end of period):
  - 2016: 24.0
  - 2017: 9.1
  - 2018: 15.4
  - 2019: 15.6
  - 2020: 15.1
  - 2021: 14.6
  - 2022: 14.2
  - 2023: 13.7
  - 2024: 13.4
- Credit to the private sector (y-o-y,%):
  - 2016: 22.3
  - 2017: -3.3
  - 2018: -6.7
  - 2019: 3.9
  - 2020: 2.3
  - 2021: 2.2
  - 2022: 1.2
  - 2023: 2.5
  - 2024: 2.9
- Exports of goods and services (percent change):
  - 2016: -21.6
  - 2017: 32.3
  - 2018: 28.9
  - 2019: -8.5
  - 2020: 5.7
  - 2021: 2.6
  - 2022: 11.0
  - 2023: 2.3
  - 2024: 2.5
- Imports of goods and services (percent change):
  - 2016: -34.7
  - 2017: 8.4
  - 2018: 29.9
  - 2019: 8.5
  - 2020: 2.6
  - 2021: 1.3
  - 2022: 5.8
  - 2023: 0.5
  - 2024: 3.5
- Price of Nigerian oil (US dollar per barrel):
  - 2016: 44.6
  - 2017: 54.4
  - 2018: 71.1
  - 2019: 61.8
  - 2020: 61.5
  - 2021: 60.8
  - 2022: 60.4
  - 2023: 60.6
  - 2024: 60.6
- External debt outstanding (US$ billions) (Includes both public and private sector):
  - 2016: 45.7
  - 2017: 50.6
  - 2018: 63.4
  - 2019: 69.8
  - 2020: 76.6
  - 2021: 83.8
  - 2022: 91.5
  - 2023: 99.4
  - 2024: 108.0
- Gross international reserves (US$ billions):
  - 2016: 27.6
  - 2017: 39.8
  - 2018: 42.6
  - 2019: 38.5
  - 2020: 33.6
  - 2021: 33.3
  - 2022: 33.4
  - 2023: 33.8
  - 2024: 34.6
- Reserves (equivalent months of imports of G&Ss):
  - 2016: 6.5
  - 2017: 7.2
  - 2018: 7.1
  - 2019: 6.3
  - 2020: 5.7
  - 2021: 5.1
  - 2022: 5.1
  - 2023: 4.9
  - 2024: 4.5

*Sources: Nigerian authorities; and IMF staff estimates and projections.*

### 4.1 trillion). On a net basis, the overdrafts and government deposits at the CBN almost cancel out, and AMCON net debt r

### 1ngaea2019001 - 4.1 trillion). On a net basis, the overdrafts and government deposits at the CBN almost cancel out, and AMCON net debt r

### Balance of Payments (Table 2: Nigeria: Balance of Payments, 2016–24)
- Current account balance (Billions of U.S. dollars): 2.7 (2016), 0.4 (2017), 0.8 (2018), -1.6 (2019), -1.0 (2020), -0.7 (2021), 0.9 (2022), 0.8 (2023), 0.1 (2024)
- Trade balance (Billions of U.S. dollars): -0.5 (2016), 13.1 (2017), 19.2 (2018), 10.8 (2019), 12.1 (2020), 11.1 (2021), 12.6 (2022), 11.3 (2023), 10.5 (2024)
- Exports (Billions of U.S. dollars): 34.7 (2016), 45.8 (2017), 60.2 (2018), 54.6 (2019), 57.8 (2020), 59.2 (2021), 66.1 (2022), 67.5 (2023), 69.1 (2024)
  - Oil/gas exports: 32.0 (2016), 42.3 (2017), 55.3 (2018), 48.9 (2019), 51.4 (2020), 51.9 (2021), 57.6 (2022), 57.8 (2023), 57.8 (2024)
  - Other exports: 2.7 (2016), 3.5 (2017), 5.0 (2018), 5.6 (2019), 6.4 (2020), 7.4 (2021), 8.5 (2022), 9.8 (2023), 11.3 (2024)
- Imports (Billions of U.S. dollars): -35.2 (2016), -32.7 (2017), -41.0 (2018), -43.7 (2019), -45.7 (2020), -48.1 (2021), -53.5 (2022), -56.2 (2023), -58.6 (2024)
  - Oil/gas imports: -9.0 (2016), -8.2 (2017), -11.4 (2018), -9.7 (2019), -9.7 (2020), -9.7 (2021), -13.1 (2022), -13.2 (2023), -13.2 (2024)
  - Other imports: -26.3 (2016), -24.5 (2017), -29.7 (2018), -34.0 (2019), -36.0 (2020), -38.4 (2021), -40.3 (2022), -43.0 (2023), -45.4 (2024)
- Services (net): -8.0 (2016), -13.2 (2017), -19.8 (2018), -22.6 (2019), -22.2 (2020), -20.6 (2021), -19.3 (2022), -16.6 (2023), -16.7 (2024)
  - Receipts: 3.7 (2016), 5.0 (2017), 5.3 (2018), 5.4 (2019), 5.7 (2020), 5.9 (2021), 6.2 (2022), 6.4 (2023), 6.7 (2024)
  - Payments: -11.8 (2016), -18.3 (2017), -25.1 (2018), -28.0 (2019), -27.9 (2020), -26.5 (2021), -25.4 (2022), -23.1 (2023), -23.4 (2024)
- Income (net): -8.6 (2016), -11.5 (2017), -13.8 (2018), -13.5 (2019), -15.4 (2020), -16.7 (2021), -18.8 (2022), -21.1 (2023), -21.9 (2024)
  - Interest due on public debt: -0.3 (2016), -0.3 (2017), -0.3 (2018), -0.3 (2019), -0.4 (2020), -0.4 (2021), -0.4 (2022), -0.3 (2023), -0.3 (2024)
- Transfers (net): 19.9 (2016), 22.0 (2017), 22.9 (2018), 23.7 (2019), 24.5 (2020), 25.4 (2021), 26.3 (2022), 27.3 (2023), 28.2 (2024)
- Capital and Financial account balance: 0.7 (2016), 7.9 (2017), 13.0 (2018), -2.6 (2019), -1.9 (2020), -1.5 (2021), -0.8 (2022), -0.4 (2023), 0.7 (2024)
  - Direct Investment (net): 3.1 (2016), 2.2 (2017), 1.1 (2018), 2.2 (2019), 2.4 (2020), 2.7 (2021), 3.0 (2022), 3.3 (2023), 3.7 (2024)
  - Portfolio Investment (net): 1.7 (2016), 8.5 (2017), 11.2 (2018), 3.0 (2019), 3.5 (2020), 3.5 (2021), 4.0 (2022), 4.0 (2023), 4.8 (2024)
  - Other Investment (net): -4.2 (2016), -2.8 (2017), 0.7 (2018), -7.7 (2019), -7.7 (2020), -7.7 (2021), -7.7 (2022), -7.7 (2023), -7.7 (2024)
- Overall balance (Billions of U.S. dollars): -1.0 (2016), 12.2 (2017), 2.8 (2018), -4.1 (2019), -2.9 (2020), -2.3 (2021), 0.1 (2022), 0.4 (2023), 0.8 (2024)
- Gross official reserves, end-of-period (Billions of U.S. dollars): 27.6 (2016), 39.8 (2017), 42.6 (2018), 38.5 (2019), 35.6 (2020), 33.3 (2021), 33.4 (2022), 33.8 (2023), 34.6 (2024)
- Current account (percent of GDP): 0.7 (2016), 2.8 (2017), 2.1 (2018), -0.4 (2019), -0.2 (2020), -0.1 (2021), 0.1 (2022), 0.1 (2023), 0.0 (2024)

### Federal Government Operations (Table 3: Federal Government Operations, 2016–24)
- Total revenue and Grants (Billions of Naira): 2,123 (2017), 2,665 (2018), 3,602 (2019), 3,719 (2020), 4,355 (2021), 4,770 (2022), 5,263 (2023), 6,018 (2024), 6,765 (2024? — table columns show projections through 2024)
- Oil revenue (Billions of Naira): 879 (2017), 1,132 (2018), 2,076 (2019), 1,737 (2020), 2,114 (2021), 2,253 (2022), 2,672 (2023), 3,106 (2024), 3,549 (later column)
- Non-oil revenue (Billions of Naira): 1,245 (2017), 1,533 (2018), 1,526 (2019), 1,772 (2020), 2,021 (2021), 2,288 (2022), 2,591 (2023), 2,912 (2024), 3,216 (later)
- Total expenditure (Billions of Naira): 4,965 (2017), 7,406 (2018), 8,727 (2019), 10,558 (2020), 10,576 (2021), 11,409 (2022), 12,927 (2023), 14,581 (2024), 16,300 (later)
- Recurrent expenditure (Billions of Naira): 4,369 (2017), 6,164 (2018), 7,045 (2019), 8,697 (2020), 8,614 (2021), 9,230 (2022), 10,500 (2023), 11,885 (2024), 13,309 (later)
  - Personnel: 1,875 (2017), 2,278 (2018), 2,417 (2019), 2,813 (2020), 3,152 (2021), 3,527 (2022), 3,956 (2023), 4,425 (2024), 4,941 (later)
  - Interest: 1,313 (2017), 1,557 (2018), 2,160 (2019), 2,341 (2020), 2,210 (2021), 2,808 (2022), 3,452 (2023), 4,249 (2024), 5,048 (later)
- Capital expenditure (Billions of Naira): 596 (2017), 1,242 (2018), 1,682 (2019), 1,861 (2020), 1,962 (2021), 2,179 (2022), 2,427 (2023), 2,696 (2024), 2,990 (later)
- Overall balance (Billions of Naira): -2,841 (2017), -4,742 (2018), -5,125 (2019), -6,839 (2020), -6,221 (2021), -6,639 (2022), -7,664 (2023), -8,563 (2024), -9,534 (later)
- Financing (Billions of Naira): 2,841 (2017), 4,742 (2018), 5,125 (2019), 6,839 (2020), 6,221 (2021), 6,639 (2022), 7,664 (2023), 8,563 (2024), 9,534 (later)
  - External financing (Billions of Naira): 712 (2017), 2,183 (2018), 1,820 (2019), 711 (2020), 732 (2021), 597 (2022), 603 (2023), 513 (2024), 667 (later)
  - Domestic financing (Billions of Naira): 2,761 (2017), 913 (2018), 2,864 (2019), 6,128 (2020), 5,489 (2021), 6,042 (2022), 7,062 (2023), 8,050 (2024), 8,868 (later)
- FGN Total Debt (Billions of Naira): 21,054 (2017), 25,767 (2018), 32,584 (2019), 38,809 (2020), 44,691 (2021), 51,093 (2022), 58,757 (2023), 67,320 (2024), 76,854 (later)
- Price of Nigerian oil (US dollar per barrel): 44.65 (2016), 54.47 (2017), 1.16 (2018), 1.85 (2019), 6.5 (2020), 0.86 (2021), 0.46 (2022), 0.66 (2023), 0.6 (2024)
- FGN overall balance (percent of GDP): -2.8 (2016), -4.1 (2017), -4.0 (2018), -4.7 (2019), -3.9 (2020), -3.7 (2021), -3.8 (2022), -3.9 (2023), -3.9 (2024)

### Consolidated (General) Government (Table 4)
- Total revenue and Grants (Billions of Naira): 5,681 (2016), 7,085 (2017), 10,322 (2018), 10,085 (2019), 11,715 (2020), 12,831 (2021), 14,474 (2022), 16,452 (2023), 18,403 (2024)
- Oil revenue (Billions of Naira): 2,187 (2016), 2,993 (2017), 5,879 (2018), 4,658 (2019), 5,548 (2020), 5,873 (2021), 6,861 (2022), 7,893 (2023), 8,943 (2024)
- Non-oil revenue (Billions of Naira): 3,493 (2016), 4,092 (2017), 4,444 (2018), 5,217 (2019), 5,946 (2020), 6,729 (2021), 7,613 (2022), 8,559 (2023), 9,460 (2024)
- Total expenditure (Billions of Naira): 9,735 (2016), 13,301 (2017), 16,162 (2018), 17,461 (2019), 19,205 (2020), 20,977 (2021), 23,481 (2022), 26,335 (2023), 29,210 (2024)
- Overall balance (Billions of Naira): -4,054 (2016), -6,215 (2017), -5,840 (2018), -7,377 (2019), -7,490 (2020), -8,146 (2021), -9,006 (2022), -9,883 (2023), -10,807 (2024)
- Memorandum: Budget oil price (US dollar a barrel): 38.0 (2016), 44.5 (2017), 47.0 (2018), 61.8 (2019), 1.5 (2020), 0.86 (2021), 0.46 (2022), 0.66 (2023), 0.6 (2024)
- Overall balance (% of GDP): -4.0 (2016), -5.4 (2017), -4.5 (2018), -5.1 (2019), -4.6 (2020), -4.5 (2021), -4.5 (2022), -4.5 (2023), -4.4 (2024)

### Government Operations (Percent of GDP) (Table 5)
- Consolidated Government total revenue: 5.5 (2016), 6.2 (2017), 8.0 (2018), 7.0 (2019), 7.3 (2020), 7.2 (2021), 7.3 (2022), 7.4 (2023), 7.5 (2024)
- Total expenditure: 9.5 (2016), 11.6 (2017), 12.5 (2018), 12.1 (2019), 11.9 (2020), 11.7 (2021), 11.8 (2022), 11.9 (2023), 11.9 (2024)
- Overall balance: -4.0 (2016), -5.4 (2017), -4.5 (2018), -5.1 (2019), -4.6 (2020), -4.5 (2021), -4.5 (2022), -4.5 (2023), -4.4 (2024)
- Federal Government overall balance: -2.8 (2016), -4.1 (2017), -4.0 (2018), -4.7 (2019), -3.9 (2020), -3.7 (2021), -3.8 (2022), -3.9 (2023), -3.9 (2024)

### State and Local Governments (Table 6)
- Revenue (percent of GDP): 2.8 (2016), 4.0 (2017), 4.8 (2018), 4.3 (2019), 3.8 (2020), 3.7 (2021), 3.8 (2022), 3.9 (2023), 4.0 (2024)
- Expenditure (percent of GDP): 4.4 (2016), 5.5 (2017), 5.4 (2018), 4.6 (2019), 4.5 (2020), 4.5 (2021), 4.5 (2022), 4.5 (2023), 4.5 (2024)
- Overall Balance (percent of GDP): -1.6 (2016), -1.4 (2017), -0.6 (2018), -0.4 (2019), -0.8 (2020), -0.8 (2021), -0.7 (2022), -0.6 (2023), -0.5 (2024)

### Central Bank of Nigeria (CBN) Analytical Balance Sheet (Table 7)
- Net foreign assets (Billions of Naira): 6,536 (2016), 12,563 (2017), 11,822 (2018 Dec.), 13,202 (2019 Mar.), 14,447 (2019 Jun.), 14,660 (2019 Sep.), 13,032 (2019 Dec. Act.), 11,905 (2020), 10,977 (2021), 10,800 (2022), 10,725 (2023), 10,764 (2024)
- Foreign assets (Billions of Naira): 9,249 (2016), 15,313 (2017), 18,388 (2018 Dec.), 18,205 (2019 Mar.), 18,493 (2019 Jun.), 18,182 (2019 Sep.), 16,730 (2019 Dec. Act.), 15,788 (2020), 15,054 (2021), 15,081 (2022), 15,220 (2023), 15,484 (2024)
- Net domestic assets (Billions of Naira): 2,562 (2016), -3,105 (2017), -2,287 (2018), -3,870 (2019 Mar.), -4,888 (2019 Jun.), -4,409 (2019 Sep.), -1,180 (2019 Dec. Act.), 1,734 (2020), 4,654 (2021), 7,049 (2022), 9,571 (2023), 12,619 (2024)
- Reserve money (Billions of Naira): 9,097 (2016), 9,458 (2017), 9,536 (2018), 9,331 (2019 Mar.), 9,559 (2019 Jun.), 10,251 (2019 Sep.), 11,851 (2019 Dec. Act.), 13,639 (2020), 15,630 (2021), 17,850 (2022), 20,295 (2023), 23,383 (2024)
- Currency in circulation (Billions of Naira): 2,179 (2016), 2,157 (2017), 2,039 (2018), 1,901 (2019 Mar.), 1,926 (2019 Jun.), 2,330 (2019 Sep.), 2,693 (2019 Dec. Act.), 3,100 (2020), 3,552 (2021), 4,057 (2022), 4,612 (2023), 5,599 (2024)
- Banks reserves with the CBN (Billions of Naira): 6,918 (2016), 7,300 (2017), 7,496 (2018), 7,431 (2019 Mar.), 7,632 (2019 Jun.), 7,921 (2019 Sep.), 9,158 (2019 Dec. Act.), 10,539 (2020), 12,078 (2021), 13,793 (2022), 15,683 (2023), 17,784 (2024)
- Reserve money y/y growth rate: 29.2 (2016), 4.0 (2017), 18.2 (2018), 15.9 (2019 Mar.), 16.8 (2019 Jun.), 8.4 (2019 Sep.), 15.6 (2019 Dec. Act.), 15.1 (2020), 14.6 (2021), 14.2 (2022), 13.7 (2023), 15.2 (2024)
- Money multiplier: 2.9 (2016), 3.0 (2017), 3.0 (2018), 3.1 (2019 Mar.), 3.2 (2019 Jun.), 3.2 (2019 Sep.), 3.2 (2019 Dec. Act.), 3.2 (2020), 3.2 (2021), 3.2 (2022), 3.2 (2023), 3.2 (2024)

### Monetary Survey (Table 8)
- Net foreign assets (Billions of Naira): 6,883 (2016), 12,990 (2017 Dec.), 12,273 (2018 Dec.), 13,758 (2019 Mar.), 15,065 (2019 Jun.), 14,963 (2019 Sep.), 13,483 (2019 Dec. Act.), 12,513 (2020), 11,748 (2021), 11,744 (2022), 11,849 (2023), 12,078 (2024)
- Net domestic assets (Billions of Naira): 19,169 (2016), 15,441 (2017), 16,535 (2018), 15,275 (2019 Mar.), 15,184 (2019 Jun.), 17,845 (2019 Sep.), 24,446 (2019 Dec. Act.), 31,138 (2020), 38,276 (2021), 45,383 (2022), 53,105 (2023), 61,580 (2024)
- Broad money (M3, Billions of Naira): 26,052 (2016), 28,432 (2017), 28,809 (2018), 29,034 (2019 Mar.), 30,249 (2019 Jun.), 32,807 (2019 Sep.), 37,929 (2019 Dec. Act.), 43,651 (2020), 50,024 (2021), 57,127 (2022), 64,953 (2023), 73,657 (2024)
  - Broad money y-o-y (%): 24.0 (2016), 9.1 (2017), 14.6 (2018), 15.5 (2019 Mar.), 17.3 (2019 Jun.), 15.4 (2019 Sep.), 15.6 (2019 Dec. Act.), 15.1 (2020), 14.6 (2021), 14.2 (2022), 13.7 (2023), 13.4 (2024)
- Credit to the private sector (Billions of Naira): 14,164 (2016), 13,703 (2017), 13,226 (2018), 12,947 (2019 Mar.), 13,489 (2019 Jun.), 12,789 (2019 Sep.), 13,289 (2019 Dec. Act.), 13,590 (2020), 13,884 (2021), 14,180 (2022), 14,537 (2023), 14,959 (2024)
  - Credit to the private sector y-o-y (%): 22.3 (2016), -3.3 (2017), -5.7 (2018), -6.0 (2019 Mar.), -3.0 (2019 Jun.), -6.7 (2019 Sep.), 3.9 (2019 Dec. Act.), 2.3 (2020), 2.2 (2021), 2.1 (2022), 2.5 (2023), 2.9 (2024)
- Gross international reserves (billions of US dollar): 27.0 (2016), 39.3 (2017), 46.7 (2018), 47.2 (2019 Mar.), 42.6 (2019 Jun.), 42.5 (2019 Sep.), 38.5 (2019 Dec. Act.), 33.6 (2020), 33.3 (2021), 33.4 (2022), 33.8 (2023), 34.6 (2024)

### Financial Soundness Indicators (Table 9: 2013Q4–2018Q4)
- Regulatory Capital to Risk-Weighted Assets: 17.1 (2013Q4), 18.6 (2014Q4), 17.7 (2015Q4), 16.6 (2016Q4), 14.7 (2016Q1), 15.0 (2016Q2), 14.8 (2016Q3), 13.5 (2016Q4), 11.5 (2017Q1), 10.6 (2017Q2), 10.5 (2017Q3), 11.9 (2017Q4), 12.1 (2018Q1), 14.1 (2018Q2), 14.1 (2018Q3), 15.2 (2018Q4)
- Non-Performing Loans to Total Gross Loans: 3.4 (2013Q4), 3.0 (2014Q4), 4.9 (2015Q4), 9.7 (2016Q4), 10.7 (2016Q1), 13.4 (2016Q2), 12.8 (2016Q3), 14.7 (2016Q4), 15.0 (2017Q1), 15.1 (2017Q2), 14.8 (2017Q3), 13.8 (2017Q4), 12.4 (2018Q1), 14.2 (2018Q2), 11.7 (2018Q3), (2018Q4 shown earlier as 11.7)
- Return on Assets: 2.3 (2013Q4), 2.5 (2014Q4), 2.5 (2015Q4), 3.0 (2016Q4), 2.3 (2016Q1), 1.3 (2016Q2), 1.3 (2016Q3), 2.3 (2016Q4), 2.6 (2017Q1), 2.4 (2017Q2), 2.4 (2017Q3), 1.2 (2017Q4), 1.8 (2018Q1), 1.7 (2018Q2), 2.0 (2018Q3)
- Liquid Assets to Total Assets: 16.8 (2013Q4), 11.4 (2014Q4), 18.5 (2015Q4), 17.4 (2016Q4), 14.0 (2016Q1), 15.0 (2016Q2), 16.2 (2016Q3), 17.0 (2016Q4), 17.4 (2017Q1), 17.3 (2017Q2), 18.8 (2017Q3), 19.1 (2017Q4), 20.1 (2018Q1), 20.1 (2018Q2), 20.1 (2018Q3), 22.6 (2018Q4)
- Liquid Assets to Short Term Liabilities: 23.1 (2013Q4), 16.7 (2014Q4), 27.1 (2015Q4), 25.7 (2016Q4), 21.6 (2016Q1), 23.1 (2016Q2), 24.5 (2016Q3), 25.6 (2016Q4), 25.8 (2017Q1), 25.5 (2017Q2), 27.2 (2017Q3), 28.0 (2017Q4), 29.5 (2018Q1), 30.0 (2018Q2), 34.0 (2018Q3), 34.1 (2018Q4)

### Monitoring of the Sustainable Development Goals (Table 10)
- Poverty: Proportion of population below international poverty line (Percent): 53.5 (Sub-Saharan Africa baseline shown)
- Proportion of population below national poverty line (Percent): 48.4 (2005), 46.0 (2010/latest)
- Proportion of population covered by at least one social protection benefit (Percent): 4.4 (2005), 12.9 (2010/latest)
- Prevalence of severe food insecurity in the adult population (Percent): 24.5 (2005), 29.3 (2010/latest)
- Maternal mortality ratio (100,000 live births): 946 (2005), 867 (2010), 555 (2015), 555 (latest)
- Infant mortality rate (deaths per 1,000 live births): 81 (2005), 64.6 (2010), 51.8 (2015/latest)
- Under-five mortality rate (deaths per 1,000 live births): 157 (2005), 130 (2010), 100 (2015), 76 (latest)
- Malaria incidence per 1,000 population at risk (per 1,000 population): 458 (2005), 400 (2010), 350 (2015), 237 (latest)
- School enrollment, primary, male (% gross): 109.8 (2005), 89.1 (2010), 95.2 (2015), 100.0 (latest)
- School enrollment, primary, female (% gross): 92.6 (2005), 80.9 (2010), 92.8 (2015), 94.6 (latest)
- Proportion of seats held by women in national parliaments (% of total number of seats): 4.7 (2005), 17.0 (2010), 5.6 (2015), 23.6 (latest)
- Proportion of adults (15 years and older) with an account at a financial institution or mobile-money-service provider (%): 29.7 (2005), 39.7 (2010), 42.6 (2015), 42.6 (latest)
- Carbon dioxide emissions per unit of GDP (Kilogrammes of CO2 per constant 2010 United States dollars): 0.10 (2005), 0.10 (2010), 0.20 (2015), 0.5 (latest)

### Progress on 2013 FSAP Recommendations (Table 11)
- Recommendation 1: Further enhance supervisory oversight over banks with international presence.
  - Progress points:
    - On-site examination of subsidiaries take place regularly, and the CBN continues to monitor and supervise subsidiaries through the parent bank.
    - Information is shared frequently and regularly between regional supervisors.
    - A memorandum of understanding with host regulatory/supervisory agencies have been signed.
    - A college of supervisors of the West African Monetary Zone (CSWAMZ) meet regularly.
    - Joint examination takes place with foreign supervisor agencies of foreign subsidiaries of Nigerian banks in WAMZ.
    - A crisis resolution framework for cross border banks is being finalized by the West African Monetary Institute.
    - The Financial Stability Board Regional Consultative Group for Sub-Saharan Africa (FSB RCG-SSA) meets regularly.

*Source: https://www.imf.org/-/media/files/publications/cr/2019/1ngaea2019001.pdf*

### 2. Strengthen macro-prudential oversight and crisis

### 2. Strengthen macro-prudential oversight and crisis preparedness by enhancing the functioning of the FSRCC

### Role and framework for the FSRCC
- The role of FSRCC has been enhanced to include a financial stability function.
- A framework that underpins the duties of FRSCC has been drafted; it will set out the macro prudential analytical framework and crisis and resolution framework that it will be overseeing.

### Capacity building and data for macroprudential analysis
- Capacity building is an on-going process.
- The CBN receives training from the IMF and WB.
- An Early Warning System (EWS) has been put in place.
- Scenario stress testing are in the process of being incorporated.
- Improve availability and quality of data for macro prudential analysis (status: in progress as part of capacity building).

### Legal and regulatory framework updates
- Review and update the BOFIA to reflect internationally accepted framework for bank regulation and supervision.
  - Status: Amendments to the BOFIA and NDIC Act are suspended by the National Assembly until further notice.
- Withdraw the CBN circular restricting recapitalization of foreign subsidiaries by Nigerian parent banks.
  - Status: The CBN considers a request for recapitalization of foreign subsidiaries on a case-by-case basis.
- Review the licensing of the microfinance banks, to offer two types of license.
  - Status: License requirements differ by types of microfinance: unit, state and national.

### Human resources and organizational changes
- Implement HRD plan for a new category of BSD specialists with a separate career path.
  - Status: Completed.
- Expeditiously nominate the new Board members of the SEC.
  - Status: The SEC board was nominated soon after the FSAP mission left, but it was abolished following the election in 2015.

### Crisis response, safety nets, and resolution entities
- Unwind crisis response measures and revert to the conventional financial safety nets that are already in place, including the DIS.
  - Status: No update received.
- Establish end–2017 as the sunset for AMCON, disallow further acquisition of assets, and use surplus funds to buy back bonds.
  - Status: AMCON continues to exist and acquire bad assets including its recent purchase of Skye bank (renamed to Polaris) in Sep. 2018. It is expected to remain operating beyond 2023, especially with its recent issuance of 25-year bonds.
- Enhance banking sector resilience through tighter prudential requirements, intensified monitoring, strengthened regulations, and recapitalization of banks.
  - Status excerpts: Increased provisioning, strict limits on net FX positions, and prohibition of dividend payments for banks with high NPLs continue. However, undercapitalized banks remain, the banking resolution framework has not been strengthened, and regulatory forbearance persists.

### Development finance and DFI involvement
- Divest CBN’s interest in DFIs to the FMoF and/or the private sector as appropriate.
  - Status: The CBN is committed in utilizing DFI as conduits to provide finance to the real sector. There is no plan to divest CBN’s interest in the DFI, at least not in the short-run.
- Review the design and performance of the Development Finance Schemes.
  - Status: The CBN is reviewing its policy on Development Finance, with the objective to reduce the Bank’s exposure and outlining a more structured approach. An internal evaluation of some interventions is scheduled.

### Payments, insurance, pensions, and valuation regimes
- Revise the 2009 Regulatory Framework for Mobile Payment Services to level the playing field and intensify competition.
  - Status: Regulatory requirements continue to be strengthened. Regulations distinguish between Bank and Non-Bank led operators. Capital requirements have also been increased.
- Upgrade the solvency regime, as well as valuation and the reserve requirements, to better capture risk.
  - Status: Adopted risk-based reserve requirements, guidance was issued. IFRS accounting was introduced in 2013. Ground work is progressing to identify the necessary requirements for adopting Solvency II framework.
- Put high priority on enforcement of mandatory insurance.
  - Status: NAICOM is working closely with counterparts to enforce mandatory insurance (e.g., brigade for fire insurance, Federal Road Safety Commission for car insurance).
- Establish a database of employers required to comply with the Pension Reform Act, 2004.
  - Status: Pencom has been in consultation with the Ministry of Budget and Planning to compile a database of employers; consultation is at advanced stage.
- Develop Nigerian specific mortality tables for pricing annuities and programmed withdrawals.
  - Status: Pencom has written to the Government requesting relevant agencies to work on developing the necessary tables.

### Securities sector prudential requirements
- Ensure that broker-dealers are subject to higher risk-based capital requirements and other prudential requirements as well as sufficient entity-level supervision, including regular on-site inspections.
  - Status: Moving to risk based capital requirement with minimum capital requirement. A regulatory framework following the Malaysia and the USA models is under design.
- Adopted risk-based provision (noted in supervisory updates).

### Central monitoring of contingent fiscal commitments
- Create central unit to monitor contingent fiscal commitments and develop a strategy as regards further commitments.
  - Status: The government has increased its monitoring of fiscal activity, including identifying arrears and requiring state and local governments to report regularly. There is no explicit strategy to limit further commitments.

---

### Annex I: Status highlights for broader 2019 Article IV recommendations (selected)
- Fiscal:
  - Authorities continued to focus on tax administration (tax amnesty, new tax payer registry, cross-data matching) but this has not been enough to increase non-oil revenue; planned excise increases did not materialize, and new exemptions were granted.
  - Authorities plan further fiscal consolidation in 2019, but revenues remain overoptimistic relying mostly on increases in SOE surplus revenues and further divestment of oil assets. New minimum wage proposals will put additional pressure on the fiscal stance.
- Monetary and Exchange Rate:
  - Monetary policy has been de-facto maintained tight despite an unchanged MPR since July 2016. Inflation has declined significantly but remains above the target range.
  - Convergence of exchange rates in different windows has been ongoing; CBN interventions have kept the I&E window at the N/$ 360-365 range. Multiple rates and FX access bans remain distortions.
- Financial:
  - Measures include increased provisioning, strict limits on net FX positions, and prohibition of dividend payments for banks with high NPLs. Under-capitalization and regulatory forbearance persist; banking resolution framework not strengthened.
- Structural:
  - Implementation of the ERGP remains a priority; key reform areas in power and oil and gas have been delayed. Doing Business scores improved but progress slowed.

### Annex II: Risk Assessment Matrix — selected risks and policy responses
- External risks (high likelihood): Rising protectionism and retreat from multilateralism.
  - Policy responses include: rebuild fiscal and external buffers via non-oil revenue mobilization and greater exchange rate flexibility; improve business environment; address infrastructure gap.
- Weaker-than-expected global growth (medium/high): Policy responses focus on fiscal consolidation, structural reforms, and exchange rate flexibility.
- Sharp tightening of global financial conditions (low/medium): Policy responses include fiscal consolidation, strengthen supervisory and regulatory frameworks, stronger monetary and exchange rate policy frameworks, and unwinding central bank quasi fiscal activities.
- Nigeria-specific risks (high): Speed of reform implementation post-election; disruption of oil production in the Niger Delta; deterioration in banking sector Financial Stability Indicators.
  - Policy responses: integrated policy package, strengthen security and investment environment in oil and gas, anti-money laundering measures, increase banks’ capital and provisioning for NPLs, enhance banking supervision.

### Annex III: FSGM model simulations of staff’s adjustment scenario — assumptions and results
A. Key assumptions under staff’s adjustment scenario
- Model: IMF’s Flexible System of Global Models (FSGM).
- Fiscal consolidation and revenue:
  - Increase non-oil revenue by 8 percentage points of GDP over the medium term (assumed through VAT).
  - Oil production increases by "5 percent in 2019 about 10.5 percent in 2020-21 and 9 percent from 2022 onward (to 2.4 mbpd)".
  - Substantial increase in public spending on infrastructure of "4.5 percent of GDP over the medium term" and social projects "1.6 percent of GDP over the medium term".
  - Over time, debt-to -GDP is reduced to "28.8 percent" as revenues exceed spending including interest and GDP increases.
- Exchange rate and monetary policy:
  - Full exchange rate flexibility is assumed, with monetary policy used to contain the initial inflation impact.
  - An alternative simulation under a peg of the Naira is provided for comparison.
- Higher public investment efficiency and improved fiscal transparency are assumed.

B. Simulation results (selected)
- Growth impact:
  - The scenario delivers "7 percent" higher GDP by 2025 compared to the baseline, implying an overage annual growth dividend of about "1 percentage point" over 2019-2025.
  - The unified and more flexible exchange rate is estimated to yield about "7 percentage points" higher GDP by 2025 than the baseline or about "1 percentage point on average per year".
- Investment, consumption, and TFP:
  - Investment increases by "11 percent" by the end of the simulation period.
  - Consumption falls by "-5 percent" by the end of 2022 due to the tax increase, later mitigated by higher production and employment.
- Inflation and monetary policy:
  - Short-term tighter monetary policy illustrated by a "9 and 135 basis points" increase in the policy rate in 2019 and 2020 respectively under a flexible exchange rate.
  - Tighter monetary policy and appreciation of the naira smooth fluctuations in investment, GDP, and inflation.
- Structural reforms:
  - The cumulative growth effect of about "7 percentage points" by the end of the period is expected to be higher once structural reforms (power sector, diversification, doing business, governance, access to finance, stronger banking sector) are incorporated.
  - Staff’s estimated overall potential growth rate is "about 4.5 percent" in the medium term.
  - Further investment in the extractive industry could boost oil production to "2.5 mbpd" in the medium term, presenting additional upside potential for growth.

*Source: IMF staff report excerpt — Annexes I–III and Section on strengthening macro-prudential oversight and crisis preparedness.*

### Annex IV. Debt Sustainability

### Annex IV. Debt Sustainability

### A. Public Debt Sustainability Analysis — Key Findings
- Nigeria’s debt-to-GDP level is higher than in the past decade but remains relatively low compared to other frontier market economies.
- Liquidity-based indicators are concerning, driven by low revenue mobilization; the interest bill is projected to absorb almost three fourths of federal government revenues if current policies persist.
- Fiscal space is at risk; stress scenarios confirm vulnerability of public debt to a low-growth/wide primary deficit scenario.
- A comprehensive policy package is essential, including fiscal consolidation based on front loading non-oil revenue mobilization over the medium term, to reduce the interest payments-to-revenue ratio to more sustainable levels.

### Baseline Projections — Public Debt
- Gross public debt increased to about 28.4 percent of GDP in 2018.
- Net debt (correcting for government deposits and AMCON assets) averages 20.7 percent of GDP in 2018.
- Public debt is forecast to rise to 35.9 percent of GDP in 2024; more than 80 percent of this increase is driven by the federal government.
- Debt includes non-interest bearing promissory notes: N177 billion (to oil marketing companies), N153 billion (to state governments) issued in December 2018, and 671 billion naira in 2019.
- The “imputed” primary deficit is projected to narrow to below 2½ percent of GDP in the medium term, down from 2.8 percent in 2018, but remains the main driver of debt increase.
- Under current policies, financing needs in the medium term will average about 7 percent of GDP.
- Federal Government interest payments are projected to approach 75 percent of federal government revenue in 2024, up from 60 percent in 2018.
- The government used Eurobond proceeds to retire maturing Treasury Bills, reducing domestic yields earlier in 2018; however, increased issuance of CBN bills and emerging market turmoil reversed that trend.
- External borrowing continued in 2018: $2.86 billion multi-tranche Eurobond issuance in November 2018, following a $2.5billion placement in February 2018.
- Authorities aim to move from a 30-70 external-to-domestic debt ratio to a 40-60 mix to lower interest payments and lengthen maturity.
- Eurobond financing now accounts for 55 percent of external debt financing; while Eurobonds increase exchange rate risk and bullet repayments pose refinancing risk, longer maturities help minimize near-term refinancing needs.

### Baseline Assumptions and Forecast Track Record
- Baseline assumptions show no systematic bias in the forecast track record and are broadly in line with those observed in other surveillance countries.
- Past projections of the primary balance and growth showed some optimistic bias pre-2018, reflecting oil price volatility.

### Stress Tests — Results and Vulnerabilities
- Debt-to-GDP indicators remain sustainable under stress scenarios, but liquidity and debt-service vulnerabilities increase substantially.
- Interest rate shock: FG interest-to-FG revenue ratio would increase to almost 125 percent.
- Standardized combined macro-fiscal shock (real GDP growth, deflator, revenues/expenditures, financing costs, exchange rate depreciation): ratio would increase to above 149 percent.
- Contingency shock (increase non-interest expenditures by 10 percent of the banking sector, lower growth by one standard deviation in 2019 and 2020, increase inflation and interest cost): ratio would increase to above 104 percent.
- Fan charts indicate significant uncertainty: the symmetric fan chart width is estimated at some 30 percent of GDP. An asymmetric fan chart shows an extreme downside shock constraining growth to zero leads to a more upward-sloping debt path (risks skewed to the downside).

### Heat Map — Risk Assessment
- Market perception is identified as the principal risk to debt sustainability, with increased vulnerability compared to the last Article IV assessment.
- Early-warning indicators and benchmarks show elevated bond spreads and external financing metrics relative to risk thresholds.

### Indicative Historical and Projection Indicators (selected)
- Public gross financing needs: 2018 = 4.7 percent of GDP; medium-term projections roughly between 6.4 and 7.8 percent of GDP in various years.
- Real GDP growth: 2018 = 0.8 percent; projections include 1.9 percent (2019) and 2.6 percent (2024).
- Inflation (GDP deflator): 2018 = 11.1 percent; projected 8.1 percent (2024).
- Effective interest rate: 2018 = 6.5 percent; projected 7.5 percent (2024).
- Change in gross public sector debt (cumulative through 2024 projection): 7.5 percent of GDP.
- Identified debt-creating flows (cumulative): 8.3 percent of GDP.
- Primary deficit (cumulative): 17.4 percent of GDP.
- Primary (noninterest) revenue and grants (cumulative): 43.6 percent of GDP.
- Primary (noninterest) expenditure (cumulative): 61.0 percent of GDP.

### Policy Implication (from analysis)
- A comprehensive policy package that front-loads non-oil revenue mobilization and implements fiscal consolidation over the medium term is essential to restore sustainable interest payments-to-revenue dynamics and reduce liquidity vulnerabilities.

### B. External Debt Sustainability Analysis — Key Findings
- External debt (public and private) is low, projected at 16 percent of GDP in 2018.
- External debt has risen modestly since 2013 owing to capital inflows and naira weakening in 2015–16.
- External debt-to-exports ratio almost tripled since 2013, reaching around 100 percent in 2018, mainly due to the decline in oil exports in 2015-16.
- Gross external financing needs remain small relative to the size of the economy and are projected to remain below 4 percent of GDP in the medium term under baseline projections.
- Private sector external borrowing is projected to grow in line with the economy given only mild recoveries in oil prices and economic activity.
- Public sector is expected to continue drawing on bilateral and commercial external financing.
- Nominal interest rates are expected to contribute to external debt accumulation given relatively tight global financial conditions and Nigeria’s macroeconomic risk profile.
- Much of public external debt has historically been concessional compared to peers, though international bond issuance increased: $4.8 billion in 2017 and $5.3 billion in 2018.
- The stock of external debt is expected to increase over the medium term; achieving the authorities’ 60:40 domestic-to-external debt mix objective will likely require a longer horizon.

*Source: IMF staff (Annex IV. Debt Sustainability).*

### 11.      Stress tests are used to illustrate the sensitivity of debt levels to various potential

### 1ngaea2019001 - 11.      Stress tests are used to illustrate the sensitivity of debt levels to various potential

### Stress-test findings for external debt dynamics
- Higher interest rates or a slowdown in economic growth would not, by themselves, lead to outcomes substantially different from the baseline.
- A shock to the non-interest current account (interpretable as a substantial decline in oil exports given Nigeria’s trade structure) would place the external debt-to-GDP ratio on an upward path; this outcome is driven by the high historical volatility of Nigeria’s current account balance owing largely to fluctuations in oil exports and prices.
- The recent oil shock experience suggests the impact of a current account shock would be buffered largely by import compression and income debits.
- A combined (interest rate, growth, current account) shock has a similar impact on the debt path, with dynamics driven by the current account.
- A one-time real depreciation of 30 percent in the first projection year would cause an upward level shift in debt, but not place it on an upward path.
- Data caveats: analysis subject to gaps in data on Nigeria’s International Investment Position and remaining maturity of external obligations; staff estimates used for portfolio investment liabilities and for non-resident holdings of government securities issued on the domestic market and abroad.

### Key scenario outcomes shown in Figure 7 (external debt in percent of GDP)
- Baseline: 14.3
- Interest rate shock: 14.6
- Non-interest current account (CA) shock: 20.8
- Combined shock: 18.7
- Real depreciation shock (one-time 30 percent): 23.7
- Growth shock: 16.2
- Note: Individual shocks are permanent one-half standard deviation shocks; permanent 1/4 standard deviation shocks applied to real interest rate, real growth rate, and current account balance; real depreciation of 30 percent occurs in 2018.

### Selected external DSA projection highlights (as presented in Table 1)
- Baseline: External debt 1/8.39.611.013.416.015.715.415.214.914.614.3-1.5
- Change in external debt: 1.01.31.42.42.5-0.3-0.2-0.2-0.3-0.3-0.3
- Identified external debt-creating flows (4+8+9): -1.24.40.4-3.5-4.6-0.8-1.0-1.0-1.3-1.2-1.2
- Current account deficit, excluding interest payments: -0.52.7-1.3-3.5-2.9-0.4-0.6-0.6-0.9-0.8-0.7
- Exports: 14.99.99.313.516.513.512.811.811.810.810.0
- Imports: 15.114.611.413.516.616.114.813.512.911.610.8
- Automatic debt dynamics 2/: -0.41.72.51.30.00.40.40.40.30.40.3
  - Contribution from nominal interest rate: 0.30.50.60.70.70.70.80.70.70.70.7
  - Contribution from real GDP growth: -0.4-0.30.2-0.1-0.2-0.3-0.4-0.3-0.4-0.3-0.3
  - Contribution from price and exchange rate changes 3/: -0.31.51.60.7-0.5..................
- Residual, incl. change in gross foreign assets (2-3) 4/: 2.1-3.11.15.97.10.50.70.81.00.90.9
- External debt-to-exports ratio (in percent): 55.596.5118.999.496.7116.3120.8128.8126.6134.4142.5
- Gross external financing need (in billions of US dollars) 5/: 11.131.313.94.46.516.517.920.618.120.623.5
  - in percent of GDP: 2.06.33.41.21.63.73.63.73.03.03.1
- Scenario with key variables at their historical averages 6/: 10-Year10-Year15.316.618.120.222.424.7-0.7

(Notes included in table: 1/ Includes public and private sector liabilities; on a residence basis. 2/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt. 4/ For projection, line includes the impact of price and exchange rate changes. 5/ Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period. 6/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP. 7/ Long-run, constant balance that stabilizes the debt ratio assuming that key variables remain at their levels of the last projection year.)

### Annex V — Inflation-growth threshold (Nigeria)
- Question: Is inflation good or bad for growth? Empirical approach uses OLS and Hansen’s (2000) threshold regression with annual 1990-2017 and quarterly 2010Q1-2018Q2 data.
- OLS: coefficients indicate a non-linear relationship—first inflation term positive, quadratic inflation negative.
- Threshold-regression main result: threshold level of inflation of 10-12 percent after which inflation hurts growth; below this range inflation can contribute positively to growth.
- Specific numbers:
  - Threshold regression reported thresholds: 12.8569, 10.2872, 10.3399 (reported across models).
  - Sample: 2011Q1 – 2018Q2; Observations: 30.
  - OLS and threshold findings robust across annual and quarterly samples and different specifications.
- Policy implication: Results are independent of the inflation target, which remains appropriate at a single digit range; inflation targeting is a monetary phenomenon not necessarily informed by growth considerations.

### Annex VI — External stability assessment (summary)
- Overall assessment: The external position of Nigeria in 2018 is moderately weaker than implied by fundamentals and desirable policy settings; vulnerabilities stem from reserves adequacy and capital flows.
- Methodology: Assessment based on revised EBA-Lite methodology (revised from EBA-Lite 1.0), expanding fundamentals and policy determinants, adding complementary approaches for large exporters of exhaustible commodities, and a revised deterministic external sustainability approach.
- Module I (EBA-Lite regression results):
  - Current account approach: the model finds the CA in 2018 was broadly in line with the norm, with macroeconomic policies contributing -1.8 percent of GDP to the CA gap (i.e., policies pushed CA into a smaller surplus or larger deficit).
  - Equilibrium REER approach: model suggests the real exchange rate is broadly in line with fundamentals and desirable policies; large inflation differential with trading partners is depreciating the exchange rate in real terms.
- Module II (Non-regression approaches for exhaustible-resource exporters):
  - Consumption-allocation rules suggest medium-term CA and fiscal norms of around 7 and 1 percent, respectively, under constant real per capita annuity—implying negative CA and fiscal gaps; norms under constant real annuity are almost half these amounts.
  - Investment-need model using Nigeria-specific investment efficiency (efficiency of 0.2) suggests a positive CA norm largely in line with baseline projections; closing the efficiency gap to SSA average (0.6) would suggest a lower CA norm—highlighting the importance of improving investment efficiency and institutions.
- Module III (External Sustainability approach):
  - Revised ES approach derives a CA norm as the medium-term balance that would allow NFA to reach a benchmark; results suggest a CA gap of 1.9% and a corresponding REER gap of about -15%.
  - Caveat: ES approach is designed primarily for high-debt countries and is of less relevance for Nigeria where external debt is low and highly concessional compared to MAC peers.
- Quantitative box (regression outputs summary shown in Table 1):
  - CA/REER reference: 2.64.7
  - CA/REER norm: 1.74.7
  - Current account gap: -0.8..
  - o/w: Policy gap: -1.81.1
  - Residual: 0.4-2.7
  - Natural Disasters and Conflicts: 1.01.7
  - Real exchange rate gap: 6.80.1
  - Elasticity of CA to REER gap is 0.12.
- Conclusion points:
  - Assessment subject to uncertainty due to FX restrictions, multiplicity of exchange rates, and data gaps (large swings in errors and omissions suggest imprecision in reported CA and/or NFA).
  - Bottom-line drawn from CA regression approach because it implicitly uses an effective exchange rate reflecting transactions across FX market segments and links CA/REER adjustment to policy variables under policymakers’ control.
  - Complementary approaches (consumption-allocation and investment-need) point toward moderate overvaluation of REER and underscore the roles of population growth, investment efficiency, and institutions in external sustainability.

*Source: IMF staff estimates and analysis as presented in the provided chapter/annex content.*

### 7.      Gross international reserves have improved but are still below comfortable levels.

### 7.      Gross international reserves have improved but are still below comfortable levels.

### Reserve developments and adequacy — key findings
- Gross reserves recovered from less than $24 billion in September 2016 to $42.5 billion at end-December 2018, driven by improved trade balance and capital inflows.
- Reserves of $42.5 billion at end-2018 correspond to an ARA metric coverage of about 120 percent, within the suggested adequate range of 100-150 percent.
- Excluding FX swaps and forwards, gross international reserves are projected at $35.2 billion by year-end (end-2018), representing 100 percent of the ARA metric.
- End-2018 reserves excluding FX swaps and forwards would represent only 70 percent of the ARA metric when adjusted for an oil buffer in 2018.
- The ARA metric adjusted for an oil buffer is calculated as an oil price gap multiplied by oil exports and is considered the most relevant to Nigeria, with the recommended target range of 100-150 percent.
- The headline reserves figure likely overstates resources available to the central bank to meet balance of payments needs because of predetermined FX flows (swaps and forwards).

### Baseline projections and outlook
- Under baseline projections, reserves are expected to steadily decline to around $35 billion by 2024.
- Reserves of around $35 billion by 2024 would be equivalent to 44 percent of the metric correcting for an oil buffer, which is below the suggested adequate range of 100-150 percent.

### Capital flows and balance of payments context
- Net inflows (liabilities to non-residents) fell below 1.0 percent of GDP in 2014-16, before improving in 2017-18 largely driven by strong net portfolio inflows coming through the IEFX window.
- Errors and omissions (E&Os) remain around 3 percent of GDP on average, amounting to as large as current account surpluses in some years, suggesting imprecision in existing estimates of the balance of payments and/or net foreign asset position.
- The presence of FX restrictions and multiplicity of exchange rates creates additional uncertainty in assessments and may affect measured gaps (e.g., FX restrictions that constrain outflows could be accounting for some positive residual in the current account approach and could move the gap toward overvaluation if removed).

### Overall assessment and vulnerabilities
- The external position of Nigeria in 2018 was moderately weaker than implied by medium-term fundamentals and policy settings.
- Evidence supporting this assessment includes: the estimated contribution of policies to the current account balance, weak non-oil exports, inadequate FX buffers under baseline projections, and volatile capital inflows.
- Reserves remain below adequate levels and there are additional vulnerabilities due to volatile capital flows.
- Adjustment of other policies—notably fiscal, monetary, and structural—in line with staff’s recommendations would help reduce the estimated gaps.

### Financial development and inclusion — implications for external resilience
- Closing gaps in financial development and inclusion could yield additional real per capita GDP growth of more than 0.8 percentage points per year.
- Credit to the private sector declined by -3.3 percent in 2017 and fell by an additional 6 percent in 2018, driven by cyclical and policy-induced factors and crowding out from large issuances of treasury bills and bonds and CBN bills.
- More comprehensive indicators suggest financial development has barely improved over the past three decades and may lag structurally behind peer economies.
- Increasing financial development to the average level in emerging market economies could boost annual real GDP per capita growth in Nigeria by more than 0.8 percentage points.

### Government initiatives and reforms on financial inclusion
- The government’s 2012 financial inclusion strategy targeted reducing financial exclusion from over 46 percent in 2010 to 20 percent by 2020; by 2017 financial exclusion was reduced to below 37 percent.
- The revised strategy focuses on five key gaps, including a regional financial exclusion divide (two thirds of the population excluded in the North East and North West combined), and gaps in age, gender, rural vs. urban, and SME access.
- Reforms and initiatives include: CBN–Nigerian Communications Commission memorandum of understanding to implement a payment systems framework; Shared Agent Network Expansion Facility (SANEF) targeting 500,000 Agents; new payment service regulation issued in 2018 allowing telecom companies to acquire licenses for mobile payment operations; establishment of the Financial Inclusion Secretariat; governance arrangements for Federal and State implementation.

### Leveraging mobile payments — recommended reforms
- Implement the revised regulatory framework to allow subsidiaries of mobile network operators to apply for mobile money operators’ licenses; implement Payment Service Banks guidelines that allow licensing of telco subsidiaries.
- Expand the agent network to provide sufficient density of mobile agents; allow mobile network operators to issue mobile money to expand coverage where traditional providers are less present (notably the North).
- Ensure reliable mobile network coverage and expedite implementation of the action plan for the strategic roadmap for developing digital identification.
- Digitize routine cash payments (government transfers, wages, pensions) to increase mobile money adoption and deepen financial inclusion while reducing leakages.
- Enforce consumer protection: safeguard client funds, address mistaken and unauthorized payments, require fee disclosure, ensure data protection and privacy; develop and implement consumer protection guidelines planned by the CBN.
- Review, revisit, and enforce tiered KYC regulations; integrate with National ID systems and accompany with CBN standards for AML training for mobile money agents.
- Leverage mobile payments to target low-income individuals and women, combined with initiatives to increase awareness and digital financial literacy as part of the financial education strategy.

*Sources: Central Bank of Nigeria; and IMF staff calculations.*

### Annex VIII. Nigeria: Capacity Development Strategy for FY

### Annex VIII. Nigeria: Capacity Development Strategy for FY 2019—Summary

### (i) Macro challenges and policy priorities
- Given the prospects of continuing oil price volatility, increasing financing constraints and challenging macroeconomic conditions, significant macroeconomic adjustment is urgent.
- Adjustments in sources of fiscal revenue and forex earnings are essential for importing intermediate inputs and capital goods and for development and social spending.

### (ii) Technical Assistance (TA) priorities
- TA priorities could focus on areas where progress or growing commitment has been seen recently:
  - Non-oil revenue mobilization, through tax and customs administration.
  - Public financial management (PFM) in the federal government.
  - Capacity development in banking supervision and strengthening or implementing supervisory tools.
  - Improving compilation of macroeconomic statistics – in particular, government finance, real sector, public debt, and balance of payments statistics.

### (iii) Challenges in / lessons on the implementation of recent TA recommendations
- The largest share of TA resources has been allocated to PFM, tax administration, and tax policy, supplemented by legal drafting of tax codes that require amendment.
  - Implementation record for recommendations on PFM has been good.
  - Implementation record for tax policy has been weak, with advice contributing to the policy debate but commitment not yet materializing.
  - Traction on tax administration recommendations has been good and is picking up through an action plan to implement TADAT recommendations.
- A significant share of TA resources had been allocated to monetary operations, banking supervision, and bank resolution, with a long-term expert (LTX), funded by the Department of International Development (DFID), currently residing in Abuja.
  - Progress in banking supervision has been moderate, with some concerns about the level of absorption.
  - Progress in monetary operations is resuming now through peripatetic visits from AFRITAC West, mostly through training.
- TA allocated to improving statistics (national accounts, CPI, monetary and financial statistics, financial soundness indicators) has been substantial, with a steady implementation record and a commitment by the authorities to strengthen data-based decision making.
  - Improvements in national accounts and CPI have been hampered by serious data quality issues in the 2009/10 Living Standards Survey (NLSS).

### (iv) Main risks to the impact of capacity development and mitigation
- Focus and follow-up:
  - The areas of focus are appropriate, but more efforts on the authorities’ side and follow-up TAs would be needed in non-oil revenue mobilization through tax administration.
  - No new TA on tax policy is currently envisaged pending a clearer demonstration of the authorities’ commitment in that area.
- Bank supervision / monetary policy:
  - It is important to continue TA on bank supervision/resolution issues being conducted through the posting of resident expert.
  - Training on monetary policy operations through AFRITAC West should also continue.
- Implementation and capacity:
  - Implementation track record should be stressed, as this has become an important factor in the allocation of the Fund’s limited TA resources.
  - Intake of TA advice will improve through additional training to strengthen capacity at government agencies, which is not helped by turnover and retirements in some key positions.
- Regional engagement and training modalities:
  - The authorities are encouraged to continue increasing their use of Africa’s Regional Technical Assistance Center West 2, to help Nigeria build its institutional and policy implementation capacity, and to actively participate in the Steering Committee.
  - The authorities are making full use of training opportunities, through courses in HQ or at the Africa Training institute, with particular emphasis on fiscal risks, debt sustainability, financial programming.
  - Training in country, such as on petroleum revenue forecasting, DSA, External Assessment or Public Private Partnership risk management—are appreciated and are in greater demand as they can accommodate more participants from Nigeria.

### (v) Authorities’ views
- The Nigerian authorities agree with the above-mentioned priorities and consider IMF TA valuable and regularly seek the Fund’s advice to guide reform strategies in areas such as PFM, tax policy, revenue administration, debt management, financial supervision, monetary policy, and Central Bank operations.
- They underscored the importance of IMF tax policy advice in framing their strategy to increase excises, and plan to follow up on other areas of staff’s tax policy advice.
- They underlined their appreciation of training opportunities, including customized training tailored to specific needs.
- Views on TA delivery and modalities:
  - The authorities believe TA delivery could be improved to achieve better results.
  - There are occasional complaints about frequency of missions that often puts an undue burden on the same individuals on the authorities’ side.
  - They have suggested focusing TA on a few key priority areas they have identified, supported through peripatetic expert visits or long-term resident experts that provide more hands-on support to complement the written recommendations left in the reports.
  - Peer exchanges to learn from other countries are also considered useful.

*Annex VIII. Nigeria: Capacity Development Strategy for FY 2019—Summary (January 2019).*

### Section 2(a) of the IMF’s Articles of Agreement: (i) an exchange restriction arising from the

### Section 2(a) of the IMF’s Articles of Agreement: (i) an exchange restriction arising from the

### Exchange restrictions and Measures Compensatory Policies (MCPs)
- Exchange restrictions identified:
  - Prohibition to access foreign exchange at the Nigerian foreign exchange markets for the payment of imports of 42 categories of items.
    - Note: The CBN issued a December 2018 circular that added fertilizer to the list of import items not eligible for access to foreign exchange, bringing the number of items on the list to 42.
  - Rationing of foreign exchange in the CBN’s IFEM and SMIS windows, and allocation based on the CBN’s determination of priority categories of transactions.
  - Existing limits on the amounts of foreign exchange available when traveling abroad (BTA/PTAs), which cannot be exceeded even upon verification of the bona fide nature of the transaction.
- MCPs subject to Fund approval under Article VIII, Section 3:
  - MCP arising from the intervention practice of the CBN that results in the establishment of an official exchange rate for use in all official transactions, which in practice differs by more than 2 percent from the rate used by commercial banks in the CBN FX windows (SMIS, SME, IEFX and Invisibles), and by money transfer operators.
  - MCP arising from the large spread between the official exchange rate and the rates in the parallel market, caused by the CBN’s limitation on the availability of foreign exchange which channels current international transactions to such market.
  - MCP arising from the potential spread of more than 2 percent in the exchange rates at which the CBN sells foreign exchange to successful auction bidders in the SMIS window.

### Safeguards Assessment
- Under the Fund’s safeguards assessment policy:
  - The CBN was subject to a full safeguards assessment with respect to the Stand-By Arrangement that expired on October 31, 2001.
  - The assessment, which included an on-site visit, was completed on November 28, 2001.
  - The assessment concluded that vulnerabilities existed in the areas of financial reporting and legal structure of the Central Bank.

### Technical Assistance (TA) since January 2017 — Summary of engagements
- IMF TA missions (department and purpose with dates) included the following highlights:
  - STA: Balance of Payments Statistics — January 23 – February 3, 2017
  - FAD: Assessment of proposed petroleum fiscal regime reforms — February 13–24, 2017
  - FAD: Tax and Customs Administration — April 26 – May 8, 2017
  - FAD: Tax policy and revenue mobilization — July 20 – August 3, 2017
  - FAD: Fiscal Regime of the Oil Sector Follow-up — November 2–13, 2017
  - STA: Price Statistics — May 22–26, 2017; September 18–22, 2017; November 13–24, 2017
  - STA: National Accounts — September 25 – October 6, 2017; November, 2018
  - STA: Real Sector Statistics — December 4–8, 2017
  - STA: Government Finance Statistics — March, 2018
  - MCM: Nigeria Securities Exchange Commission: Risk Based Supervision — January 15–26, 2018
  - FAD: Cash Management/Debt Management SOEs — April 25- May 3, 2018
  - FAD: Post-TADAT Follow-up — July 18-31, 2018
  - FAD: Tax regime for natural gas and CB in revenue modeling — September 18-28, 2018
  - FAD: PIMA — September 20-October 3, 2018
  - STA: Government Finance Statistics — November 19-November 30, 2018
  - MCM: Financial Stability: Early Warning System — April 9-20, 2018
  - MCM/BIS/IMF Symposium on Capacity Building — February 7–9, 2018
- West Africa Regional Technical Assistance Center (AFRITAC 2) missions included:
  - STA: Price Statistics — January 30 – February 10, 2017
  - FAD: Strengthening Cash Flow Forecasting and Cash Management — February 1–11, 2017
  - FAD: Develop Project Governance Framework — February 20 – March 3, 2017; January 8–19, 2018
  - STA: National Accounts — February 27 – March 3, 2017; March 5–16, 2018; November 19 - 30, 2018
  - FAD: Strengthen Business Analysis Capabilities — February 20 – March 3, 2017
  - FAD: Develop Change Management Program — April 17, 2017
  - FAD: Missions on Tax & Customs Policy and Administration — May 1–10, 2017; May 1–10, 2017
  - STA/FAD: Consumer Price Index / Prices and Index Numbers missions across 2017–2018
  - MCM: Monetary Policy Operations - A Stock Taking — June 12–16, 2017
  - MCM: Basel II – ICAAP/SREP Review — July 24 – August 11, 2017
  - FAD: Accounting Data Quality and Financial Reporting — August 16–28, 2017
  - FAD: Advancing TSA Implementation and Cash Management (sub-national) — August 29 – September 8, 2017
  - MCM: Risk Based Supervision (RBS) Framework — December 11–15, 2017; January 23 – February 3, 2018
  - MCM: IFRS 9 Implementation — October 9–20, 2017
  - FAD: Review of TTF Program — October 9–18, 2017
  - FAD: Compliance Improvement Program (FIRS) — October 30 – November 8, 2017
  - MCM: Implementation of the Pillar II of the Basel framework — February 12–23, 2018
  - FAD: Customs Risk Management — February 19 – March 2, 2018
  - FAD: Post Clearance (PCA) Mentoring Support (Phase 1 & 2) — March 12–23, 2018; October 29 - 9, 2018
  - FAD: Support Kaduna State Revenue Reforms — April 2–13, 2018
  - FAD: HQ-led PIMA Mission — April 9–20, 2018; September 20 - October 3, 2018
  - FAD: Compliance Improvement for Lagos State — April 9–20, 2018
  - FAD: Leadership & Management Development Training — April 18 – May 2, 2018
  - MCM: RBS: Enhancing Credit Risk Analysis — June 25 - 29, 2018
  - FAD: HQ Led TADAT — July 16 - 31, 2018
  - MCM: Diagnostic Mission on Macroeconomic and Monetary Policy Analysis and Monetary Operations — August 22 - 31, 2018
  - MCM: Regional Workshop on Monetary Policy Communication — September 10 - 14, 2018
  - FAD: VAT Compliance and Data Matching — September 17 - 28, 2018
  - FAD: Development of RM Strategy, RM Committee & Support with the Establishment of an RM Unit (Phase 2) — December 3 - 14, 2018
  - MCM: Developing Forward Looking Monetary Policy Analysis — December 3 - 7, 2018
  - MCM: Professional Attachment (Bank of Liberia) — January 15 - 18, 2019
- Senior Resident Representative and Resident Technical Assistance Advisor:
  - Senior Resident Representative: Mr. Amine Mati — IMF Senior Resident Representative (and Mission Chief) in Abuja since February 2017.
  - Resident Technical Assistance Advisor: Mr. Leonard Chumo — IMF resident advisor for banking supervision at the Central Bank of Nigeria, since February 2017.

### Relations with other international financial institutions
- World Bank: https://www.worldbank.org/en/country/nigeria
- African Development Bank: https://www.afdb.org/en/countries/west-africa/nigeria/

### Statistical issues (As of February 2019) — Data adequacy and quality
- General assessment:
  - Data are broadly adequate for surveillance, but shortcomings remain including information on subnational public finances and large errors and omissions in the balance of payments.
  - Efforts ongoing: STA TA on national accounts, monetary, government finance and external sector statistics; participation in e-GDDS; use of GIFMIS for budget preparations; a fully operational TSA; reduction in BOP errors and omissions.
  - Need to extend improvements to subnational levels.
- National accounts:
  - NBS implemented new base year 2010, ISIC revision 4, and SUT framework.
  - Authorities continue to receive TA to complete a GDP rebasing exercise, including producing a GDP back-casted series.
  - NBS is planning to implement the new base year 2019, which will be published in 2022.
- Prices statistics:
  - Official monthly CPI is available timely; CPI weights and basket are based on 2003/04 National Consumer Expenditure Survey and are unlikely to be representative of current expenditure patterns.
  - Update of the CPI should be finalized as a matter of urgency.
  - Compilation of an updated PPI is ongoing but funding for the survey is uncertain.
  - High turnover of staff presents ongoing challenges.
- Government finance statistics (GFS):
  - Several weaknesses: inadequate data coverage, incomplete coverage of federal government institutions, limited data at subnational governments level which accounts for almost one half of total government expenditure.
  - Need for standardized budget classification, chart of accounts, accounting systems, and use of IPSAS—cash basis—at Federal and State levels.
  - Need to formalize publication of government accounts monthly or quarterly and increase coverage of state-owned enterprises.
  - IMF FAD TA supported reforms on TSA, cash management, and budgeting, most recently in September 2018; AFW2 supporting extension to interested States.
  - A GFS TA mission visited Abuja in November 2018.
  - Nigeria does not report any GFS data to STA, though quarterly debt data is reported to the IMF / World Bank Quarterly Public Sector Debt Database.
- Monetary and financial statistics:
  - Significant improvements in compilation of monetary statistics.
  - Further work needed: extend ODCs sector beyond commercial banks and improve reporting of monetary aggregates.
  - Nigeria expected to report data for OFCs through IMF SRFs.
  - Important that the Monetary Survey properly reflects both domestic and nonresident holdings in view of substantial recent sales of CBN bills.
- Financial soundness indicators (FSIs):
  - Broad range compiled by CBN, including all core and eleven encouraged FSIs (though publishing FSIs on a timely basis would be needed).
  - CBN working with STA to improve methodology and consolidation basis to capture cross-border activities of Nigerian bank subsidiaries and branches.
- Balance of payments:
  - Significant efforts and improvements supported by IMF TA; expanded range and improved quality of data sources; progress in reducing large errors and omissions and producing an international investment position.
  - Remaining needs: further reduce errors and omissions; improved validation of bank-reported transactions; measurement of transactions outside the banking system; appropriate treatment of enterprises in free trade zones (using residency criterion); improved coverage of external assets and liabilities of the banking sector.
  - TA helped CBN diversify data collection for the ESS including private financial flows and stocks surveys; CBN developing a database for stock and transactions.
  - A survey of private transfers should foster improvements in estimates of private transfers, especially those received through informal channels and for in-kind values, which are currently not estimated.
  - TA focusing on improving IIP compilation by preparing integrated IIP statements and developing partner-country portfolio investment statistics is planned for early FY20.
  - Authorities have not yet initiated compilation of international reserves data in line with the Data Template on International Reserves and Foreign Currency Liquidity.
- External debt:
  - Public external debt data are of good quality and available on a timely basis.
  - Debt Management Office (DMO) collaborating with CBN to extend coverage to include private sector liabilities and foreign investment in domestically-issued debt securities.
  - IMF and World Bank staff worked with the DMO to develop analytical capacity to formulate a debt management strategy based on detailed cost-risk analysis.

### Data Standards and Quality
- Participant in the enhanced General Data Dissemination System (e-GDDS) since April 2017.
- As of February 13, 2018, Nigeria was meeting 33 percent of the timeliness set for 14 data categories disseminated through the National Summary Data Page.
- No Data ROSC.

### Nigeria: Table of Common Indicators Required for Surveillance (As of February 26, 2019) — Selected data points
- Exchange Rates — Date of latest observation: Dec. 2018; Date received: Feb. 2018; Frequency of Data/Reporting/Publication: M M M
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities — Date of latest observation: Oct. 2018; Date received: Dec. 2018; Frequency: M M M
- Reserve/Base Money — Date of latest observation: Oct. 2018; Date received: Dec. 2018; Frequency: M M M
- Broad Money — Date of latest observation: Oct. 2018; Date received: Dec. 2018; Frequency: M M M
- Central Bank Balance Sheet — Date of latest observation: Oct. 2018; Date received: Dec. 2018; Frequency: M M M
- Consolidated Balance Sheet of the Banking System — Date of latest observation: Oct. 2018; Date received: Dec. 2018; Frequency: M M M
- Interest Rates — Date of latest observation: Nov. 2018; Date received: Dec. 2018; Frequency: D D D
- Consumer Price Index — Date of latest observation: Dec. 2018; Date received: Jan. 2018; Frequency: M M M
- Revenue, Expenditure, Balance and Composition of Financing – Central Government — Date of latest observation: Dec. 2017; Date received: Jan. 2018; Frequency: M M M
- Revenue, Expenditure, Balance and Composition of Financing – General Government and Central Government — Date of latest observation: Dec. 2017; Date received: Jan. 2018; Frequency: M M M
- Stocks of Central Government and Central Government-Guaranteed Debt — Date of latest observation: Dec. 2016; Date received: Feb. 2017; Frequency: Q Q Q
- External Current Account Balance — Date of latest observation: Jun. 2018; Date received: Oct. 2018; Frequency: Q Q Q
- Exports and Imports of Goods and Services — Date of latest observation: Jun. 2018; Date received: Oct. 2018; Frequency: Q Q Q
- GDP/GNP — Date of latest observation: 2017; Date received: Dec. 2018; Frequency: Q Q Q
- Gross External Debt — Date of latest observation: 2015; Date received: Dec. 2016; Frequency: A A A
- International Investment Position — Date of latest observation: 2017; Date received: Aug. 2018; Frequency: A A A

### Supplementary information (post-Staff Report developments)
- Political transition and election-related developments:
  - Following the Presidential elections of February 23, 2019, a transition Committee—chaired by the Vice President—has been put in place to prepare the priorities of the new Cabinet expected to be sworn in after May 29th.
    - Tasks include assessment of implementation of past reform initiatives and projects of the outgoing administration.
    - The Committee is planning to produce a detailed report laying out reform priorities and a clear road map—still expected to be aligned with the Economic Recovery and Growth Plan—for the next administration to facilitate implementation soon after inauguration.
  - Elections for governors and state assembly were held for 29 of 36 states on March 9, 2019.
    - Latest results announced by INEC indicate that the ruling party APC candidates have won 13 states while the main opposition party (PDP) won 9 states.
    - Elections in 6 other states were declared inconclusive, while voting was suspended in one state.
    - INEC announced that re-runs will be held on March 23, 2019 in the six states with inconclusive results.

*Source: IMF staff report material provided in the content unit.*

### 3.      Foreign investors are retaking positions in Nigeria’s financial markets after

### 3.      Foreign investors are retaking positions in Nigeria’s financial markets after

### Financial market developments and portfolio flows
- Estimated total non-resident holdings increased by $1.6 billion in February (a 9 percent increase from January), with most of the increase directed towards fixed income securities ($1.4bn).
- In the two-week period after the presidential election, turnover in the foreign exchange Investors and Exporters (I&E) window was $6.1 billion, the highest on record for a single two-week period.
- Since the end of the general elections just about 4 weeks ago, portfolio investments into the country have risen by $6 billion.

### Short-term market liquidity and yields
- Increased liquidity in the financial system has resulted in:
  - one-year OMOs clearing rates lower by 68bps to 17.5 percent;
  - FGN bond yields lower by -275 bps to 14.5 percent;
  - NTB yields in the secondary market lower as follows:
    - three-month (-253 bps to 13.1 percent),
    - six-month (-169 bps to 15.1 percent),
    - one-year (-40bps to 17.4 percent).

### Inflation dynamics
- Headline inflation reached 11.3 percent year-on-year in February 2019, down from 11.4 percent in January.
- Annual core inflation eased to 9.8 percent in February from 9.9 percent in January.
- Reflecting sustained tight monetary policy, declining food prices, and stability in the exchange rate, inflationary pressures continued decelerating from its peak of 18.5 percent at end-2016.
- As at December 2018, the country’s inflation rate stood at 11.4 percent, down from 15.1 percent in January 2018.

### External position and reserves
- Foreign exchange (FX) reserves closed the year at about $42.5 billion, exceeding 7 months of imports.
- The latest data from the Central Bank of Nigeria (CBN) indicate that the reserves have grown further to $44.92 billion as at March 20, 2019.
- The improvement in external reserves largely benefitted from recovery in oil prices, increased local sourcing of raw materials and intermediate inputs by manufacturers, as well as sustained inflows of foreign exchange at the Investor and Exporter (I&E) window.

### Fiscal policy stance and revenue measures
- In 2018, the estimated Federal Government (FG) deficit improved slightly to 4 percent of GDP from 4.1 percent the previous year.
- The authorities have projected a decline in the deficit to 2.3 percent of GDP in 2019, having accounted for the recently-approved increase in the minimum wage.
- Revenue is expected to increase to 4.8 percent of GDP in 2019, mainly attributable to higher oil receipts and gains from divestment of oil assets.
- Non-oil revenue reforms and initiatives:
  - Launch of the Strategic Revenue Growth Initiative (SRGI) to guide comprehensive tax reforms under a high-powered steering committee under the office of the Minister of Finance.
  - Policy initiatives include introducing a VAT with full crediting of input tax, increased compliance monitoring of tax incentives, and broad-based use of excises.
  - Tax administration improvements: creating taxpayers’ awareness, increased use of Integrated Tax Administration IT System (ITAS), increased frequency of tax audits, and greater use of technology in the collection process.
  - Near-term plans: improve the taxpayer register, develop a filing and arrears management system, and establish an automated interface between the Federal Inland Revenue Service (FIRS) and the Treasury Single Account (TSA).
- Debt and cash management:
  - Strategy of retiring maturing T-Bills with Eurobond proceeds.
  - Prioritizing concessional loans over bonds to reduce rising interest payments.
  - Revamping coordination structure for cash management including the Office of the Accountant General of the Federation, the Debt Management Office and the CBN.

### Monetary policy and exchange rate policy
- Monetary policy is described as delivering on exchange rate, the FX market, inflation, and portfolio flows.
- The Bank’s tight monetary policy stance is credited with taming inflation.
- The CBN remains committed to the unification of exchange rates in the medium-term; there has been considerable convergence of rates in the market.
- In a significant additional step towards unification, the CBN recently reduced the $500,000 daily sales to banks to $100,000 at the N305/US$1 rate.
- Authorities differ with staff’s advice to discontinue limits on the use of naira-denominated debit or credit cards overseas, arguing that unrestricted use would exert undue pressure on FX reserves and on the exchange rate because the local currency is neither convertible nor tradable.

### Financial sector resilience and supervision
- Banking sector improvements:
  - NPLs have fallen from 16.2 percent in February 2018 to 11.7 percent at end-2018.
  - Solvency ratios improved markedly by 5 percentage points to 15.3 percent at end-2018, with the introduction of three-year transitional arrangements for IFRS9.
  - Bank profitability has remained relatively unchanged with fees moderating the declining net interest margins.
- Regulatory and supervisory actions:
  - Sale of NPLs to private asset management companies (AMCs) contributed to NPL reduction.
  - Staff’s stress tests confirmed that large banks’ resilience to credit and concentration risks have improved.
  - CBN initiatives: completion of IFRS 9 implementation, banks moving to reflect an exchange rate closer to the market in their books, strengthening risk-based supervision through onsite reviews, initiation of Basel’s Internal Capital Adequacy Assessment Program (ICAAP).
  - Going forward, CBN will assess banks on requirements of Basel III, including on liquidity and leverage ratios from the second half of 2019.

### Structural reforms and sectoral developments
- Structural reform progress aligned with ERGP goals includes:
  - Improved monitoring of State-Owned Enterprises (SOEs) to curtail fiscal risks.
  - Initiation of new funding requirements for joint ventures in the oil sector to enhance timely payments for cost recovery and avoid new government arrears.
  - Prioritization of completion of new petroleum legislation and passage of legislative reforms aimed at strengthening the SOE framework.
  - For non-oil SOEs: governance reforms emphasizing closer monitoring of revenue earnings, improved efficiency of collections, and better tracking of remittance of operational surpluses to the government.
- Business environment improvements:
  - Establishment of Credit Reference Bureaus and a modern Online Collateral Registry, improving conditions especially for small- and medium-scale enterprises.
  - Plans to legislate and enforce deadlines for issuance of government licenses and permits, and simplify customs, immigration, investment, and trade procedures.
- Power sector reform:
  - Implementation of the Power Sector Recovery Program (PSRP) to improve financial viability of operators, strengthen contract enforcement and sector governance, and de-risk the sector for further investments.
  - Power Generation reached a milestone of 7,000 Megawatts as of December 2018.

### Human capital development
- Government priorities:
  - Financing for high impact human capital interventions to address Nigeria’s low ranking on the World Bank Human Capital Index.
  - Institutionalizing human capital development through high-level advocacy and engagement led by a high-level Working Group, chaired by the Vice President.

### Authorities’ priorities and policy emphasis
- With the 2019 General Elections over and the incumbent President re-elected, authorities are prioritizing accelerated implementation of the Economic Recovery and Growth Plan (ERGP).
- ERGP reform priorities cited: intensifying non-oil revenue mobilization, completing power sector reforms, accelerating anti-corruption efforts, improving the business environment, and fast-tracking job-creation efforts to boost inclusive growth.
- Authorities emphasize pursuit of:
  - growth-friendly fiscal measures,
  - market-sensitive monetary actions,
  - investment-boosting structural reforms,
  - reducing inflation,
  - containing vulnerabilities in the banking sector,
  - sustaining key structural reforms.

*Prepared by the African Department in consultation with other Departments. Approved by David Owen (AFR) and Maria Gonzalez (SPR). March 22, 2019. Statement by Mr. Kingsley Obiora and Mr. Osana Jackson Odonye dated March 27, 2019.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1ngaea2019001.pdf_