## 1ngaea2019002

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**Canonical URL:** [1ngaea2019002](https://www.imf.org/-/media/files/publications/cr/2019/1ngaea2019002.pdf)

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### A. Selected Challenges in PIGB — corruption, transparency, and macroeconomic stakes
- One out of three respondents that had contact with a public official reported having paid a bribe (NBS 2017).
- Estimates: lowering corruption to levels of peer countries could boost growth by ½ to 1½ percentage points annually, increase public investment efficiency, and increase the tax-revenue to GDP ratio by 1½ percentage points (IMF 2018).
- Oil accounts for 57 percent of total government revenues and 94 percent of exports — reducing leakages in the petroleum sector is key to fiscal sustainability and external stability.
- Recent actions/reforms:
  - National Anti-Corruption Strategy (NACS) for 2017–20.
  - Additional resources for the EFCC; passage of the NFIU 2018 Act.
  - National Assembly amendments to CAMA to improve BO transparency.
  - Publishing monthly NNPC reports; 2019 EITI report: Nigeria has fully addressed corrective actions from its first validation and made satisfactory progress overall.
  - Approval of PIGB by the National Assembly; adoption of a whistle-blower policy and an open government initiative.
- Paper objectives:
  - Detail strengths and weaknesses of SOE governance framework.
  - Note pending and future reforms.
  - Highlight potential of AML/CFT tools to support anti-corruption across/beyond petroleum sector.
  - Emphasize prevention institutions, public-private cooperation for detection, and effective criminal-justice responses.

### B. Governance of the FGOE/SOE sector — fragmentation and oversight gaps
- Current ownership arrangements:
  - Dual decentralized model: state acts as provider, regulator, and supervisor (conflict of interest risk).
  - Ownership functions fragmented among MoF, Accountant General, sector ministries, and Bureau of Public Enterprises.
- Reporting and fiscal-risk quantification weaknesses:
  - Definition of an FGOE inconsistent across Acts.
  - No standard reporting policy and no aggregated annual FGOE financial performance report.
  - Lack of standardized accounting policies complicates quantifying the ‘operating surplus’ of each FGOE.
- Ongoing/planned responses:
  - Design performance contracts to ensure surplus revenue targets.
  - Review FGOE portfolio to separate SOEs from departmental agencies.
  - Publish regular quarterly financial statements.
  - Strengthen central government oversight of the FGOE sector.
- Policy direction:
  - Gradual centralization of fiscal oversight and enhancement of ownership arrangements, integrated with broader public financial management reform.
- Elements of an Effective Ownership Policy (preserved language):
  - Create a monitoring fiscal oversight unit within Ministry of Finance
  - Line ministries should only perform core ownership functions such as voting shares, overseeing board members, and monitoring SOE performance
  - Develop safeguards against political interference in commercial decision-making.
  - Provide SOEs greater autonomy from line ministries by empowering SOE boards to take on greater responsibilities
  - Develop/strengthen SOE corporate governance tools and guidelines
  - Develop a system to monitor and benchmark the performance of ministries as owners

### C. Governance of the Petroleum Sector and NNPC — overlapping mandates and governance challenges
- Institutional map highlights overlapping roles: MPR, DPR, Petroleum Products Pricing Regulatory Agency, Petroleum Technology Development Fund, Petroleum Equalization Fund, and NNPC.
- Key governance challenges:
  - Minister of Petroleum both oversees sector and is chairman of NNPC.
  - DPR is legally founded in the Act that constitutes NNPC, implying inspectorate within NNPC.
  - DPR constrained by inadequate budget, limited human resources, and conflicting objectives.
  - Auditor General lacks direct mandate to audit NNPC.
  - No central role for MoF in current sector oversight arrangements.
- NNPC-specific issues:
  - 1977 NNPC Act empowers NNPC for oil and gas activities but does not assign a commercial mandate; allows NNPC to be an agent of the Federation and to maintain a fund to defray expenses prior to remittance.
  - Appointment, evaluation, and remuneration policies not apparent; appointment powers concentrated in the President.
  - Risks: political interference; weak oversight and separation of executive responsibility.
- Internal NNPC reforms:
  - NNPC has 12 subsidiaries incorporated as joint stock companies under CAMA provisions and is creating four autonomous business units: Upstream, Downstream, Gas and Power, and Refineries.
  - Movement from compliance-based to risk-based audit/control; needs assessments completed in 2017; internal governance architecture drafted.
  - Recommendation: integrate sustainability (environmental and social considerations) into operations with clear, measurable, and monitorable indicators feeding disclosure reporting.

### D. Cross-cutting implications and priorities
- Centralize and clarify ownership, regulatory, and oversight roles to reduce conflicts and political interference.
- Strengthen MoF role in monitoring SOE and petroleum sector performance.
- Standardize definitions, accounting policies, and reporting requirements for FGOEs to enable quantification of fiscal risks and timely interventions.
- Reinforce DPR institutional capacity and auditor oversight mandates to ensure independent monitoring of NNPC.
- Implement corporate-governance, audit, and disclosure reforms at NNPC alongside sustainability indicator integration.

*Source: 1. Selected Challenges in PIGB, March 13, 2019.*

---

### Limited fiscal oversight, fragmentation and impacts on petroleum revenue
- Revenue collection challenges:
  - NNPC engages in major fiscal arrangements (JVs and PSCs) on behalf of the Federal Government.
  - Revenues lost/under-collected due to discretionary awards, unpaid signature bonuses, unpaid royalties, and crude oil theft.
  - NEITI estimates NNPC owes $ 9.8 billion to the Federal Government (deductions from gross oil revenues and opacity in JV cash call arrangements).
  - Accumulated cash call arrears: US$ 5.1 billion (2011-2015); US$ 1.2 billion in 2016.
  - Since January 2017 NNPC pays cash call obligations first then remits net revenues to the Federation Account; decreases arrears but raises constitutionality and transparency concerns.
- Legal and institutional ambiguities:
  - Constitutional requirement: all NNPC revenue proceeds paid to the Federation Account.
  - NNPC Act allows prior deductions out of gross income via NNPC-maintained fund.
  - Fiscal Responsibility Act (FRA) mandates NNPC remit one-fifth of its operating surplus to the Consolidated Revenue Fund but neither defines “operating surplus” nor limits deductions (examples of deductions include landing and transportation costs, crude losses, product losses, pipeline management and repairs).
  - NEITI and Audit General Reports highlight transparency/accountability concerns as deductions have increased.
- Recommended legal revisions (selected):
  - Strengthen information sharing and coordination among collecting agencies.
  - Establish clear mandate to fund NNPC operations (define surplus, deductions and limits).
  - Reconcile NNPC Act withholding provisions with constitutional requirements.
- Transparency, contracts, and disclosures:
  - Petroleum contracts with significant fiscal impact are kept fully confidential.
  - Recommendation: fully disclose contracts, with attention to commercially sensitive data, in line with international transparency standards.
  - NEITI progress: incorporated 2007; 2007 EITI Act legislated EITI in Nigeria; NNPC now publishes monthly financial and operation reports and monthly petroleum statistics and annual statistical bulletins.
  - EITI Board (February 2019): Nigeria reached ‘satisfactory’ progress in implementing EITI standards as the first Anglophone African country.
- Gaps in NNPC disclosure/audits:
  - NNPC self-reporting figures cannot be independently verified by other government bodies.
  - NNPC Financial and Operational Reports available only until November 2018; last Annual Statistical report and petroleum statistic published in 2017 and 2016 respectively.
  - NEITI auditors under EITI framework have not independently verified NNPC monthly report data.
  - Data discrepancies exist between NNPC, Audit General, CBN, and Accountant General.
  - FRA requires NNPC prepare and publish audited accounts but no published audit report to date.
- Key steps to increase petroleum revenue transparency (selected):
  - Clarify procedures for payment and withdrawal from certain accounts and which agency makes determinations.
  - Fully disclose NNPC’s JV arrangements, including gross revenues and transfers beyond those to the Federation Account.
  - Grant MoF and Accountant General full oversight of government cash flows across cash call bank accounts.
- Budget integration and fiscal oversight:
  - NNPC required to submit revenue/expenditure estimates but amounts approved by NNPC often do not match Federal Government budget allocations.
  - MoF constrained by limited technical/sector expertise and limited data access.
  - NNPC’s budget not published nor identified in federal government’s budget; no information on operational surplus.
  - Non-appropriated spending increasing due to NNPC prior deductions.
- Recommended budget practice steps:
  - Improve information sharing and disclosure of fiscal risks.
  - Include transparent resource revenue forecasts in budget documentation.
  - Fully integrate all NNPC revenues and expenditures into the budget process.
  - Place strict limits on extra-budgetary spending.
  - Publish JV contracts.
- Auditing, reconciliation, and oversight institutions:
  - IMF Fiscal Transparency Code expectation: resource corporations report project-level fiscal payments reconciled with government receipts with no major unexplained reconciliation error.
  - Recommended NNPC practices: disclose all revenue transfers/remittances to the Federation Account; consider reporting on environmental, social, and governance considerations using Sustainability Disclosure Guidelines by the Nigeria Stock Exchange.
  - Auditor-General and OAuGF:
    - Constitution does not give Auditor-General direct mandate to audit NNPC; government statutory corporations explicitly excluded from Auditor General’s mandate.
    - OAuGF resource-constrained; only the Auditor General is a civil servant; rest depends on a British Ordinance never converted into Nigerian law; in the last two years, $300 was allocated by the Accountant General to OAuGF for training.
    - Strengthening OAuGF/National Assembly oversight recommended: enact law to provide OAuGF financial/operational tools; provide petroleum sector expertise; improve stakeholder engagement tools.
  - Strengthening MoF oversight recommendations:
    - Legally provide MoF powers to exercise fiscal oversight of NNPC covering fiscal risks.
    - Establish reporting systems for MoF to oversee, monitor and assess NNPC operations.
    - Foster collaboration with revenue collecting agencies and oversight/auditing institutions (information sharing, financial assessment, joint audits and technical assistance).
  - Enforcement/sanctions:
    - Effective sanctions regime could give Auditor General and MoF legal powers to enforce sanctions for non-remittance, failure to disclose, and non-compliance.
- PIGB and implementation challenges:
  - PIGB aims to separate ownership, policy making, and regulatory roles; establish commercially oriented petroleum entities; promote transparency and accountability.
  - PIGB status: approved by parliament in 2018, awaiting final presidential approval.
  - Selected implementation challenges:
    - Coordination: PIGB assigns rents/royalties to Nigerian Petroleum Regulatory Commission, PSCs to PAMC, other contracts (esp. JV) to NPC — coordination critical (information flows, audit assistance, expertise).
    - Monitoring/oversight: NPC and PAMC subject to CAMA and SEC Codes but no single oversight unit to monitor entities.
    - Role of MoF: PIGB does not provide MoF role in monitoring key financial information for NPC and PAMC or assessing fiscal risks; NPC entitled to retain revenue to cover expenses, debt liabilities, and JV cash call obligations; PIGB excludes NPC from FRA 2007 and Public Procurement Act 2007.
    - Appointment/remuneration transparency: PIGB silent on transparency and formalization of appointment/evaluation/remuneration of Commission members and boards.
- Using AML/CFT tools:
  - Rationale: strengthening AML/CFT regime bolsters anti-corruption by diminishing incentives and enabling identification, tracing, and confiscation of ill-gotten gains.
  - Nigeria AML/CFT National Strategy 2018-2020 (adopted June 2018): components include review/enactment of AML/CFT legislation, issuance of guidelines/regulations, private sector awareness, provision of resources, and enhanced stakeholder collaboration.

*Source: 1ngaea2019002 - 13. Limited fiscal oversight and a fragmented institutional set up impacts revenue.*

---

### Transparency of Beneficial Ownership (BO), PEPs, asset declarations, AML/CFT supervision and NFIU effectiveness
- BO transparency:
  - BO transparency critical to prevent/detect/investigate corporate vehicle abuse, especially in SOE sector.
  - Illustrative links (Text Table 1): Cooking the Books → STRs; Hiring Yourself → BO transparency; Receiving Kick-Backs from Foreign Partner → International AML/CFT Cooperation; Taking Bribes from Local Contractor → Enhanced Monitoring of PEPs.
  - CAMA Amendment Bill (2018) would mandate disclosure of beneficial interests and task CAC to compile/maintain information in the public domain.
    - Amendment Bill passed Senate on May 18, 2018 and House on January 17, 2019; presidential approval needed.
  - Operational impediments: lack of reliable BO information impedes NFIU analysis of STRs and law enforcement investigations; some FIs resist or are slow in providing BO information.
  - Steps to strengthen BO transparency:
    - Enact CAMA amendments once presidential assent received.
    - Collect/compile BO information for all companies registered in Nigeria and ensure regular updating/verification.
    - Amend NFIU’s STR template to include a BO field when report object is a legal person.
- PEPs and asset declaration:
  - Article 18 of 2013 CBN regulations requires FIs to: (i) obtain senior management approval before establishing/continuing business with PEPs; (ii) conduct enhanced ongoing monitoring; (iii) render monthly returns on all PEP transactions to CBN and NFIU; (iv) take reasonable measures to establish source of wealth/funds of PEP customers.
  - Practical challenges: FIs struggle to identify PEPs; request for list of qualifying officials falls outside CBN’s remit; CIBN and ABCON developing monitoring tools.
  - Asset declaration regime:
    - All “public officers” must declare assets per Fifth Schedule to the Constitution: immediately after taking office, every four years, and at end of term.
    - CCB receives/analyzes forms confidentially; forms not public; current forms lack fields for sources of income, beneficially owned assets, or high-value personal property.
  - Steps to strengthen PEP scrutiny:
    - Amend NFIU STR template to flag PEPs.
    - Complete NFIU strategic analysis of corruption; prioritize corruption in strategic analysis.
- CCB capacity and recommendations:
  - CCB has no list of declarants; estimates between 4 and 4.5 million public officers.
  - CCB received fewer than 17,000 completed asset declaration forms in 2018.
  - CCB staff: 889 across HQ and 36 state offices; budget allocation declined from $8.5M to $8M in FY 2019.
  - Improvements recommended (Table 9):
    - Provide additional resources for recruitment, training, names compilation, IT infrastructure for digitization/online submission, and proactive pursuit of non/incorrect declarations.
    - Amend legal framework and National Assembly Guidelines to enable publication online of declarations for high-level federal/state officials (requires National Assembly action and potential amendments to Freedom of Information Act, CCB and Tribunal Act, Official Secrets Act).
    - Consider criminal penalties for non- or inaccurate declaration for high-level officials once enacted.
    - Update asset declaration form to include all income sources, beneficially owned assets, and personal property above a threshold.
- AML/CFT supervision:
  - Importance: AML/CFT supervision critical to ensure FIs implement BO, PEP identification, STR submission, and targeted financial sanctions.
  - CBN developments:
    - AML/CFT (Administrative Sanctions) Regulations of 2018 provide legal basis to impose administrative sanctions/penalties; CBN has begun issuing sanctions.
    - Pilot program for risk-based supervision (RBA) commenced.
  - Resource constraints:
    - Limited human resources constrain inspections.
    - CBN incorporates AML/CFT into annual prudential inspections of 34 primary mortgage banks but lacks dedicated AML/CFT inspectors.
    - Only 2.3 percent of licensed BDCs received AML/CFT on-site inspections in 2018 (2.5 percent in 2017).
  - Strengthening supervision (Table 10): conduct thematic inspections with robust sampling; increase number/severity of sanctions; share inspection reports with NFIU.
- NFIU effectiveness:
  - Role: collect, analyze and disseminate STRs related to ML, TF and predicate offenses.
  - 2018: NFIU disseminated 134 STRs to EFCC; 88 involved possible corruption.
  - NFIU Act 2018: assures operational independence, restores Egmont Group access; gives NFIU power to inspect FIs and DNFBPs and helps ensure STR submission and confidentiality.
  - NFIU developments: confirmed new director; received own line-item in Federal Government budget; budget for current fiscal year saw substantial increase; resources invested in analyst training.
  - Domestic collaboration: close collaboration with EFCC and ICPC yields results; further formalization (MOUs, executive orders) recommended (Table 11).
- Vigorous prosecution and timely conclusion:
  - EFCC budget increase and hiring: EFCC hired 1,200 additional staff in 2018; opened 3 new zonal offices.
  - ICPC confirmed new director in December 2018; last recruitment in 2012.
  - Procedural challenges: prosecutions delay due to appeals/adjournments; judge retirement/promotion causes retrials; judicial processes are slow (longhand recordings, manual filings).
  - Table 12 recommendations: rebalance resources between EFCC and ICPC; enforce ACJA (2015); use IT systems to reduce judicial delays.

*Source: NIGERIA — INTERNATIONAL MONETARY FUND (content unit 1ngaea2019002).*

---

### Overall anti-corruption priorities and resource allocation
- Anti-corruption focus: SOE governance (petroleum sector) and AML/CFT.
- Required actions:
  - Legislative:
    - Prioritize enactment/implementation of PIGB and CAMA (Repeal and Re-enactment) Bill of 2018.
    - Consider legislation for an overall SOE ownership policy, fiscal/financial discipline via PFM reform, and transparency of public revenue flows and collector coordination.
  - Institutional:
    - MoF to regain central role in fiscal risk oversight.
    - Auditor General to have legal basis to operate effectively.
    - CBN to fully implement risk-based AML/CFT supervision.
    - Judiciary to adopt best practices for case/caseload management.
  - Additional resources prioritized to:
    - (i) Oversight and Oil and Gas Departments within MoF;
    - (ii) Auditor General’s staffing, operational and training budgets;
    - (iii) CCB;
    - (iv) ICPC;
    - (v) the judiciary;
    - Ensure institutions can carry out core functions efficiently leveraging technological solutions.

*Italic: Source — 1ngaea2019002 (IMF chapter/section).*

---

### Fuel subsidies — recent increase, fiscal cost, distributional effects, and compensation design
- Key facts:
  - May 2016 regulated fuel price increased by 68 percent to Naira 145 per liter; current regulated price remains Naira 145 per liter.
  - Fuel imports priced at 305 Naira/US$ in official practice; market-reflective windows show N/US$ 360.
  - Consumption assumption: about 37 million liters per day; alternative publicly announced import number: 55 million liters per day.
- Implicit subsidy estimates:
  - In 2018 cost of delivering a liter of PMS exceeded regulatory retail price of Naira 145 by some 40 percent.
  - Implicit cost to the budget could amount to 0.5 percent of GDP in 2018 (compared to just 3 to 4 percent in tax revenues).
  - Using 55 million liters per day, implicit cost could be 0.9 percent of GDP.
  - Exchange rate margin from pricing imports at N/US$ 305 instead of N/US$ 360 would add around 20 percent to the cost (not included in the 0.5/0.9 percent figures).
- Distributional and inflationary impacts of a 40 percent fuel price increase:
  - Transport prices are 6.5 percent of consumption basket (CPI weights).
  - A 40 percent fuel price hike implies a direct first-round impact on overall price level of around a 2½ percentage points increase.
  - Distributional outcomes (2015/16 General Household Survey, 5,000 households):
    - Fuel price increase is progressive: reduces Gini by ¼ point.
    - Poverty gap increases by 0.4 percentage points; poverty headcount increases by 1.2 percentage points without compensatory transfers.
- Compensatory transfer scenarios:
  - Keep poverty gap constant:
    - Total transfer cost: Naira 63 billion.
    - Naira 63 billion is less than a tenth of potential savings through the price increase.
    - Income inequality would decline further (by 0.6 point).
    - Poverty headcount would still increase by 1.1 percentage points.
  - Keep poverty headcount constant:
    - Total transfer cost: Naira 239 billion.
    - Naira 239 billion is about a third of potential gains of the reform at current prices and costs (excluding administrative costs).
    - Poverty gap would decrease compared to before the price increase; income inequality would decline by 1.3 points.
  - Caveat: administrative capacity to scale up transfers in short term and other design challenges (see IMF (2018) caveats).
- Policy recommendations:
  - Transparency: budget should state foregone benefits of implicit fuel subsidy as explicit item; communicate domestic PMS consumption levels; show cost-sharing explicitly if shared with state/local governments.
  - Price-setting mechanism: implement independent and automatic fuel price-setting mechanism with best-practice smoothing to guarantee pass-through over medium term (reference: Coady and others (2012)); gradual adjustment is possible.
  - Deregulation: allowing market pricing could eliminate subsidies.
  - Communication: effective public communication strategy critical.
- Broader assessment: overall positive net effect expected if compensatory measures protect vulnerable households; analysis excludes positive effects from reallocating savings to productive fiscal expenditures.

*Italic: Source — 1ngaea2019002 (IMF chapter/section).*

---

### Assessing cost-risk of increasing external debt — MTDS analysis and recommendations
- Objective/main finding:
  - Assess costs/risks of shifting public debt composition from 66:34 (domestic:external) to 60:40.
  - Main finding: moving to 60:40 is less costly overall than keeping current mix; concessional financing is cheapest but raises vulnerability to outlier shocks (e.g., extreme depreciation) as shown by rising debt service to reserves ratio in stress scenarios.
- Recent debt dynamics (2015–2018):
  - Public debt increased by 6 percentage points of GDP between 2015 and 2018.
  - Share of external debt rose from just below 20 percent to 34 percent.
  - Eurobonds now account for 55 percent of external debt (14 percent in 2015).
  - Multilateral share fell to 39 percent (from two thirds in 2015).
  - Bilateral debt share fell to 6 percent (China was 15 percent of total external debt in 2015).
  - Total Eurobond issuance: $10 billion since 2017.
  - Net domestic issuance in 2018 declined: Treasury bills to N3,335 billion from N4,442 billion in 2017; bonds to N992 billion from N1,521 billion.
- Sources of debt risk:
  - Refinancing risk: domestic debt ATM 7.2 years; external ATM 12.3 years; about 1.25 percent of external debt matures within the year, rising to 8.5 percent by 2027.
  - Interest rate risk: ATR domestic 5.4 years; ATR external 12 years.
  - Exchange rate risk: external debt 34 percent of total debt; Eurobond financing increases currency exposure principally to the US dollar (SDR weight 42 percent).
- Authorities’ MTDS aim: increase external debt share from 20 percent in 2015 to 40 percent in 2019; as of 2018 reached 34 percent; only $2.5 billion external funding expected in 2019 — likely short of 40 percent objective and best-case reach 60:40 by 2022.
- Baseline financing needs and macro assumptions:
  - Baseline external borrowing needs: about $10.5 billion a year externally from 2019-22.
  - Baseline projected external borrowing rising to an average of just above $16 billion for 2019-28.
  - Exchange rate assumed at 325 N/$ (except in exchange rate shock cases).
  - International reserves projected to decline to $33-34 billion in medium term.
  - Real GDP growth assumed 2-2.5 percent; inflation assumed to remain in double digits.
  - Primary fiscal deficit assumed to average around 2 percent of GDP under current policies.
- Financing strategies evaluated (MTDS Analytical Tool):
  - S1: Future external financing from 2020 on concessional terms.
  - S2: Market-based financing in 2019-2022 (Eurobond) to reach 40 percent external by 2022.
  - S3: As S2 but with market-based financing at 500 basis points higher cost than S2.
  - S4: No further external financing apart from 2019 assumption; all financing domestically.
- Shock scenarios (five):
  - Baseline (no shock).
  - Mild interest rate shock: +2.5 percentage points.
  - Extreme interest rate shock: +5 percentage points.
  - Extreme exchange rate shock: naira depreciates by 100 percent in 2019 (4Y) / 2023 (10Y) and remains at this level.
  - Combined mild interest and moderate exchange rate shock: naira depreciation 50 percent plus higher interest rates.
- Key results — cost-risk trade-offs (exact reported indicators):
  - Nominal debt as percent of GDP:
    - 2018 Current: 17.0
    - end-2022: S1: 25.3; S2: 25.5; S3: 25.8; S4: 26.0
    - end-2028: S1: 31.6; S2: 34.2; S3: 36.8; S4: 39.1
  - Present value debt as percent of GDP:
    - 2018 Current: 16.2
    - end-2022: S1: 21.9; S2: 25.0; S3: 25.2; S4: 25.5
    - end-2028: S1: 26.0; S2: 34.0; S3: 36.6; S4: 38.9
  - Interest payments as percent of total revenue (2028):
    - S1: 85.9
    - S2: 111.6
    - S3: 138.8
    - S4: 161.2
  - Implied interest rate (percent) in 2028:
    - S1: 9.3
    - S2: 11.3
    - S3: 13.1
    - S4: 14.5
  - Debt maturing in 1 year (percent of total) in 2028:
    - Current 2018: 18.0
    - S1: 12.4; S2: 11.6; S3: 11.9; S4: 18.7
  - FX debt as percent of total (2028):
    - Current 2018: 34.8
    - S1: 40.2; S2: 41.3; S3: 40.3; S4: 4.3
  - External debt service to international reserves (10Y baseline) under S3 would reach almost 50 percent; increase to almost 65 percent under an exchange rate shock and 68 percent under an extreme interest rate shock.
  - Under S1, external debt service to reserves ratio reaches 12.9 percent baseline and 23.3 percent under an extreme exchange rate shock.
- Sensitivity:
  - Increasing revenue mobilization by 0.5 percent of GDP per year from 2019-22 and maintained thereafter would bring the interest-to-revenue ratio down by more than half by end-2022 under all strategies (equivalent to cumulative impact of 2 percent of GDP in revenues).
- Conclusions and policy recommendations:
  - DMO’s MTDS target of 40 percent external is appropriate but will likely require more years than targeted 2019 and doubling annual external financing obtained in 2018 for next five years.
  - Debt-mix 60:40 (domestic:external) less costly overall than current mix.
  - Preferential use of concessional external financing (S1) is cheapest but increases exchange rate exposure and could pressure international reserves under some scenarios.
  - Monitor exchange rate risk and contingency plan if assumed external funding does not materialize.
  - Improving domestic revenue mobilization is central: increasing revenues by 0.5 percent of GDP per year materially reduces interest-to-revenue ratios; increase non-oil revenues and secure concessional external financing.

*Source: Nigerian authorities and IMF staff calculations (MTDS analytical results).*

---

### AMCON — background, risks, and policy recommendations
- Purpose/background:
  - AMCON established as temporary resolution vehicle for 2008/2009 banking crisis; mandate includes purchasing bad assets/NPLs, injecting liquidity; empowered to issue bonds, maintain diversified asset portfolio, provide equity capital, borrow in domestic/foreign currencies, and enter derivatives.
  - Staff: around 400 employees.
- Key statistics:
  - AMCON bought N1.23 trillion of banking sector NPLs in 2010.
  - By September 2011 purchases amounted to N2 trillion (~10.5 percent of total assets).
  - AMCON purchased three bridge banks; two sold in 2015 and third in 2017.
  - Initial capital: Federal Government N10 billion.
  - CBN annual contribution N50 billion for up to 10 years; banks pay 50 basis points of total assets as flat premium.
  - By 2019, AMCON total assets exceeded N1.7 trillion while liabilities reached around N5.5 trillion.
  - CBN holds around N5.3 trillion of AMCON bonds by end-2018 (including N1.3 trillion bonds issued to acquire Polaris bank).
  - AMCON holds 12,000 loans; 350 loans represent 85 percent of total exposure.
  - Latest results reveal large negative net worth in 2017, exceeding NGN 3.9 trillion due to accumulated losses.
  - Proceeds from RCF amounted to N234 billion in 2018 and represented more than 70.5 percent of AMCON’s gross income in 2017.
  - AMCON bonds amount to around 3.5 percent of GDP and are fully guaranteed by the federal government.
  - More than 3,000 legal cases currently disputed in court.
- Challenges:
  - Indefinite lifespan and ongoing asset acquisition promote moral hazard, weak underwriting, bad governance, and excessive risk taking.
  - Continued acquisitions (e.g., Polaris bridge bank in September 2018) impede winding down.
  - Shift to market player and equity-for-debt swaps create misaligned incentives and reduce creditor enforcement.
  - Disclosure and oversight gaps: audited financial statements not consistently available on AMCON’s website despite statutory publishing requirement within six months; CBN regulatory framework could be strengthened.
- Policy recommendations — immediate priorities:
  - Earmark AMCON cash flows for buying back bonds.
  - Immediate closing of acquisition window for troubled loans.
  - Set annual disposal targets; frontload disposal; explore delegating portfolio parts to private AMCs; support with resolution framework enabling write-down of capital and expeditious resolution of non-viable banks.
  - Set firm closing date for AMCON (examples: AMCs in many countries lasted seven years); 2023 sunset appears unlikely — recommend explicit ambitious closing date in AMCON’s act and arrange residual asset treatment.
  - Quickly plan divestment of AMCON’s interests in companies and banks (including Polaris bridge bank).
  - Reinforce disclosure: publish audited financial statements within six months of fiscal year end and make available on AMCON’s website.
- Legal/enforcement enhancements pending closing:
  - Strengthen legal environment to empower collection and recovery: reverse burden of proof for alleged wrongdoing, raise threshold to gross negligence or willful misconduct, expand legal protection for AMCON staff, indemnify staff for good faith actions.
  - Pursue legal enhancements in parallel to winding down and de-linked from dissolution.
- Ownership/funding recommendation:
  - Discontinue CBN ownership in AMCON or transfer ownership/funding to fiscal authority to avoid conflicts with CBN supervisory mandate.
  - Bank involvement in funding AMCON appropriate to ensure private sector bears resolution cost and limits moral hazard.
- Classification and public debt implications:
  - MoF and CBN are AMCON shareholders and appoint board, implying ultimate control.
  - AMCON bonds fully guaranteed by government and held by CBN.
  - Recommendation: AMCON’s assets/liabilities should be classified under general government; AMCON’s bonds should be recognized as public sector government domestic debt.

*Source: 1ngaea2019002 - 20 and 14.*

---

### Human capital, gender equality, education and health — status, simulations and policy recommendations
- Urgency and status:
  - Nigeria population growth > 2½ percent annually; youth > half population.
  - Nigeria among bottom six worldwide on World Bank 2018 Human Capital Index.
  - Oxfam Commitment to Reducing Inequality Index: Nigeria ranks last for second year due to low social spending.
  - Spending: education 1.7 percent of GDP (SSA average 4.7 percent); health 0.6 percent of GDP.
  - In 2016 health expenditures: federal 7.1 percent, state 4.2 percent, local 3.8 percent of budgets.
  - Only 64 percent of health capital budget released in 2016 and 54 percent subsequently used.
  - NSHDP II funding requirement estimated N4.3 to 7.3 trillion (2018-2022).
- Health outcomes:
  - One in nine children dies before fifth birthday — 750,000 deaths each year.
  - Almost one in five children in poorest quintile die before age five.
  - About half of children under five stunted; one in three chronic malnutrition.
  - Nigeria largest number of unimmunized children worldwide.
  - Maternal mortality: 8 maternal deaths per 1,000 live births (second highest globally).
  - Regional extremes: every fifth child dies before age 5 in Jigawa, Kano and Zamfara; more than half of children stunted in most North-Western states and Yobe.
- Education outcomes:
  - Average years of schooling: more than 8 years but quality issues halve effective schooling.
  - Teacher effectiveness: 24 percent (language) and 31 percent (mathematics) of teachers score ≥80 percent on a 4th grade test.
  - Four out of five persons aged 15-24 not able to read a full sentence.
  - Minimum of 10 million out-of-school children (stated as minimum).
  - Large state variation in per capita priority spending: ~Naira 5,000 in Katsina and Sokoto vs > Naira 44,000 in Bayelsa.
  - Conflict impacts: almost 2,300 teachers killed and 19,000 displaced in Borno, Yobe and Adamawa; since 2014 ~1,500 schools destroyed; more than half of children in Northeast never attended school.
- Macroeconomic modeling approach:
  - Micro-founded general equilibrium model with heterogeneous agents used to quantify gains from narrowing education gaps.
  - Households live three periods; men always work; women decide on labor supply with home production/social norms costs; children’s productivity depends on education, government expenditures, household income, and child’s gender.
- Simulated scenarios and impacts:
  - Scenario 1 (equalize years for boys and girls within same income percentile):
    - Female-to-male labor force participation ratio rises from 76 percent to 87 percent.
    - Women’s average hourly wages increase by more than eight percent; men's remain constant.
    - Long-term GDP increases by 5 percent.
    - Gini decreases by two percentage points.
  - Scenario 2 (ensure each child benefits from at least current median years of education for boys):
    - Female-to-male participation ratio increases to 93 percent.
    - Earnings: women +10.4 percent; men +2.7 percent.
    - GDP increases by almost 8 percent.
    - Government revenues increase only 0.2 percent of GDP (without tax reforms).
    - Gini decreases by 5 percentage points.
  - Scenario 3: Scenario 2 plus reduction of disincentives for women (equal pay, access to resources, policies supporting work/household balance).
  - Scenario 4: Increase efficiency of education to level of SSA lower middle-income countries (quality-adjusted years +16 percent) boosts GDP by 3.6 percent.
  - Additional quantitative values reported in graphical results (Female-to-Male Labor Force Participation change in percentage points): 11.4, 17.5, 24.3, 0.4 for scenarios 1–4 respectively.
- Education, gender and macro scenarios (additional):
  - Education attainment: "9.8 years for girls and to 10.3 years for boys."
  - With higher returns from labor, gender gaps in participation would completely close; women’s wages increase.
  - Income share for lower-income households rises to 18.1 percent (+3.2 percent for men).
  - Government revenues increase by +¼ percent of GDP.
  - GDP rises by 11.7 percent.
  - Gini decreases by 6 percentage points.
- Government initiatives:
  - Health: Second National Strategic Health Development Plan 2018-22 launched January 2019; National Health Act operationalized via Basic Health Care Provision Fund; 1 percent commitment included in 2018/2019 budgets; malaria net use among under-5 increased to 49 percent in 2016; Nigeria ~1 year away from eradicating wild polio.
  - Education: Human Capital Vision document; National Home-Grown School Feeding and Health Program in 26 states feeding ~9.3 million pupils with >95 thousand community cooks in 47 thousand schools; Safe School Initiative for conflict-affected students; targeted programs supporting women/girls (grants, scholarships).
  - State examples: Lagos digital device adoption; Kaduna teacher mass training and reassessment.
  - Gender policies: National Strategy to End Child Marriage (2016); National Action Plan on Gender; National Gender Action Plan for Agricultural Sector (2018).
- Policy recommendations (health, education, gender):
  - Operationalize Human Capital Vision targets; improve administrative data collection (geo-coordinates, learning assessments).
  - Improve teacher quality via recruitment, deployment, training, and higher salaries.
  - Measure performance of Universal Basic Education Intervention Fund and Tertiary Education Trust Fund by results.
  - Pursue evidence-based demand-side and supply-side interventions; result-based financing.
  - Improve health outcomes via higher/regular funding, operationalize Basic Health Care Provision Fund, fund NSHDP II.
  - Gender-specific: pass “Gender and Equal Opportunities Bill”; domesticate Children’s Rights Act, Violence against Persons Prohibition Act and Disabilities Act at state levels; enforce civil/criminal law when customary law contradicts non-discriminatory policies; strengthen responses to gender-based violence; continue Call to Action on Protection from Gender-Based Violence in Emergencies; strengthen programs to reduce women/girls vulnerability; provide gender-responsive health services and menstrual hygiene supplies.
- Macro-structural obstacles to firm performance (WBES 2014-15):
  - Sample: 2,640 formally registered private firms in manufacturing and services across 19 states.
  - Top obstacles: access to finance (~one-third), electricity, and corruption.
  - Firms average ~16 years of operation.
  - Skills when hiring: specific technical skills then social skills.
  - Skills not constraint to hiring women in >60 percent of cases.
  - Micro firms show highest employment and capacity utilization growth.
  - >80 percent of surveyed firms did not spend on formal R&D in last 3 years.
  - Empirical associations: larger and export-oriented firms ~40 percentage points less likely to report access to finance as obstacle.
  - Access to finance constraint associated with ~80 percent lower employment growth and ~30 percent lower capacity utilization growth.

*Source: 1ngaea2019002 (IMF chapter/section).*

---

### Access to finance, firm performance and policy implications (econometric findings)
- Model/specification:
  - Dependent variable: Accesstofinanceist (ordinal: 0 “No obstacle” to 4 “Very severe obstacle”).
  - Estimated ordered logit/probit and binary logit/probit; endogenous treatment-regression (MLE) for causal impact on firm performance (employment growth and capacity utilization growth).
- Determinants of access to finance:
  - Larger and export-oriented firms less likely to report access to finance as obstacle (coefficients negative and significant).
  - Foreign ownership associated with easier access to credit (~30 percentage points less likely to report obstacle).
  - Manager education significant in some specifications.
  - Selected coefficient excerpts:
    - Firm size: -0.273* (Logit, model 1); -0.182** (Probit, model 2); -0.259 (Logit, model 3).
    - Foreign ownership (Y/N): -0.306 (1); -0.314* (2); -0.114 (3).
    - Exports oriented firm (Y/N): -0.41** (1); -0.335** (2); -0.195 (3).
- What drives export diversification:
  - Younger firms less likely to report diversified exports (Young firm (Y/N): -0.753* (Logit) and -0.396* (Probit)).
  - Foreign ownership strongly associated with diversified exports (1.971*** Logit; 1.150*** Probit).
  - Access to finance constraint associated with lower export diversification (-0.107* ordered; -0.382* binary).
- Access to finance and firm performance — causal results:
  - Employment growth effect: -0.780** (model 9 MLE); -0.868*** (model 10 MLE).
  - Capacity utilization growth: -0.24*** (model 11 MLE); -0.28*** (model 12 MLE).
  - Interpretation: firms perceiving access to credit as constraint have ~80 percent lower employment growth and ~30 percent lower capacity utilization growth relative to firms not perceiving constraint.
  - Endogeneity diagnostics: LR tests reject independence; estimated Rho positive in all models (.0123, .0209, .526, .579).
- Policy implications:
  - Increase access to finance to support diversification and firm performance (consistent with ERGP).
  - Recent initiatives: 2017 Secured Transactions in Movable Assets Act (collateral registry).
  - Remaining priorities: ensure banks use National Collateral Registry; increase credit registry coverage (Nigeria adult coverage 0.1% vs OECD average 63.7%); address macro impediments (high risk aversion, high-yield government bills); accelerate financial inclusion strategy; reform regulatory framework; leverage mobile payments.
  - Broader reforms: increase public investment efficiency; implement Power Sector Recovery Plan; step up education and health improvements; strengthen governance, transparency, anti-corruption; continue PEBEC reforms.

*Source: https://www.imf.org/-/media/files/publications/cr/2019/1ngaea2019002.pdf*

### 1. Selected Challenges in PIGB ________________________________________________________ 14

### 1. Selected Challenges in PIGB

### A. Introduction — corruption, transparency, and macroeconomic stakes
- One out of three respondents that had contact with a public official reported having paid a bribe (NBS 2017).
- Estimates: lowering corruption to levels of peer countries could boost growth by ½ to 1½ percentage points annually, increase public investment efficiency, and increase the tax-revenue to GDP ratio by 1½ percentage points (IMF 2018).
- Oil currently accounts for 57 percent of total government revenues and 94 percent of exports — reducing leakages in the petroleum sector is key to fiscal sustainability and external stability.
- Recent government actions and institutional reforms:
  - National Anti-Corruption Strategy (NACS) for 2017–20 prioritizes asset recovery and management, adjudication of corruption cases, investigation and prosecution, and coordination among competent authorities.
  - Strengthening anti-corruption infrastructure: additional resources for the Economic and Financial Crimes Commission (EFCC); passage of the Nigerian Financial Intelligence Unit (NFIU) 2018 Act, providing operational independence aligned with FATF recommendations.
  - National Assembly amendments to the Companies and Allied Matters Act (CAMA, 1990) to improve transparency of beneficial ownership (BO).
  - Publishing monthly financial and operational reports of the Nigerian National Petroleum Corporation (NNPC); 2019 EITI report found Nigeria has fully addressed corrective actions from its first validation and made satisfactory progress overall with implementing the EITI standard.
  - Approval of the Petroleum Industry Governance Bill (PIGB) by the National Assembly.
  - Adoption of a whistle-blower policy and an open government initiative.

- Paper objectives:
  - Detail strengths and weaknesses of SOE governance framework.
  - Note pending and future reforms.
  - Highlight potential of AML/CFT tools to support anti-corruption efforts across and beyond the petroleum sector.
  - Emphasize building institutions for prevention, public-private cooperation for detection, and effective criminal-justice responses to detected corruption.

### B. Governance of the State-Owned Enterprise (FGOE/SOE) sector — fragmentation and oversight gaps
- Current ownership arrangements:
  - Dual decentralized model: the state acts as provider, regulator, and supervisor, creating inherent conflict and risk of asset misuse for non-budgetary or political purposes.
  - Ownership functions fragmented among the Ministry of Finance (MoF), the office of the Accountant General, sector ministries, and the Bureau of Public Enterprises.
- Reporting and fiscal-risk quantification weaknesses:
  - Definition of an FGOE is not consistent across several Acts.
  - No standard reporting policy and no aggregated annual report on financial performance of overall FGOE sector.
  - Lack of standardized accounting policies complicates quantifying the ‘operating surplus’ of each FGOE.
- Ongoing and planned responses:
  - Design of performance contracts to ensure surplus revenue targets are realistic and adhered to.
  - Review of FGOE portfolio for proper classification and separation of SOEs from departmental agencies.
  - Calls for publishing regular quarterly financial statements.
  - Decision to strengthen central government oversight of the FGOE sector.
- Policy direction: gradual centralization of fiscal oversight and enhancement of ownership arrangements, integrated with broader public financial management reform.
- Table 1: Elements of an Effective Ownership Policy (preserves original bullets)
  - Create a monitoring fiscal oversight unit within Ministry of Finance
  - Line ministries should only perform core ownership functions such as voting shares, overseeing board members, and monitoring SOE performance
  - Develop safeguards against political interference in commercial decision-making.
  - Provide SOEs greater autonomy from line ministries by empowering SOE boards to take on greater responsibilities
  - Develop/strengthen SOE corporate governance tools and guidelines
  - Develop a system to monitor and benchmark the performance of ministries as owners

### C. Governance of the Petroleum Sector and the NNPC — overlapping mandates and governance challenges
- Institutional map and overlaps:
  - Ministry of Petroleum Resources (MPR): oversight of the overall sector, agencies, and policy making.
  - Department of Petroleum Resources (DPR): regulatory powers on behalf of MPR, licensing and monitoring for oil, gas, and downstream petroleum products.
  - Petroleum Products Pricing Regulatory Agency: regulates petroleum products prices.
  - Petroleum Technology Development Fund: training.
  - Petroleum Equalization Fund: equalization of pricing of petroleum products countrywide.
  - NNPC: national oil company.
- Governance challenges from overlapping roles:
  - Minister of Petroleum both oversees the sector and is chairman of NNPC.
  - DPR is legally founded in the Act that constitutes NNPC, implying an inspectorate Directorate within NNPC.
  - DPR constrained by inadequate budget, limited human resources, and conflicting objectives.
  - Auditor General lacks a direct mandate to audit NNPC.
  - No central role for the Ministry of Finance in current sector oversight arrangements.
- NNPC-specific governance issues:
  - The 1977 NNPC Act empowers NNPC to engage in oil and gas related activities but:
    - The Act does not assign a commercial mandate to NNPC.
    - The Act allows NNPC to be an agent of the Federation without defying the commercial aspects of this agency contract.
  - Appointment, evaluation, and remuneration policies do not appear to be in place.
  - Power to make appointments of key board members and CEO concentrated in the President of the Federation.
  - Resulting risks: political interference in NNPC decision making; weak oversight and executive responsibility separation.
- Internal reforms at NNPC:
  - NNPC is a federally owned entity with 12 subsidiaries incorporated as joint stock companies as per CAMA provisions.
  - NNPC is attempting to become a de facto corporate group by creating four autonomous business units: Upstream, Downstream, Gas and Power, and Refineries, with corresponding subsidiaries.
  - Movement from compliance-based audit to risk-based audit and control approach; needs assessments completed in 2017; internal governance architecture drafted to promote better board oversight, communication channels, and reporting mechanisms; policies to support internal audit and control developed.
  - When fully implemented, reforms could help NNPC adapt to transformation under CAMA provisions and fit within parameters of a profit-oriented mandate.
  - Recommendation: NNPC should integrate sustainability (environmental and social considerations) into operations with clear, measurable, and monitorable indicators feeding disclosure reporting.

### D. Cross-cutting implications and priorities
- Centralize and clarify ownership, regulatory, and oversight roles to reduce conflicts and political interference.
- Strengthen Ministry of Finance role in monitoring SOE and petroleum sector performance.
- Standardize definitions, accounting policies, and reporting requirements for FGOEs to enable quantification of fiscal risks and timely interventions.
- Reinforce institutional capacities of DPR and auditor oversight mandates to ensure independent monitoring of NNPC.
- Implement corporate-governance, audit, and disclosure reforms at NNPC alongside integration of sustainability indicators.

*Source: 1. Selected Challenges in PIGB, March 13, 2019.*

### 13.      Limited fiscal oversight and a fragmented institutional set up impacts revenue

### 13.      Limited fiscal oversight and a fragmented institutional set up impacts revenue

### Revenue collection challenges
- NNPC engages in major fiscal arrangements in the oil sector on behalf of the Federal Government of Nigeria, mainly consisting of Joint Ventures (JVs) and Production Sharing Contracts (PSCs).
- Revenues are often lost or under-collected due to discretionary decision-making in the award of oil blocks, unpaid signature bonuses after a license is awarded or renewed, unpaid royalties, and significant crude oil theft.
- NEITI estimates that NNPC owes $ 9.8 billion to the Federal Government, mainly due to deductions from gross oil revenues and opacity in the new JV cash call arrangements.
- In the period before the new funding mechanism:
  - Accumulated cash call arrears were US$ 5.1 billion 2011-2015.
  - Accumulated arrears were US$ 1.2 billion in 2016.
- Since January 2017, NNPC first pays cash call obligations and then remits net revenues to the Federation Account, decreasing arrears accumulation but raising constitutionality and transparency concerns.

### Legal and institutional ambiguities
- Constitutional requirement: all NNPC revenue proceeds be paid to the Federation Account.
- NNPC Act: NNPC shall maintain a fund from which NNPC can defray all expenses, allowing prior deductions out of gross income without recourse to appropriation by the National Assembly.
- Fiscal Responsibility Act (FRA): mandates NNPC to remit one-fifth of its operating surplus to the Consolidated Revenue Fund of the Federal Government but neither defines “operating surplus” nor provides a limit to deductions (examples of deductions: landing and transportation costs for imported petrol, crude losses, product losses, and pipeline management and repairs).
- NEITI and Audit General’s Reports have highlighted transparency and accountability concerns as deductions have increased.
- Key recommended legal revisions (from Table 2):
  - Strengthen information sharing and coordination among collecting agencies to compare payments.
  - Establish a clear mandate to fund NNPC operations (define the surplus, the possibility to make deductions and limits to defray operating costs).
  - Reconcile provisions of the NNPC Act concerning revenue withholdings in light of constitutional requirements.

### Transparency, contracts, and disclosures
- Petroleum contracts (sales contracts, service contracts, PSCs, and JVs) with significant fiscal impact are kept fully confidential, which can facilitate abuse and represent fiscal risk.
- Recommendation: contracts should be fully disclosed, with attention to commercially sensitive data, in line with international transparency standards.
- NEITI’s role and progress:
  - NEITI incorporated as a Government Agency in 2007; 2007 EITI Act legislated EITI in Nigeria.
  - As a result of NEITI’s efforts, NNPC now publishes monthly financial and operation reports and monthly petroleum statistics and annual statistical bulletins.
  - In February 2019, the Board of EITI agreed that Nigeria reached ‘satisfactory’ progress in implementing the EITI standards as the first Anglophone African country.
- Gaps in NNPC disclosure and audits:
  - NNPC is self-reporting and figures cannot be verified or challenged by other government bodies.
  - NNPC Financial and Operational Reports are available only until November 2018; the last Annual Statistical report and petroleum statistic were published in 2017 and 2016 respectively.
  - NEITI noted that its auditors under the EITI framework have not independently verified the information and data from NNPC monthly reports.
  - Data discrepancies exist between NNPC, Audit General, Central Bank of Nigeria, and Accountant General.
  - FRA requires NNPC to prepare and publish audited accounts but there is no published audit report to date.
- Key steps to increase petroleum revenue transparency (from Table 3):
  - Establish a clear decision-making process on revenue inflows and outflows: clarify procedures for payment and withdrawal from certain accounts, and which agency should make the determination.
  - Fully disclose NNPC’s JVs arrangements, including clear information on gross revenues received and of transfers made beyond those to the Federation Account.
  - Grant relevant Government stakeholders (Ministry of Finance; Accountant General) full oversight of Government cash flows across cash call bank accounts.

### Budget integration and fiscal oversight
- NNPC’s budget process issues:
  - NNPC required to submit revenue and expenditure estimates as part of the appropriation bill process, but amounts approved by NNPC do not often match Federal Government budget allocations.
  - Ministry of Finance is in charge of revenue forecasting and scenario modeling but is constrained by limited technical and sector expertise and limited data access.
  - NNPC’s budget is not published nor identified in the federal government’s budget; there is no information on the operational surplus of NNPC.
  - Non-appropriated spending is increasing due to NNPC’s prior deductions.
- Recommended steps toward good practice in budget allocation and documentation (from Table 4):
  - Introduce better systems of information sharing, and disclosure of fiscal risks.
  - Include in the budget documentation forecasts of credible and transparent resource revenues.
  - Ensure that all NNPC revenues and expenditures are fully integrated in the budget process.
  - Place strict limits on extra-budgetary spending to achieve a more realistic incorporation of NNPC’s budget into Federal government budget.
  - Publish JV contracts.

### Auditing, reconciliation, and oversight institutions
- IMF Fiscal Transparency Code expectation: resource corporations report on project-level fiscal payments to and from the government, reconciled with government receipts with no major unexplained reconciliation error.
- Recommended NNPC practices:
  - Disclose all revenue transfers and remittances to the Federation Account with complete and timely information.
  - Consider reporting on environmental, social, and governance considerations; Sustainability Disclosure Guidelines by the Nigeria Stock Exchange could provide guidance.
- Auditor-General and Office of the Auditor General of the Federation (OAuGF):
  - Constitution does not give the Auditor-General a direct mandate to audit NNPC; accounts of government statutory corporations are explicitly excluded from Auditor General’s mandate, though the Auditor-General has power (not defined) to conduct periodic checks related to NNPC inflows and outflows.
  - OAuGF is resource-constrained and requires greater financial and operational independence.
  - Legal status issues: only the Auditor General is the civil servant; the rest of OAuGF depends on a British Ordinance never converted into Nigerian law, affecting salary regularity and operational budget. In the last two years, a total of $300 was allocated by the Accountant General to the OAuGF for training purposes.
  - Relationship between OAuGF and the Committees of the National Assembly and other external stakeholders needs strengthening.
- Strengthening OAuGF and National Assembly oversight (from Table 5):
  - Enact a law to provide OAuGF with financial and operational tools when conducting audit over public accounts.
  - Provide petroleum sector expertise.
  - Provide better tools to improve stakeholders’ engagements, in particular with the National Assembly.
- Strengthening Ministry of Finance oversight (from Table 6):
  - Legally provide the Ministry of Finance with powers to exercise fiscal oversight of NNPC, covering a comprehensive range of fiscal risks.
  - Establish reporting systems to allow the MoF to regularly oversee, monitor and assess NNPC operations.
  - Foster close collaboration with other revenue collecting agencies and oversight/auditing institutions (information sharing, financial assessment, joint audits and technical assistance).
- Enforcement and sanctions:
  - An effective sanctions and enforcement regime could give the Auditor General and the Ministry of Finance legal powers to enforce sanctions for non-remittance of revenues, failure to disclose required information, and non-compliance related to process, expenditure, and mismanagement of public assets.

### Petroleum Industry Governance Bill (PIGB) and implementation challenges
- The Petroleum Industry Bill (PIB) aims at redesigning institutional architecture; the first act—the Petroleum Industry Governance Bill (PIGB)—aims at clarifying separation of ownership, policy making, and regulatory roles; establishing a commercially oriented focus for petroleum entities; promoting transparency and accountability; and creating a conducive business environment.
- PIGB status: had been approved by parliament in 2018 and is awaiting final presidential approval.
- Selected implementation challenges (Box 1):
  - Coordination: PIGB assigns rents and royalties to the Nigerian Petroleum Regulatory Commission, PSCs to the Petroleum Asset Management Company (PAMC), and other contracts by NNPC (especially JV) to the National Petroleum Company (NPC). Coordination between these parts is critical and may require information flows, audit assistance, and sharing expertise.
  - Monitoring and oversight: New institutions (NPC and PAMC) will be subject to Companies and Allied Matters Act and Securities and Exchange Commission's Codes of Corporate Governance, enhancing corporate governance, but there is no single oversight unit that can monitor these entities.
  - Role of the Ministry of Finance: PIGB does not provide for the MoF’s role in monitoring key financial information in relation to NPC and PAMC or assessing fiscal risks arising from their activities. NPC would be entitled to retain revenue to cover expenses, debt liabilities, and cash call obligations in the JVs. PIGB excludes the new NPC from provisions of the Fiscal Responsibility Act 2007 and the Public Procurement Act 2007, creating additional fiscal risks as NPC is excluded from budgetary planning, borrowing limitations, conditions for guarantees by the federal government, public procurement provisions and fiscal transparency requirements.
  - Formalize appointment, remuneration, and evaluation policies: PIGB remains silent on transparency and formalization of the appointment process, evaluation, and remuneration of members of the Commission and the boards of NNPC and AMC.

### Using AML/CFT tools in and beyond the SOE sector
- Rationale:
  - Strengthening Nigeria’s AML/CFT regime will bolster anti-corruption efforts in and beyond the FGOE sector by diminishing underlying financial incentives; proceeds of corruption must almost always be laundered.
  - AML/CFT tools help identify, trace, and confiscate ill-gotten gains, aiding detection, investigation, sanctioning, and deterrence.
- Nigeria AML/CFT National Strategy 2018-2020:
  - Adopted in June 2018, reflecting government commitment.
  - Strategy components include review and enactment of AML/CFT legislation as necessary; issuance of related guidelines and regulations; awareness-raising for the private sector; provision of adequate resources (funding and staffing) in the public sector; and enhanced stakeholder collaboration.

*Source: 1ngaea2019002 - 13.      Limited fiscal oversight and a fragmented institutional set up impacts revenue*

### 29.      Several of the AML/CFT reforms discussed in the following sections would have a

### 1ngaea2019002 - 29.      Several of the AML/CFT reforms discussed in the following sections would have a

### Transparency of Beneficial Ownership
- Ensuring transparency of ultimate (or “beneficial”) ownership (BO) is critical to prevent, detect, and investigate the abuse of corporate vehicles to engage in corruption.
- The risk of abuse of corporate vehicles is particularly acute in the SOE sector, where large sums of state resources are regularly expended.
- Text Table 1: Illustrative examples linking SOE corruption acts to AML/CFT tools:
  - Cooking the Books → Suspicious Transaction Reports (STRs).
  - Hiring Yourself → Transparency of Beneficial Ownership (consult corporate registry to detect beneficial ownership ties).
  - Receiving Kick-Backs from a Foreign Partner → International AML/CFT Cooperation (FIU assistance; identify shell company ties).
  - Taking Bribes from a Local Contractor → Enhanced Monitoring of PEPs (bank monitors, requests origin of funds, suspends account/submits STR).
- Legal/policy progress:
  - Amendments to the Companies and Allied Matters Act (CAMA, Repeal and Re-enactment) Bill, 2018 would mandate disclosure of beneficial interests and task the Corporate Affairs Commission (CAC) to compile and maintain the information in the public domain.
    - The Amendment Bill was passed by the Senate on May 18, 2018, and by the House of Representatives on January 17, 2019.
    - Presidential approval is needed for its enactment.
- Operational impediments:
  - Lack of reliable BO information significantly impedes NFIU analysis of STRs and law enforcement financial investigations.
  - Authorities must request BO information from financial institutions (FIs) which are required to “identify and take reasonable steps to verify” BOs per the Central Bank of Nigeria (AML/CFT in Banks and Other Financial Institutions in Nigeria) Regulations, 2013.
  - Some FIs resist providing BO information; others are slow or provide inaccurate/incomplete information.
- Table 7: Steps to Strengthen the Transparency of Beneficial Ownership
  - Enact the amendments to the CAMA, once they have received Presidential assent.
  - Collect and compile BO information for all companies registered in Nigeria and ensure that it is regularly updated and verified.
  - Amend the NFIU’s STR template to include a field for BO information, when the object of the report is a legal person.

### Politically Exposed Persons (PEPs) and Asset Declaration
- Applying special scrutiny to PEPs’ financial dealings, including via asset declaration requirements, increases detection of corrupt acts and money laundering and acts as a deterrent.
- Article 18 of the 2013 CBN regulations requires FIs to:
  - (i) obtain senior management approval before establishing (or continuing) business relationships with PEPs;
  - (ii) conduct enhanced ongoing monitoring of those business relationships;
  - (iii) render monthly returns on all PEP transactions to the CBN and the NFIU;
  - (iv) take reasonable measures to establish the source of wealth and of funds of PEP customers.
- Practical challenges:
  - FIs struggle to identify their PEP clients.
  - Banks, BDCs, and other FIs requested a list of qualifying Nigerian officials from the CBN; preparation of such a list falls outside the CBN’s remit and is not a comprehensive or dynamic solution.
  - The Chartered Institute of Bankers of Nigeria (CIBN) is working with consultants to develop a proprietary account and transaction monitoring tool; the Association of Bureaux de Change Operators of Nigeria (ABCON) has a nascent effort.
- Asset declaration regime:
  - All “public officers” must declare assets per the Fifth Schedule to the Constitution: immediately after taking office, every four years thereafter, and again at the end of their terms/service.
  - The Code of Conduct Bureau (CCB) receives and analyzes completed forms but currently must do so confidentially; forms are not available to the public.
  - Current forms lack fields for sources of income, beneficially owned assets, or personal property above a certain value.
- Table 8: Steps to Strengthen Scrutiny of PEPs
  - Amend the NFIU’s STR template to include a field to indicate if the individual in question is a PEP.
  - Complete the NFIU’s strategic analysis of corruption; prioritize corruption in strategic analysis.

### Asset Declarations: Current Capacity and Recommendations
- CCB capacity and performance:
  - The CCB has no list of declarants; it estimates between 4 and 4.5 million public officers.
  - The CCB received fewer than 17,000 completed asset declaration forms in 2018.
  - The CCB works with limited resources, almost exclusively manual/paper-driven, with 889 staff spread among national headquarters and 36 state-level offices.
  - The CCB’s budget allocation declined from $8.5M to $8M in FY 2019.
- Table 9: Improving Asset Declaration by Public Officials
  - Provide additional resources to the CCB to enable it to:
    - (i) recruit, train, and retain staff;
    - (ii) compile the names of (at least the high-risk) public officers required to declare assets;
    - (iii) establish an IT infrastructure for digitization and on-line submission of asset declaration forms;
    - (iv) proactively pursue cases involving non- or inaccurate declaration.
  - Amend the legal framework and issue the National Assembly Guidelines necessary to enable and ensure the publication, on-line, of the list of declarations received from high-level federal and state officials, along with the declared assets and their values.
    - Note: This would require the National Assembly to issue guidelines per paragraph 3(c) of the Third Schedule to the Constitution; to amend sections 12, 14, and 15 of the Freedom of Information Act (2011); and, potentially, to amend both the Code of Conduct Bureau and Tribunal Act (1991) and the Official Secrets Act (1962).
    - In parallel, encourage voluntary public declaration.
  - Once enacted, consider further amendments to establish criminal penalties for non- or inaccurate declaration, at least for high-level federal and state officials.
  - Update the asset declaration form to include fields for all sources of income, beneficially owned assets, and personal property above a certain value.

### AML/CFT Supervision
- Importance:
  - AML/CFT-specific supervision is critical to ensuring FIs implement obligations related to BO transparency, PEP identification, submission of STRs, and targeted financial sanctions.
  - Absent adequate supervision, private sector compliance tends to remain sub-par.
- CBN regulatory developments:
  - The CBN’s AML/CFT (Administrative Sanctions) Regulations of 2018 provide a legal basis to impose administrative sanctions and penalties for non-compliance and include a detailed schedule of sanctions/penalties.
  - The CBN has begun issuing sanctions under the new regulations; the schedule will likely need updates to remain dissuasive given normal inflation.
  - A pilot program for risk-based supervision (RBA) has commenced; RBA entails classifying supervised entities by ML/TF risk and varying inspection frequency/scope/intensity accordingly.
- Resource constraints:
  - Limited human resources constrain regular AML/CFT inspections of banks and BDCs.
  - The CBN incorporates AML/CFT into annual prudential inspections of 34 primary mortgage banks but lacks enough dedicated AML/CFT inspectors.
  - Only 2.3 percent of licensed BDCs received AML/CFT on-site inspections in 2018 (relative to 2.5 percent in 2017).
- Table 10: Strengthening AML/CFT Supervision of FIs, BDCs
  - Conduct thematic inspections of banks and BDCs using robust sampling of customer files to assess PEP identification and enhanced monitoring implementation.
  - Progressively increase the number and severity of sanctions for AML/CFT violations; share inspection reports with the NFIU when violations are uncovered.

### Effectiveness of the Nigerian Financial Intelligence Unit (NFIU)
- Role and performance:
  - FIUs collect, analyze, and disseminate STRs related to ML, TF, and predicate offenses (fraud, bribery, diversion of public funds, other corruption).
  - FIUs translate private-sector STRs into criminal investigations/prosecutions.
  - In 2018, the NFIU disseminated 134 STRs to the Economic and Financial Crimes Commission (EFCC); 88 involved possible corruption.
- Legal/operational progress:
  - Passage of the NFIU Act in 2018 assures the NFIU’s operational independence in line with FATF recommendations and restores international network access (Egmont Group).
  - The Act gives the NFIU power to conduct inspections of FIs and DNFBPs and helps ensure STR submission and confidentiality in suspected corruption cases.
  - The NFIU confirmed a new director and received its own line-item in the Federal Government budget.
  - The NFIU’s budget for the current fiscal year saw a substantial increase; many resources invested in training analysts.
- Domestic collaboration:
  - The NFIU’s close collaboration with domestic partners (EFCC, ICPC) yields results and is generally efficient compared to mutual legal assistance channels.
  - To sustain collaboration, further formalization is recommended.
- Table 11: Maintaining Momentum Generated by the NFIU Act
  - Issue an executive order requiring all domestic competent authorities to provide the NFIU with information as and when requested.
  - Conclude an MOU between the NFIU and the EFCC to establish a template for their relationship.

### Vigorous Prosecution and Timely Conclusion of Corruption-Related Cases
- Importance:
  - Timely and effective criminal justice administration in high-profile cases is key to deterring future corruption.
  - Detection and investigation tools are less effective if criminal justice fosters impunity through delays.
- Resource developments:
  - EFCC received a budget increase and hired 1,200 additional staff in 2018; it opened 3 new zonal offices.
  - The ICPC confirmed a new director in December 2018; ICPC’s last recruitment was in 2012.
  - Both EFCC and ICPC report they conduct parallel financial investigations in corruption and related cases.
- Procedural challenges:
  - Many prosecutions stretch on for years as defendants leverage appeals and adjournments to delay trials.
  - Retirement, promotion, or movement of judges leaves cases in limbo and forces retrials due to poor caseload management.
  - Judicial processes are slow: judges record proceedings in longhand and motions are filed manually.
- Table 12: Advancing Effective Prosecution and Timely Conclusion of Corruption-Related Cases
  - Rebalance new resources between the EFCC and the ICPC to enable core mandates with maximal coordination and minimal overlap; the Presidential Advisory Committee Against Corruption should continue coordinating.
  - Vigorously enforce the Administration of Criminal Justice Act (ACJA, 2015) to minimize defendants’ ability to delay proceedings.
  - Make greater use of information technology (IT) systems over time to reduce delays caused by manual processes in the judiciary.

*Source: NIGERIA — INTERNATIONAL MONETARY FUND (content unit 1ngaea2019002).*

### 47.      The Nigerian authorities must accelerate their anti-corruption efforts to maintain

### The Nigerian authorities must accelerate their anti-corruption efforts to maintain momentum against both entrenched challenges and evolving threats

### Anti-corruption focus: SOE governance and AML/CFT
- The paper examines issues in two key areas of the anti-corruption effort: SOE governance, especially in the petroleum sector, and AML/CFT efforts.
- Durable impact requires accelerating and intensifying reforms as stated in the Economic Recovery and Growth Plan.

### Required actions to achieve critical improvements
- Legislative Action:
  - Prioritize the enactment and implementation of the PIGB and the CAMA (Repeal and Re-enactment) Bill of 2018.
  - Consider legislative action to design an overall ownership policy for SOEs, improve fiscal and financial discipline with a broader public finance management reform, and enhance the transparency of public revenue flows and coordination among collecting institutions.
- Institutional Reform:
  - The MOF should regain a central role in the oversight of fiscal risks.
  - The Auditor General should have a legal basis to operate effectively.
  - The CBN will need to fully implement the risk-based approach with respect to its AML/CFT supervision.
  - The judiciary will need to embrace both legal requirements and best practices related to its management of individual cases and system-wide caseloads.
- Additional Resources:
  - Prioritize allocation of new or newly available resources to:
    - (i) the Oversight and Oil and Gas Departments within the MOF;
    - (ii) the Auditor General’s staffing and operational and training budgets;
    - (iii) the CCB;
    - (iv) the ICPC; and
    - (v) the judiciary;
  - Ensure these institutions are able to carry out their core functions efficiently, leveraging technological solutions as available and appropriate.

*Italic: Source — 1ngaea2019002 (IMF chapter/section).*

### Fuel subsidies — latest increase and implications of a change in the regulated gasoline price

### Key facts and fiscal cost
- In May 2016 the regulated fuel price was increased by 68 percent, to Naira 145 per liter.
- Current regulated price remains Naira 145 per liter.
- Fuel imports are still priced at 305 Naira/US$ in official practice; market-reflective windows show pricing at N/US$ 360.
- Analysis assumptions:
  - Consumption assumption: about 37 million liters in Nigeria per day.
  - Alternative publicly announced import number: 55 million liters per day.
- Implicit subsidy estimates:
  - In 2018 the cost of delivering a liter of PMS exceeded the regulatory retail price of Naira 145 by some 40 percent.
  - Implicit cost to the budget could amount to 0.5 percent of GDP in 2018 (compared to just 3 to 4 percent in tax revenues).
  - Using 55 million liters per day, the implicit cost could be 0.9 percent of GDP.
  - The exchange rate margin from pricing imports at N/US$ 305 instead of N/US$ 360 would add around 20 percent to the cost (not accounted for in the 0.5/0.9 percent figures).

### Distributional and inflationary impacts of a 40 percent fuel price increase
- Direct inflationary effect:
  - Transport prices estimated at 6.5 percent of the consumption basket based on current CPI weights.
  - A 40 percent fuel price hike implies a direct first-round impact on the overall price level of around a 2½ percentage points increase.
- Distributional outcomes (based on 2015/16 Nigeria General Household Survey, 5,000 households):
  - Fuel price increase is progressive: reduces income inequality measured by the Gini coefficient by ¼ point.
  - Poverty impacts without compensatory transfers:
    - Poverty gap increases by 0.4 percentage points.
    - Poverty headcount increases by 1.2 percentage points.

### Cost and design of compensatory transfers
- Proxy-means testing used to target transfers (indicators: state, rural/urban, ownership of refrigerator, ownership of a car, electricity expenditures).
- Scenario to keep the poverty gap constant:
  - Total transfer cost: Naira 63 billion.
  - Naira 63 billion is less than a tenth of potential savings through the price increase.
  - Income inequality would decline further (by 0.6 point).
  - Poverty headcount would still increase by 1.1 percentage points.
- Scenario to keep the poverty headcount constant:
  - Total transfer cost: Naira 239 billion.
  - Naira 239 billion is about a third of potential gains of the reform at current prices and costs (excluding administrative costs).
  - In this scenario the poverty gap would decrease compared to before the price increase, and income inequality would decline by 1.3 points.
- Caveats noted: administrative capacity to scale up transfers in the short term and other design challenges (see IMF (2018) caveats).

### Policy recommendations for fuel pricing reform
- Transparency:
  - Budget should explicitly state foregone benefits of the implicit fuel subsidy and include them as an explicit budget item.
  - Communicate domestic PMS consumption levels.
  - If costs are shared with state and local governments, show and implement cost-sharing explicitly (possibly via a cost-sharing formula) rather than indirectly through lower net oil revenue transfers from NNPC.
- Price-setting mechanism:
  - Implement an independent and automatic fuel price-setting mechanism to ensure timely adjustment to cover costs based on market conditions.
  - Pricing formula could include a best-practice smoothing mechanism to avoid disruptive adjustments while guaranteeing pass-through of oil prices over the medium term (reference: Coady and others (2012) for design).
  - Examples:
    - Chile: two-part fuel tax, one part indexed to inflation and the other adjustable.
    - India: gradual monthly diesel price increases from Jan 2013 to Oct 2014 until unit subsidy was eliminated, then let follow international price fluctuations.
  - A gradual adjustment is also possible.
- Deregulation:
  - Deregulating fuel prices to allow market pricing could eliminate subsidies with less control on profit margins but savings in regulation costs.
- Communication:
  - Design and implement an effective public communication strategy critical for fuel price reform implementation.

### Broader assessment
- Impact of price reform is expected to be overall positive if compensatory measures protect vulnerable households.
- Analysis does not incorporate potential positive effects from reallocating savings to productive fiscal expenditures (e.g., infrastructure) that could have positive growth and distributional effects.

*Italic: Source — 1ngaea2019002 (IMF chapter/section).*

### Assessing the cost-risk of increasing Nigeria's external debt

### Objective and main finding
- The paper assesses costs and risks of shifting public debt composition from 66:34 (domestic:external) to 60:40.
- Simulation uses debt-to-GDP and interest-to-revenue ratios across alternative financing strategies (concessional, market-based, pausing external financing).
- Main finding: moving to a debt-mix of 60:40 is less costly overall than keeping the current debt mix.
  - Recourse to concessional financing is the cheapest option at both shorter and longer horizons.
  - Tradeoff: increasing external debt share raises vulnerability to outlier shocks (e.g., extreme depreciation) as illustrated by a rising debt service to reserves ratio in those scenarios.

### Recent debt dynamics and composition (2015–2018)
- Public debt increased by 6 percentage points of GDP between 2015 and 2018.
- Share of external debt rose from just below 20 percent to 34 percent over the same period.
- External debt composition changes:
  - Eurobonds now account for 55 percent of external debt compared to 14 percent in 2015.
  - Multilateral share fell to 39 percent (from two thirds of the external portfolio in 2015).
  - Bilateral debt share fell to 6 percent (China was 15 percent of total external debt in 2015).
- Total Eurobond issuance: $10 billion since 2017.
- Net domestic issuance in 2018 declined:
  - Treasury bills issuance fell to N3,335 billion from N4,442 billion in 2017.
  - Bonds issuance fell to N992 billion from N1,521 billion.

### Sources of debt risk
- Refinancing risk:
  - Domestic debt: relatively high (average time to maturity (ATM) for domestic debt is 7.2 years due to significant share of T-bills).
  - External debt: low but increasing; about 1.25 percent of total external debt will mature within the year, rising to 8.5 percent by 2027 when a number of Eurobond maturities fall due.
  - ATM for external debt is 12.3 years.
- Interest rate risk:
  - Exposure is high for domestic debt (average time to refixing (ATR) on domestic debt is 5.4 years).
  - ATR for external debt is 12 years; exposure for external debt is increasing as concessional debt share declines.
- Exchange rate risk:
  - Exposure is increasing with external debt at 34 percent of total debt.
  - Recent Eurobond financing (55 percent of external debt) has added to currency exposure.
  - Currency risk principally to the US dollar (accounting also for its weight in the SDR at 42 percent).

### Authorities' Medium-Term Debt Management Strategy (MTDS)
- Aim: increase the share of external debt (objective to increase from 20 percent in 2015 to 40 percent in 2019).
- Motivation: avail lower external interest rates (multilateral and bilateral), longer maturities and grace periods, and contain increases in the interest-to-FG revenue ratio.
- As of 2018 external debt share reached 34 percent; with only $2.5 billion external funding expected in 2019, authorities are expected to fall short of the 40 percent objective and, at best, only reach the 60:40 target mix in 2022.

*Italic: Source — 1ngaea2019002 (IMF chapter/section).*

### 5.      In view of the extensive ongoing debate about Nigeria’s increasing recourse to non-

### 1ngaea2019002 - 5.      In view of the extensive ongoing debate about Nigeria’s increasing recourse to non-

### Background and baseline financing needs
- Baseline assumed external borrowing needs of about $10.5 billion a year externally from 2019-22.
- Baseline projected external borrowing rising to an average of just above $16 billion for the period 2019-28.
- Authorities will continue to maximize borrowing from concessional financing sources, particularly the International Development Association (IDA) and bilateral partners, but a secular decline in the share of concessional lending is projected to continue.
- Assumption on exchange rate: naira exchange rate is assumed to be at 325 N/$ throughout the analysis (except in exchange rate shock cases).
- International reserves projected to decline to reach $33-34 billion in the medium term.
- Real GDP growth assumed at 2-2.5 percent over the medium term; inflation assumed to remain in double digits.
- Primary fiscal deficit assumed to average around 2 percent of GDP under current policies.

### Macroeconomic implications highlighted
- Long Eurobond maturities and grace periods minimize near-term rollover risk and spread interest rate exposure.
- Tightening of international financing conditions assumed to raise Eurobond interest rates in the short term, creating significant and persistent differentials between domestic and external interest rates and within external rates between Eurobond and concessional rates.
- All Eurobonds assumed to have maturities of 10 years or longer, except a single Diaspora bond of $300 million.

### Methodology — financing strategies assessed
- Four strategies evaluated using the MTDS Analytical Tool:
  - Strategy 1 (S1): Future external financing from 2020 on concessional terms (DMO’s 2015-19 strategy).
  - Strategy 2 (S2): Market-based financing in 2019-2022 (Eurobond financing) to reach 40 percent external debt by 2022.
  - Strategy 3 (S3): As S2 but with market-based financing achieved at a 500 basis points higher cost than S2 (equivalent to two standard deviations from LIBOR).
  - Strategy 4 (S4): No further external financing apart from that assumed for 2019; all financing raised domestically at prevailing interest rates.
- Five shock scenarios applied to each strategy:
  - Baseline (no shock).
  - Mild interest rate shock: increase of 2.5 percentage points in interest rates (one historical standard deviation for LIBOR).
  - Extreme interest rate shock: increase of 5 percentage points in interest rates (double the mild shock).
  - Extreme exchange rate shock: naira depreciates by 100 percent in 2019 for the 4Y exercise (and in 2023 in the 10Y case) and remains at this level.
  - Combined mild interest and moderate exchange rate shock: naira depreciation rate of 50 percent plus higher interest rates.

### Key results — cost-risk trade-offs (4-year and 10-year horizons)
- Under the baseline, all strategies increase debt-to-GDP, with debt-to-GDP around 25 percent by 2022 and 32 percent by 2028.
- S1 (concessional external financing) is the cheapest strategy: lowers interest payments, debt-to-GDP ratio, and reliance on short-term funding.
- S4 (domestic financing only) has the lowest share of FX debt (4 percent by 2028) and thus lowest foreign exchange risk, but is costlier in interest payments, debt-to-GDP ratio, and refinancing risk:
  - Debt maturing in one year increases to 9 percent of total debt in 2022 and 19 percent in 2028 under S4.
- Exchange rate shocks have the largest impact on debt sustainability:
  - Exchange rate shocks increase debt/GDP by 4 percentage points relative to baseline in the 4Y case and about 7 points in the 10Y exercise under all strategies.
- S4 is the worst cost outcome in the short run (by 2022), particularly for interest-to-revenue ratio, supporting DMO emphasis on external financing.
- By 2028, S4 remains the costliest in terms of interest-to-revenue and becomes unsustainable under stress tests, reaching 200 percent (interest-to-revenue).
- The strategy where external financing is available only at a market premium (S3) shows the highest increase in debt-to-GDP under stress tests, though debt-to-GDP remains below 45 percent of GDP.

### Selected quantitative indicators reported (exact values from tables)
- Nominal debt as percent of GDP:
  - 2018 Current: 17.0
  - As at end 2022: S1: 25.3; S2: 25.5; S3: 25.8; S4: 26.0
  - As at end 2028: S1: 31.6; S2: 34.2; S3: 36.8; S4: 39.1
- Present value debt as percent of GDP:
  - 2018 Current: 16.2
  - As at end 2022: S1: 21.9; S2: 25.0; S3: 25.2; S4: 25.5
  - As at end 2028: S1: 26.0; S2: 34.0; S3: 36.6; S4: 38.9
- Interest payments as percent of total revenue (2028):
  - S1: 85.9
  - S2: 111.6
  - S3: 138.8
  - S4: 161.2
- Implied interest rate (percent) in 2028:
  - S1: 9.3
  - S2: 11.3
  - S3: 13.1
  - S4: 14.5
- Debt maturing in 1 year (percent of total) in 2028:
  - Current 2018: 18.0
  - S1: 12.4; S2: 11.6; S3: 11.9; S4: 18.7
- FX debt as percent of total (2028):
  - Current 2018: 34.8
  - S1: 40.2; S2: 41.3; S3: 40.3; S4: 4.3
- External debt service to international reserves (10Y case, baseline) under S3 would reach almost 50 percent; would increase to almost 65 percent under an exchange rate shock and 68 percent under an extreme interest rate shock.
- Under S1, the external debt service to reserves ratio reaches 12.9 percent in the baseline and 23.3 percent under an extreme exchange rate shock.

### Sensitivity: revenue mobilization and other drivers
- Simulation: an increase of 0.5 percent of GDP per year in revenue mobilization relative to baseline from 2019-22 and maintained thereafter would:
  - Bring the interest-to-revenue ratio down by more than half by end-2022 under all strategies.
  - Reflect a cumulative impact equivalent to an increase of 2 percent of GDP in revenues.
- External FX ratios are relatively high in baseline for S2 and S3 and deteriorate with exchange rate depreciation consistent with maintaining a constant real exchange rate.
- Possible correlated scenario: fall in oil price → larger financing needs → lower international reserves → substantial depreciation affecting both external and fiscal risks.
- Risk premia may rise if market sentiment changes, making S3 a more accurate reflection of potential outcomes than S2.

### Caveats and modeling limitations
- Primary deficit assumption: baseline assumes primary deficit around 2 percent of GDP; could deteriorate if oil prices decline more than anticipated or improve if new revenue measures reduce the deficit.
- Concessional financing availability is uncertain; 2015 debt strategy assumes continued availability, which affects achievability of targets.
- Exchange rate assumption held constant except in shock scenarios; relaxing this increases vulnerability and magnifies exchange rate shock impacts.
- Risk premia could shift, implying S3 might better reflect real-world borrowing costs.
- Maturity structure concern: Eurobond maturities concentrate refinancing risk as they fall due in 2027.

### Conclusions and policy recommendations
- The DMO’s MTDS target of 40 percent external debt to total debt is appropriate but likely requires more years than targeted 2019 to achieve and would require doubling annual external financing obtained in 2018 for the next five years.
- A debt-mix of 60:40 (domestic:external) is less costly overall than keeping the current debt mix.
- Preferential use of concessional external financing (S1) is the cheapest option and supports the authorities’ preferred strategy, but increases exchange rate exposure and could put pressure on international reserves under some scenarios.
- The 60:40 external debt target remains appropriate but requires careful monitoring of exchange rate risk and contingency planning if assumed external funding does not materialize.
- Improving domestic revenue mobilization is central:
  - Increasing revenues by 0.5 percent of GDP per year (2019-22) materially reduces interest-to-revenue ratios (more than half by end-2022).
  - Substantially increasing non-oil revenues and maintaining efforts to secure concessional external financing are important to mitigate risks.

*Source: Nigerian authorities and IMF staff calculations, as presented in the MTDS analytical results.*

### 20.      One additional caveat from the analysis worth emphasizing is that the current

### 20. One additional caveat from the analysis worth emphasizing is that the current

### Exchange-rate caveat and debt-management implication
- The current exchange rate path could be more flexible than currently envisaged; a baseline that incorporates more flexibility would increase the amplitude of shock scenarios.
- A scenario relying on more market financing at a premium would become more costly and risky if exchange rate flexibility is higher.
- Authorities need ongoing monitoring of exchange rate risk associated with the debt portfolio as this may become a major source of vulnerability in the event of outlier shocks.
- While increased exchange rate risk must be factored into debt management options, the longer maturity structure of Eurobond financing reduces short-term rollover risk.

### Annex I — Data requirements and core assumptions used in the analysis
- Primary deficit: remains the same under all strategies and scenarios and is the same as assumed in staff’s baseline scenario (averaging around 2 percent of GDP).
- Existing debt: debt service payments (principal and interest payments cash flows) of existing debt remain the same under all strategies and scenarios, except interest payments of instruments with variable (floating) rate.
- Interest and exchange rates: treated as exogenous variables; the analysis requires a baseline and a range of shock scenarios for each variable to compute cost and risk of borrowing strategies.
- Financing mix: external financing chosen as the operational target. External financing was determined to allow the increase in external debt to reach the target of 40 percent by 2022 (and maintained thereafter in 10Y). Financing unmet by external financing assumed to be fully met from domestic market sources.
- Iterative strategy calculation: interest and amortization cash flows associated with alternative strategies are calculated year-by-year through the strategy period (2022 or 2028) to generate cost and risk indicators and the evolution of debt composition between external and domestic debt.
- Exclusions: net claims from the central bank excluded given negligible size; converted bonds are included in the domestic debt stock portfolio.

### Common assumptions across strategies and instrument terms
- External financing for 2018: reflects external disbursements already taken place in 2018, actual Eurobond issuances of $5.4 billion and staff estimates of $1 billion from multilateral and bilateral sources applied for strategies (including Strategy 4 that assumes no further external financing).
- Domestic financing composition: borrowing instruments are T-bills and bonds, with the proportion by instrument kept the same across strategies so cost-risk differences are driven by external financing composition.
- Financing instruments grouped:
  - Multilateral and bilateral creditors:
    - Financing terms remain mostly unchanged and tend to be concessional or semi-concessional with low interest rates, long maturity and grace periods.
    - Loans with fixed interest rates range from 0.75–2.50 percent.
    - Floating rate loans referenced to US 6-month LIBOR with margins set at 0.50–1.25 percent (margins erring slightly above terms for existing debt).
    - Projections for US 6 months LIBOR for 2019–2022 obtained from Bloomberg.
  - International capital markets:
    - For Strategy 2 (S2): a margin was added to the weighted average cost of Eurobond issuances for 2018 (7.23 percent) to price them at an average cost of 8 percent in 2019; a further 0.5 percent was added per annum until the end of the strategy period.
    - For Strategy 3 (S3): credit risk premium assumed higher; cost of issuing Eurobonds raised by 5 percent compared to S2.
  - Domestic marketable instruments:
    - Yields: Treasury bills 15.5 percent; bonds 16.5 percent (kept in line with current staff assumptions).
    - For 2018 actual rates used; for 2019–2027 domestic yields derived from US Treasury curve using forward rates from UST, applying credit spread (based on spread between Nigeria Eurobond and US Treasury) and exchange rate risk (based on inflation differential between US and NGA).
    - Actual yields in 2018 compared with derived yields and difference used to revise down derived forward yields.

### AMCON — Background and key statistics
- Purpose: Asset Management Company of Nigeria (AMCON) established as temporary resolution vehicle to resolve banking crisis of 2008/2009; mandate includes purchasing bad assets, NPLs, and injecting liquidity into troubled banks; empowered to issue bonds, maintain diversified asset portfolio, provide equity capital, borrow in domestic or foreign currencies, and enter derivatives.
- Staff: currently employs around 400 staff.
- Crisis role and purchases:
  - AMCON bought N1.23 trillion of the banking sector’s NPLs in 2010.
  - By September 2011, the full stock of NPLs bought by AMCON from all intervened banks amounted to N2 trillion and around 10.5 percent of total assets.
  - Bad loans bought through three-year-zero coupon bonds that represented a third of entire outstanding bonds in the market.
  - AMCON purchased three bridge banks; two sold in 2015 and the third in 2017.
- Funding and structure:
  - Initial capital from Federal Government N10 billion.
  - 2015 amendment established the Banking Sector Resolution Cost Fund (RCF) at the central bank.
  - CBN provides an annual contribution of N50 billion for up to 10 years while banks pay a flat premium of 50 basis points of their total assets (RCF effectively introduced since 2011 through an MoU).
- Balance sheet and exposures:
  - By 2019, AMCON’s total assets exceeded N1.7 trillion while liabilities reached around N5.5 trillion.
  - CBN holds around N5.3 trillion of AMCON bonds by end-2018 (including the N1.3 trillion bonds issued to acquire Polaris bank).
  - AMCON holds 12,000 loans of which 350 loans represent 85 percent of AMCON’s total exposure.
  - Latest financial results reveal a large negative net worth in 2017, exceeding NGN 3.9 trillion due to large accumulated losses.
- Income composition:
  - Proceeds from the RCF amounted to N234 billion in 2018 and represented more than 70.5 percent of AMCON’s gross income in 2017.
  - 20 percent of gross income from asset recovery; remaining cash flow from reinvestment income and asset disposal, including sale of AMCON-owned banks.
- Contingent liabilities and macro linkages:
  - AMCON bonds amount to around 3.5 percent of GDP and are fully guaranteed by the federal government.
  - Resulting contingent liabilities are not disclosed nor accounted for in federal fiscal accounts.
  - CBN’s ownership and funding exposes its balance sheet to AMCON credit risk.
  - AMCON performance correlated with economic growth and monetary developments; obligors’ ability to repay worsens during tighter business conditions (e.g., 2016 recession).
  - More than 3000 legal cases currently disputed in court.

### Current challenges and implications for the real economy
- AMCON’s indefinite lifespan and ongoing asset acquisition promote moral hazard, weak underwriting, bad governance, and excessive risk taking.
- Continued acquisition of assets (e.g., Polaris bridge bank in September 2018) instead of retiring outstanding debt impedes winding down.
- Shift to being a market player and equity-for-debt swaps create misaligned incentives and reduce creditor enforcement; around 80 percent of recoveries from forfeiture or taking over businesses.
- Holding equities and running corporates in sectors (e.g., aviation, agriculture, oil and gas) complicates recovery and creates political sensitivities.
- Disclosure and oversight gaps: audited financial statements not consistently available on AMCON’s website despite statutory requirement to publish within six months; CBN regulatory framework could be strengthened to review business strategy, risk profile, and bond obligation capacity.

### Policy recommendations — immediate priorities and actions
- Immediate priorities to wind down AMCON:
  - Earmark AMCON’s cash flows for buying back bonds to ensure accumulated funds are clearly earmarked for paying outstanding bonds.
  - Immediate closing of the window for acquisition of troubled loans; AMCON should no longer purchase distressed assets (recent case: Polaris bank).
  - Set annual disposal targets: liquidate loans with emphasis on frontloading disposal in the first period of remaining life; explore delegating part of portfolio to private AMCs to accelerate winding down and support with a resolution framework enabling write-down of capital and expeditious resolution of non-viable banks.
  - Set a firm closing date for AMCON: AMCs in many countries only lasted for seven years (e.g., Malaysia and Indonesia). The 2023 sunset, aligned with maturity date of AMCON’s bonds, appears unlikely given continued balance sheet growth (including issuance of 25-year bonds in 2018). It is strongly recommended to set an explicit and ambitious closing date formally included in AMCON’s act and arrange how residual assets will be dealt with.
  - Quickly set and implement plans for divesting AMCON’s interests in companies and banks, including plan for selling the newly acquired Polaris bridge bank and other corporates AMCON owns or co-owns such as Oil and Gas companies and Airlines.
  - Reinforce disclosure practices: publish audited financial statements within six months of fiscal year end and make financial statements available on AMCON’s website.
- Legal and enforcement enhancements pending AMCON’s closing:
  - Strengthen legal environment to empower AMCON’s collection power and recovery strategy; proposed measures include:
    - Reverse the burden of proof such that the party alleging wrongdoing must show bad faith rather than requiring the authority to prove actions were not in good faith.
    - Raise threshold for commencing legal action to that of gross negligence or willful misconduct.
    - Expand legal protection for AMCON to include its staff.
    - Indemnify AMCON’s staff for defending personal legal action if actions were taken in good faith.
  - Legal enhancements should be pursued in parallel to winding down and de-linked from dissolution.
- Ownership and funding recommendation:
  - Discontinue CBN’s ownership in AMCON or transfer ownership/funding to the fiscal authority to avoid conflicts with CBN’s supervisory mandate over AMCON and the banking sector.
  - The involvement of banks in funding AMCON is appropriate to ensure private sector bears resolution cost and limits moral hazard.

*Source: 1ngaea2019002 - 20.*

### 14.      AMCON should be classified as a general government unit. The MoF and CBN are

### 14.      AMCON should be classified as a general government unit. The MoF and CBN are

### AMCON classification and public debt implications
- The MoF and CBN are currently the shareholders of AMCON, which implies they have the ultimate control of its operations as they appoint its board of directors.
- AMCON’s bonds are fully guaranteed by the government and held by the CBN.
- Conclusion: In line with best international practices, all AMCON’s assets and liabilities should be classified under general government.
- Implication: AMCON’s bonds should be recognized as public sector government domestic debt.

### Human capital and gender equality — overview and urgency
- Education and health outcomes in Nigeria are among the weakest worldwide and are deteriorating in some parts of the country.
- Access to education is highly unequal across states and individuals’ income and gender.
- Regional differences in health outcomes are vast.
- Closing gender and income gaps in education would:
  - boost productivity,
  - decrease income inequality,
  - narrow gender gaps in labor force participation rates and earnings.
- Closing the gender gap in years of schooling in each income quintile alone would boost long-term GDP by 5 percent.
- Improving health outcomes, particularly for children, will support education outcomes and boost productivity.
- Increased and regular funding for the education and health sector will be critical and must include all tiers of government.

### Status quo: key human capital indicators and fiscal context
- Nigeria’s population is growing at more than 2½ percent annually and its youth accounts for more than half of the population.
- Nigeria ranks among the bottom six countries worldwide on the World Bank’s 2018 Human Capital Index.
- For the second year in a row, Nigeria ranks last on Oxfam’s Commitment to Reducing Inequality Index, driven largely by low social spending.
- Spending on education: 1.7 percent of GDP (versus 4.7 percent average in sub-Saharan Africa).
- Health spending: 0.6 percent of GDP.
- In 2016, health expenditures accounted for 7.1, 4.2 and 3.8 percent of budgets at the federal, state and local level, respectively.
- In 2016, only 64 percent of the health capital budget was released and only 54 percent subsequently used.
- Implementation of the Government’s Second National Strategic Health and Development Plan is estimated to require funding of N4.3 to 7.3 trillion between 2018 and 2022.

### Health outcomes: national averages and regional disparities
- One in nine children dies before their fifth birthday in Nigeria — 750,000 deaths each year.
- Almost one in five children in the poorest income quintile die before the age of five — twice the rate in Ghana and Senegal.
- About half of children under five suffer from stunting; one in three children suffers from chronic malnutrition.
- Estimated annual losses of GDP of 11 percent in Asia and Africa linked to malnutrition (cited estimate).
- Nigeria has the largest number of unimmunized children worldwide.
- Maternal mortality: 8 maternal deaths per 1,000 live births (second highest globally).
- Regional extremes:
  - Every fifth child dies before age 5 in Jigawa, Kano and Zamfara.
  - More than half of children suffer from stunting in most North-Western states and Yobe.
  - Fewer than 20 percent of children are being immunized in some North-Western states; full immunization is below 20 percent in Katsina, Kebbi and Zamfara.
  - A woman in the North East is 10 times more likely to die related to childbirth than a woman in the South West.

### Education outcomes: quality, inequality, and conflict impacts
- Average years of schooling: more than 8 years, but quality issues halve the effective level of schooling.
- Teacher effectiveness: only 24 percent (language) and 31 percent (mathematics) of teachers score at least 80 percent on a 4th grade test.
- Four out of five persons aged 15 to 24 are not able to read a full sentence.
- Large state variation: education can be almost universal (Lagos) or most children out of school (Bauchi).
- Per capita priority spending on education, health and public administration:
  - around Naira 5,000 in Katsina and Sokoto,
  - more than Naira 44,000 in Bayelsa.
- Conflict impacts (past nine years): almost 2,300 teachers killed and 19,000 displaced in Borno, Yobe and Adamawa; since 2014 an estimated 1,500 schools have been destroyed.
- More than half of children in the Northeast have never attended school.
- Income and gender disparities:
  - Among the poorest 20 percent, a child’s probability to be out of school is more than 70 percent; it is 2 percent for the richest quintile.
  - Literacy in the bottom quintile: one in ten women is literate, one in three men.
  - Probability of completing upper-secondary education for poor girls: 1 percent for the bottom quintile and 6 percent for the second quintile.
- Nigeria has a minimum of 10 million out-of-school children (stated as a minimum).

### Macroeconomic modeling approach
- A micro-founded general equilibrium model with heterogeneous agents is used to quantify gains from narrowing education gaps.
- Model features:
  - Households live for three periods and consist of husband, wife and children, or only a husband and a wife.
  - Men always work; women decide whether to work and, when working, the family incurs a cost related to home production and social norms.
  - Children’s future productivity depends on human capital accumulated via education, government expenditures, household income, and child’s gender.
  - Firms produce formal goods and hire employees; informal goods are produced by households.
  - Labor markets: decisions on formal vs informal labor supply; formal workers pay labor taxes reflecting Nigeria’s tax system and LSS data.
  - Government provides education, buys formal goods, and taxes households (VAT, income tax) and firms; the government faces a linear cost of providing an additional year of education.

### Simulated scenarios and quantitative impacts
- Four scenarios were simulated; outcomes reach up to 12 percent of GDP (and higher for more ambitious policies not shown).
- Scenario 1: Equalize years of education for boys and girls within the same income percentile.
  - Female-to-male labor force participation ratio rises from 76 percent to 87 percent.
  - Women’s average hourly wages increase by more than eight percent.
  - Male average hourly wages remain constant.
  - Long-term GDP increases by 5 percent.
  - Gini coefficient decreases by two percentage points.
- Scenario 2: Ensure each child benefits from at least the current median years of education for boys.
  - Female-to-male labor force participation ratio increases to 93 percent.
  - Earnings rise: women +10.4 percent; men +2.7 percent.
  - GDP increases by almost 8 percent.
  - Government revenues increase only 0.2 percent of GDP (without additional tax reforms).
  - Gini coefficient decreases by 5 percentage points.
- Scenario 3: Scenario 2 plus reduction of disincentives for women to join formal and informal labor markets (anti-discrimination and supporting policies).
  - Scenario 3 continues from Scenario 2 and adds policies such as equal pay for equal work rights, equal access to resources (including land and credit), policies to balance work and household responsibilities, and policies addressing social norms and negative attitudes towards working women.
- Scenario 4: Increase the efficiency of education to the level in sub-Saharan Africa’s lower middle-income countries.
- Graphical results shown for:
  - Change in Female-to-Male Labor Force Participation Ratio (Percentage Points): values displayed as 11.4, 17.5, 24.3, 0.4 corresponding to scenarios 1–4 respectively.
  - Change in Average Female-to-Male Earnings-per-Hour Ratio (Percentage Points).
  - Change in GDP (Percent).
  - Change in the Gini Coefficient of Income Inequality (Percentage points).

*Source: https://www.imf.org/-/media/files/publications/cr/2019/1ngaea2019002.pdf*

### 9.8 years for girls and to 10.3 years for boys. With higher returns from labor, gender gaps in

### 1ngaea2019002 - 9.8 years for girls and to 10.3 years for boys. With higher returns from labor, gender gaps in

### Education, gender and macroeconomic scenarios
- Education attainment considered: "9.8 years for girls and to 10.3 years for boys."
- Labor returns and distributional impacts under simulated reforms:
  - With higher returns from labor, gender gaps in labor force participation would completely close, and women’s average wages would increase.
  - Income and fiscal effects:
    - Income share for lower-income households rises to 18.1 percent (+3.2 percent for men).
    - Government revenues would increase marginally (+¼ percent of GDP) through higher incomes in the formal sector.
    - GDP rises by 11.7 percent, on the back of higher productivity, including from removing distortions from the labor market.
    - The Gini coefficient decreases by 6 percentage points as lower income households get more educated and women join the labor market in an environment with less obstacles or discrimination.
- Scenario 4 (education efficiency):
  - Increasing the quality-adjusted years of learning at the given years of schooling by 16 percent (to the level in sub-Saharan African’s lower middle-income countries) boosts GDP by 3.6 percent through higher productivity for all kids.
  - The impact on other outcomes is smaller, as relative gaps in education remain the same across individuals at different levels of the income and between boys and girls.

### Government initiatives in health, education and gender
- Recent health sector initiatives:
  - January 2019’s launch of the Second National Strategic Health Development Plan for 2018-22.
  - Enactment and operationalization of the National Health Act through the Basic Health Care Provision Fund, including the inclusion of the 1 percent commitment into the 2018 and 2019 budgets.
  - Ratification of the Social Protection Policy and increased annual allocation to the social investment program to N 500 billion for 2016-2018.
  - Malaria control increased the share of children under 5 that use treated nets to 49 percent in 2016 (World Bank 2018).
  - Nigeria is about one year away from eradicating wild polio.
- Education initiatives and programs:
  - Development and launch of a Human Capital Vision document in collaboration with state governments and development partners.
  - National Home-Grown School Feeding and Health Program:
    - Implemented in 26 states.
    - More than 95 thousand community cooks in 47 thousand public primary schools feeding about 9.3 million pupils (Federal Ministry of Education).
  - Safe School Initiative relocates students from conflict affected areas to safer federal government colleges in other states.
  - Targeted programs supporting women and girls:
    - School Based Management Committees and Mothers' Associations to empower mothers via income generating activities.
    - Federal Ministry of Education and UNICEF "Girls for Girls" mentorship training in Northern States.
    - Grants of N250,000 ($690) per year to primary and pre-primary schools with functional school-based management committees.
    - Female teachers in service can receive a scholarship of 50,000 ($138) per year to receive the Nigeria certificate in education.
  - State-level measures:
    - Lagos adoption of a low-cost digital device with stored learning materials for primary and secondary public school students.
    - Kaduna State mass training of teachers in 2015; teachers reassessed and relieved in 2018 if they did not pass and replaced with qualified teachers (World Bank 2018).
- Gender-equality policies:
  - National Strategy to End Child Marriage in Nigeria (2016).
  - National Action Plan on Gender, a gender policy for the Nigeria police sector, police stations equipped to address gender base violence, and a National Gender Action Plan for the Agricultural Sector (2018).
  - Improving education for girls identified as one of three strategic priorities of the Ministry of Women Affairs and Social Development.

### Policy recommendations (health, education, gender)
- Education and health system reforms (drawing on World Bank 2018 and partners):
  - Operationalize and implement policies to reach the targets under the Human Capital Vision document.
  - Improve and institutionalize collection of administrative data on the education system, including schools’ geo-coordinates and student learning assessment data.
  - Improve quality of teachers via reforms in recruitment, deployment, training, and higher teacher salaries.
  - Measure the performance of the Universal Basic Education Intervention Fund and Tertiary Education Trust Fund based on results (better learning environments, teacher numbers and effectiveness, student learning).
  - Pursue evidence-based interventions:
    - Demand-side interventions enabling poor and vulnerable populations to demand services.
    - Supply-side interventions targeted at building capacity and strengthening resource management.
    - Result-based financing to improve performance incentives.
  - Improve health outcomes to ensure better learning and productivity:
    - Higher and regular funding to execute planned projects, operationalize the Basic Health Care Provision Fund, and fund the National Strategic Health Development Plan II (NSHDP II).
- Gender-specific policy measures:
  - Pass the “Gender and Equal Opportunities Bill” into law at national and state levels and domesticate and implement the Children’s Rights Act, the Violence against Persons Prohibition Act and Disabilities Act at state levels.
  - Enforce civil and criminal law when customary law contradicts non-discriminatory policies, e.g., work with traditional leaders and local governance, provide paralegal services for women, strengthen the Legal Aid Council, and institutionalize Alternative Dispute Resolution Mechanisms.
  - Address gender-based violence by strengthening national databases to track prevalence, patterns and efficacy of responses and champion effective response mechanisms.
  - Continue leadership on the Call to Action on Protection from Gender-Based Violence in Emergencies.
  - Strengthen programs that reduce vulnerability of women and girls, including through adequate and safe access to water and sanitation facilities.
  - Introduce training programs to reduce gender gaps in particular occupations, implement programs to shift norms against women working in specific professions, and empower adolescent girls to pursue various career tracks.
  - Provide gender-responsive health services, including addressing social norms that inhibit women’s access and decision making, and standardized, regular provision of menstrual hygiene supplies to support girls’ school attendance.

### Macro-structural obstacles to firm performance — World Bank Enterprise Survey findings
- Survey and sample details:
  - World Bank Enterprise Survey (WBES) conducted in 2014-15 covering a sample of 2,640 private firms in the manufacturing and services sectors in 19 states in Nigeria.
  - Inclusion criteria: formally registered firms with employees; sectors excluded include agriculture, fishing and extractive industries, utilities and some services (financial services, education and healthcare).
- Key firm-level characteristics and constraints:
  - Around one-third of interviewed firms cited access to finance as the top business obstacle; electricity and corruption followed.
  - On average, firms reported around 16 years of operations (average low of 14 years in small firms to a high of 27 years in large firms).
  - Specific technical skills are the most important when hiring, followed by social skills.
  - Skills are not a constraint to hiring women in more than 60 percent of cases.
  - Performance (employment growth and capacity utilization growth) varied across firms; micro-sized firms experienced the highest growth in both employment and capacity utilization.
  - Access to finance is the top obstacle in micro and small firms; electricity is more binding in medium and large firms.
  - Over 80 percent of surveyed firms did not spend on formal research and development activities over the last 3 years.
- Empirical associations and quantitative results:
  - Firm characteristics and access to finance:
    - Larger and export-oriented firms are, on average, about 40 percentage points less likely to report access to finance as a business obstacle, compared to smaller and non-export-oriented firms.
    - Firms perceiving access to finance as a constraint are, on average, about 10-40 percentage points less likely to be export-oriented diversified firms.
  - Impact on firm performance:
    - Firms who perceive access to credit as a constraint have, on average, around 80 percent lower employment growth and around 30 percent lower capacity utilization growth, compared to firms where access to finance is not perceived as a constraint.
    - Better access to finance and export diversification are associated with better firm performance; estimates are robust across model specifications and estimation methods, including an endogenous treatment regression approach that corrects for potential endogeneity and allows causal interpretation.
- Additional notes on export diversification measure:
  - Export diversification measure used: interaction variable of each firm’s export orientation (whether exports are above 10 percent of sales) multiplied by a measure of diversification (spending on R&D or improved production methods). Results are broadly robust to altering this definition.

*Prepared by Amr Hosny (SPR); based on World Bank Enterprise Survey (WBES) 2014-15 and related government documents cited in the source content.*

### 6.      An ordered logit/probit model is estimated to study which firms perceive access to

### 1ngaea2019002 - 6.      An ordered logit/probit model is estimated to study which firms perceive access to finance as a constraint to business

### Model specification and data
- Dependent variable: Accesstofinanceist — ordinal variable taking values 0 (“No obstacle”) to 4 (“Very severe obstacle”).
- Estimated models: ordered logit/probit (maximum pseudo-likelihood) and binary logit/probit (dependent variable = 1 if “major constraint” or “very severe constraint”; = 0 if “no obstacle”, “minor obstacle” or “moderate obstacle”).
- Key explanatory variables: firm age, export status, size, ownership structure, manager experience, manager education level, and ExportDiversificationist.
- Estimation uses survey weights and includes specifications with City/Region fixed effects or Size fixed effects as reported.

### Determinants of access to finance — main empirical findings
- Larger and export-oriented firms are less likely to report access to finance as a business obstacle.
  - Coefficients on firm size and export orientation are negative and statistically significant (table 1, models 1–3).
  - Results suggest larger and export-oriented firms, on average, are about 40 percentage points less likely to report access to finance as a constraint compared to smaller and non-export-oriented firms.
- Foreign ownership and manager education show evidence of easier access to credit.
  - Foreign firms, on average, are around 30 percentage points less likely to report access to finance as a constraint compared to domestic-owned firms.
  - Higher manager education levels are significant in some specifications (models 1 and 3).
- Export diversification impact on access to credit is inconclusive.
  - Possible explanations: (i) export orientation coefficient already captures this effect; (ii) reverse causality (access to credit influences export diversification).
- Binary models (table 1, models 4–6) largely confirm ordered-model results:
  - Firm size, export-orientation, and foreign ownership remain negative and statistically significant correlates of reporting obstacles to accessing credit.
  - Female managers seem to encounter more obstacles in accessing credit (model 4).
  - Firm age matters in one specification: younger firms seem to suffer more in accessing credit (model 6).

### Key reported coefficient excerpts (selected)
- Ordered Logit/Probit (table 1, selected coefficients):
  - Firm size: -0.273* (Logit, model 1); -0.182** (Probit, model 2); -0.259 (Logit, model 3).
  - Foreign ownership (Y/N): -0.306 (1); -0.314* (2); -0.114 (3).
  - Manager education level: -0.123* (1); -0.009 (2); -0.130* (3).
  - Exports oriented firm (Y/N): -0.41** (1); -0.335** (2); -0.195 (3).
- Binary Logit/Probit (table 1, selected coefficients):
  - Firm size: -0.441** (model 4 logit); -0.27*** (model 5 probit); -0.436 (model 6 logit).
  - Foreign ownership (Y/N): -3.522*** (4); -1.81*** (5); -3.40*** (6).
  - Exports oriented firm (Y/N): -0.566* (4); -0.56*** (5); -0.144 (6).
- Notes: Standard errors reported in parentheses in tables; significance codes: *** p<0.01, ** p<0.05, * p<0.1.

### What drives firms’ export diversification
- Estimated model: binary logit/probit with dependent variable = export diversification indicator.
- Main findings (table 2):
  - Younger firms are less likely to report diversified exports:
    - Young firm (Y/N): -0.753* (Logit, model 7); -0.396* (Probit, model 8).
    - Results imply younger firms are, on average, 40-75 percentage points less likely to report diversified exports.
  - Foreign ownership is associated with more diversified exports:
    - Foreign ownership (Y/N): 1.971*** (Logit); 1.150*** (Probit).
  - Access to finance constraints are associated with lower export diversification:
    - Access to finance obstacle, ordered: -0.107* (table 2).
    - Access to finance obstacle, binary: -0.382* (table 2).
    - Interpretation: firms perceiving access to finance as a constraint are, on average, about 10-40 percentage points less likely to be export-oriented diversified firms.

### Access to finance and firm performance — causal analysis
- Objective: estimate effect of Accesstofinanceist on firm performance Yist (employment growth and capacity utilization growth), controlling for ExportDiversificationist and Xist.
- Endogeneity concern: perception of access to finance may be endogenous (e.g., unobservables like political connections may affect both treatment and outcome).
- Method: endogenous treatment-regression model / treatment-effects estimators (MLE) to identify average treatment effects by matching on predicted propensity to treatment.
- Results (Table 3):
  - Access to finance obstacle? coefficients:
    - Employment growth: -0.780** (model 9 MLE); -0.868*** (model 10 MLE).
    - Capacity utilization growth: -0.24*** (model 11 MLE); -0.28*** (model 12 MLE).
  - Interpretation: firms who perceive access to credit as a constraint have, on average, around 80 percent lower employment growth and around 30 percent lower capacity utilization growth, compared to firms where access to finance is not perceived as a constraint.
  - Export diversification coefficient is positive and statistically significant in performance regressions (implying diversified exporters have better performance).
- Endogeneity diagnostics:
  - LR test for independent equations: 219.40*** (model 9), 220.48*** (10), 10.13*** (11), 20.47*** (12) — null of no correlation between treatment-assignment and outcome errors rejected.
  - Estimated correlation (Rho) between treatment-assignment errors and outcome errors is positive in all models (.0123, .0209, .526, .579), indicating unobservables that raise firm performance tend to occur with unobservables that raise the perception of effect of access to finance on firm operations.
  - Models (10) and (12) preferred due to lower -LogLikelihood and AIC.

### Conclusion and policy implications
- Summary of empirical conclusions:
  - Larger, export-oriented firms are less likely to report access to finance as a constraint.
  - Younger, domestic-owned firms with access to finance constraints are associated with less diversified exports.
  - Access to finance and export diversification both help firm performance; access to finance constraints causally reduce employment growth (~80 percent lower) and capacity utilization growth (~30 percent lower).
- Policy recommendations and implications highlighted:
  - Increasing access to finance is key for diversification (consistent with the authorities’ Economic Recovery and Growth Plan (ERGP)).
  - Important recent initiatives:
    - Improving access to credit information and collateral registry.
    - 2017 Secured Transactions in Movable Assets Act (collateral registry) enabling MSMEs to use movable assets as collateral.
  - Remaining needs and priorities:
    - Ensure banks make full use of the National Collateral Registry and increase credit registry coverage (Nigeria as percentage of adults stood at 0.1% compared to OECD’s average of 63.7%).
    - Address macro impediments: banks’ lending limited by high risk aversion and the presence of high-yield risk-free government and CBN bills that discourage lending given fear of credit risk.
    - Address micro impediments: accelerate implementation of the government’s financial inclusion strategy, reform the regulatory framework, and leverage mobile payments to boost access to credit in remote areas.
  - Broader structural reforms required to support diversification and growth:
    - Increase public investment efficiency.
    - Accelerate implementation of the Power Sector Recovery Plan.
    - Implement the government’s updated financial inclusion strategy.
    - Step up efforts to improve education and health outcomes.
    - Strengthen governance, transparency, and anti-corruption initiatives.
    - Continue Presidential Enabling Business Environment Council (PEBEC) reforms.

*Source: https://www.imf.org/-/media/files/publications/cr/2019/1ngaea2019002.pdf*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1ngaea2019002.pdf_