## 1ngaea2024001 ## Source details **Canonical URL:** [1ngaea2024001](https://www.imf.org/-/media/files/publications/cr/2024/english/1ngaea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1ngaea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1ngaea2024001.pdf.json) --- ### Executive summary — context and priorities - New administration under President Tinubu implemented two major reforms quickly: removing fuel subsidies and unifying the various official foreign exchange windows. - Growth is lackluster, inflation high and accelerating, and pressures on the naira persist. - Food insecurity and poverty: 25 million (13 percent of the population) are food insecure; the poverty rate was 37 percent in 2022. - External environment: difficult despite high oil and gas prices, with challenges in access to financing and elevated food prices. - Authorities’ focus: restore economic and financial stability and develop a comprehensive growth agenda. - Short-term priority: rein in inflation and safeguard external stability. - Medium-term priorities: significantly raise domestic revenue mobilization and pursue structural reforms for high and inclusive growth. ### Recent macroeconomic developments and outlook - Growth - Growth averaged 2.4 percent in H1-2023 and improved to 3.1 percent in Q3. - Growth projected at 2.9 percent for 2023 and 3 percent in 2024. - Medium-term growth projected around 3 percent; non-oil non-agricultural component expected to grow about 3½ percent per annum. - Inflation and monetary conditions - Headline inflation reached 27 percent year-on-year in October; food inflation 32 percent. - Financial conditions are loose: M3 growth of 35 percent year-on-year in July; a negative real monetary policy rate. - Staff projection: inflation projected to peak at end-2023; 17 percent year-on-year at end-2024 assuming monetary tightening and base effects. - External sector and reserves - Current account registered a surplus in H1-2023, but reserves declined significantly. - CBN reported 30-day average gross international reserves (GIR) declined to $33 billion in October (almost $4 billion below end-2022), covering 6 months of imports and 83 percent of the IMF’s ARA metric. - Following IMF definition, $8 billion in securities are considered pledged collateral, reducing GIR to $25 billion at end-October 2023. - Projected officially reported reserves: decline to $24 billion in 2024 before increasing to $38 billion in 2028 as portfolio inflows resume (staff projections assume authorities can roll over all maturing forwards and swaps). - Exchange rate - Official exchange rate depreciated by 60 percent after unification of official FX windows. - Official rate traded between 750-850 naira/dollar; parallel market rate about 1,100 naira/dollar with parallel market premium widening to over 40 percent (parallel market depreciated by 35 percent between end-July and end-October). - Market concerns center on CBN net international reserves, partial information on FX liabilities in the 2022 statement, CBN overdue dollar obligations to domestic banks of $7 billion, and backlog of pending corporate dollar demand. - Banking sector - Banking sector remains liquid: reported liquid assets to short-term liabilities ratio of 34 percent at end-June 2023. - Capitalization declining: capital adequacy ratio declined to 11 percent. - At end-June 2023 most banks reported profits from revaluation of FX assets and effective management of FX exposures. - Non-performing loans expected to increase as debtors face repayment difficulties. - Some banks face problems maintaining correspondent bank relationships due to dollar shortages. ### Risks to the outlook - Overall risks skewed to the downside; strong policy action could produce an upside scenario. - Inflation-depreciation spiral: - Risk if monetary tightening is insufficient or commodity price shocks persist; could create self-reinforcing spiral of inflation and naira depreciation. - Agricultural and oil production shocks: - Climate shocks could hit agriculture and food security; onshore security deterioration could reduce oil production and pressure the naira. - Governance and AML/CFT risks: - Nigeria was listed by the Financial Action Task Force in 2023 for increased monitoring; lack of progress could affect correspondent banking and international confidence. - Conflict, security, and domestic risks: - Intensification would affect livelihoods, growth, and capital flows. - Upside scenario: - Swift and determined implementation of authorities’ policies could boost confidence and accelerate growth. ### Monetary policy — findings and staff recommendations - Recent CBN actions - CBN raised policy rate cumulatively by 725 bps between May 2022 and July 2023 to 18.75 percent (in small steps—25 bps at the July meeting). - Real policy rate remains in negative territory. - New CBN team eliminated the ceiling on the special deposit facility (SDF), allowing the SDF overnight rate to act as a floor for monetary instruments, and mopped up naira 500 billion in excess liquidity. - Overnight rate increased to 17 percent, comparable to the 12-month OMO rate, while the 12-month government paper yield remains slightly lower at 15 percent. - CBN announced it will phase out its development finance programs. - Staff recommendations - Raise the monetary policy rate at the next Monetary Policy Committee (MPC) meeting with the aim of making it positive in real terms over the next 6-12 months; pace and terminal rate to be calibrated meeting to meeting based on incoming data. - Continue withdrawing excess liquidity using short-term instruments (OMOs or repos). Initial aim: extract the remaining naira 800 billion in excess reserves, and up to naira 2 trillion over the next 12 months. - Discontinue the asymmetric use of the cash reserve requirement and apply the requirement uniformly to all banks. - Strengthen communications by clearly specifying the monetary policy objective, operational targets, and milestones. ### Exchange rate policy and liquidity options - Authorities’ actions - Unification of various official FX windows, provided Bureau de Change operators access to the official market, and removed the ban on access to FX for certain imports. - First payment of $500 million in the first week of November helped sentiment. - Authorities aim to move all legitimate foreign transactions to the official market and to crack down further on illegal parallel market transactions. - Staff cautions and advice - Complete repayment of legitimate claims along with tighter policies is essential to support confidence. - Allow the naira to settle at its market-determined equilibrium level; avoid issuance of FX-denominated government securities domestically (staff has not seen the Executive Order itself). - Options under consideration to shore up FX liquidity - A deposit by another central bank. - A loan from a bank consortium collateralized by hydrocarbon revenues. - Selling an equity stake in a gas field for upfront cash. ### Fiscal policy, debt, and revenue mobilization - Institutional actions - President appointed a Fiscal Policy and Tax Reforms Committee with a 12-months mandate; initial recommendations expected to inform the 2024 budget. - Committee mandate includes proposing measures to raise revenue collection to 18 percent of GDP over the next five years. - Authorities emphasize digitalization to enhance spending efficiency and tackle endemic corruption. - 2023 fiscal stance and measures - 2023 is a transition year, with the overall deficit unchanged from 2022 at 5.4 percent of GDP. - Phasing out the fuel subsidy estimated 2023 saving of 0.6 percent of GDP. - Supplementary budget accommodates increased security spending, support for the vulnerable, maintenance and capital spending, and agricultural inputs (about 1 percent of GDP). - Supplementary budget raises the domestic borrowing ceiling by 0.9 percent of GDP. - Potential funding gap of up to 1½ percent of GDP in the last quarter that could be filled by CBN financing—still significantly lower than in previous years. - 2024 targets and staff assessment - Medium-Term Expenditure Framework targets reduction of the overall deficit by 2.2 percent of GDP to 3.2 percent of GDP for 2024. - Revenue drivers: higher oil revenues (0.9 percent of GDP) and some non-oil revenue increases by 0.2 percent of GDP from tax measures. - Authorities plan to contain expenditure by 1.1 percent of GDP while accommodating a wage structure review in February. - Staff notes spending pressures from electricity and fuel subsidies of over 1 percent of GDP, and projects an overall deficit of 4.3 percent of GDP in their assessment. - Staff emphasizes realistic projection of financing needs to ensure market-based funding within legal borrowing limits. - Debt and fiscal risks - Government debt projected to increase to 46 percent of GDP in 2023 on account of naira depreciation. - Fx debt-to-GDP ratio remains 16 percent of GDP (2023). - Interest expenditure is projected to absorb 83 percent of revenues in 2023 at the federal government level. - Significantly increasing domestic revenue mobilization is key to safeguarding fiscal sustainability over the medium-term. - Authorities’ view - Broad agreement with staff’s 2023 projections and intention to phase out CBN financing of the deficit; plan to introduce revenue measures once Committee recommendations are final and stress conservative debt management with long average maturity. ### Financial sector policies and recommendations - CBN actions and risks - CBN stress tests show possibility of a significant drop in banks’ CAR to 6 percent from severe shocks. - CBN required banks to retain FX gains and build additional capital. - Withdrawal of licenses of small micro-finance banks for non-compliance and payment to insured depositors. - Staff recommendations - Gradually increase the current amount of deposit insurance coverage provided by Nigeria Deposit Insurance Corporation to reflect inflation and currency depreciation. - Conduct monthly stress test scenarios and take proactive actions (restricting new lending activities and dividend distributions) whenever a bank breaches regulatory requirements. - Require banks’ shareholders to inject fresh capital whenever a bank’s capital falls below the regulatory threshold. - Disclose financial soundness indicators for each bank, rather than aggregated figures, and specific actions taken by authorities to ensure compliance. - Authorities’ view: Recognized that financial soundness indicators might deteriorate and reiterated readiness to take corrective measures if necessary. ### Capacity to repay the Fund — baseline and downside scenario - Baseline assessments and projections - Projected outstanding Fund credit is SDR 1.8 billion (75 percent of quota, 9 percent of gross international reserves) at end-2023. - RFI repayments projected to peak in 2024 at 7.5 percent of GIR, 40.7 percent of external public debt service, and 3.1 percent of exports, and are expected to be completed on schedule by 2025. - Nigeria’s SDR allocation balance was SDR 3.3 billion at end-November. - Downside scenario features and impacts - Monetary policy tightened insufficiently; inflation remains above 20 percent; exchange rate pressures persist. - An adverse climate shock in early 2024 exacerbates agriculture weakness; exchange rate depreciates by an estimated 35 percent in 2024. - Inflation peaks at 44 percent before eventual sharp monetary tightening. - Growth falls to zero in 2024 and recovers to 2 percent in 2028. - Fiscal deficit increases to above 6 percent of GDP in 2024 and 2025, partly due to increased transfers to quell social unrest (1 percent of GDP) and a rise in the implicit fuel subsidy. - Increased use of CBN and domestic financing; debt-to-GDP ratio rises by 6 percentage points above the baseline by 2028 despite expenditure measures in 2026. - Reserves decline to $17 billion in 2025; obligations due under the RFI peak at over 8 percent of officially reported reserves. - Capacity to repay in downside - Nigeria would be able to repay the Fund in the downside scenario assuming continued prioritization of external debt service, but trade-offs with urgent humanitarian needs would be severe. - Policy response recommended for downside - Develop a comprehensive macroeconomic and growth strategy with development partners. - Implement aggressive monetary tightening, fiscal adjustment to restore macroeconomic stability, and climate adaptation measures. ### Illustrative upside scenario (Box 1) - Assumptions - Authorities tighten macroeconomic policies and implement a pro-growth reform agenda immediately. - CBN fiscal financing is phased out in 2024. - CBN credibility strengthened by clearing overdue dollar obligations. - Revenue mobilization efforts of 4 percent of GDP over the medium-term and increased external financing. - Ambitious, private-sector-led growth agenda. - Outcomes - Growth rises to 5½ percent by 2028. - Inflation returns to the target range of 9–12 percent over the next 2-3 years. - Reserves reach $56 billion by 2028. - FDI and portfolio inflows return; hydrocarbon exports boosted. ### Key projected macroeconomic indicators (selected) - Real GDP (at 2010 market prices): 2023: 2.9; 2024: 3.0; 2025: 3.1; 2026: 3.1; 2027: 3.1; 2028: 3.1 - Oil and Gas GDP: 2023: 1.4; 2024: 2.5; 2025: 3.8; 2026: 2.0; 2027: 2.0; 2028: 2.1 - Non-oil GDP: 2023: 3.0; 2024: 3.1; 2025: 3.0; 2026: 3.1; 2027: 3.1; 2028: 3.1 - Production of crude oil (million barrels per day): 2023: 1.46; 2024: 1.47; 2025: 1.52; 2026: 1.52; 2027: 1.52; 2028: 1.52 - Nominal GDP per capita (US$): 2023: 1,699; 2024: 1,219; 2025: 1,271; 2026: 1,300; 2027: 1,334; 2028: 1,477 - Consumer price index (annual average): 2023: 25.0; 2024: 25.2; 2025: 14.8; 2026: 14.5; 2027: 14.0; 2028: 14.0 - Gross national savings: 2023: 19.7; 2024: 20.2; 2025: 21.8; 2026: 22.3; 2027: 23.2; 2028: 22.6 - Investment: 2023: 19.2; 2024: 19.5; 2025: 21.2; 2026: 22.0; 2027: 23.0; 2028: 22.7 - Total revenues and grants (percent of GDP): 2023: 9.4; 2024: 10.8; 2025: 10.9; 2026: 11.6; 2027: 11.6; 2028: 11.7 - Total expenditure and net lending (percent of GDP): 2023: 14.8; 2024: 15.1; 2025: 15.5; 2026: 16.3; 2027: 16.3; 2028: 16.4 - Overall balance (percent of GDP): 2023: -5.4; 2024: -5.4; 2025: -4.3; 2026: -4.5; 2027: -4.7; 2028: -4.7 - Public gross debt (percent of GDP): 2023: 45.6; 2024: 44.5; 2025: 44.3; 2026: 44.8; 2027: 45.3; 2028: 46.3 - Of which: Fx debt (percent of GDP): 2023: 15.6; 2024: 16.7; 2025: 17.9; 2026: 20.2; 2027: 21.8; 2028: 23.5 - Gross international reserves (US$ billions, CBN definition): 2023: 27.9; 2024: 23.8 - (Memorandum) In months of next year's imports of goods and services: 2023: 5.0; 2024: 4.4 ### External sector and balance of payments (selected) - Current account balance (percent of GDP): 2023: 0.5; 2024: 0.7 - Exports of goods and services (percent of GDP): 2023: 16.0; 2024: 21.1 - Imports of goods and services (percent of GDP): 2023: 17.7; 2024: 24.0 - Price of Nigerian oil (US$ per barrel): 2023: 82.4; 2024: 81.2; 2025: 77.4; 2026: 74.3; 2027: 71.6; 2028: 69.3 - External debt outstanding (US$ billions): 2023: 110.1; 2024: 109.1; 2025: 114.0; 2026: 123.1; 2027: 130.2; 2028: 138.6 - Net international reserves (increase -) (Billions of U.S. dollars): 2023: 8.7 ### Indicators of Fund credit and obligations (selected) - Stock of existing and prospective Fund credit (SDR million): 2023: 1840.9; 2024: 613.6; 2025: 0.0; 2026: 0.0; 2027: 0.0; 2028: 0.0 - Obligations (SDR million): 2023: 736.7; 2024: 327.7; 2025: 654.6; 2026: 29.2; 2027: 29.2; 2028: 29.2 - Baseline: Fund obligations (repurchases and charges) in percent of Quota: 2023: 30.0; 2024: 54.1; 2025: 26.7; 2026: 1.2; 2027: 1.2; 2028: 1.2 - Baseline: Fund credit outstanding in percent of Gross international reserves: 2023: 8.9; 2024: 3.5; 2025: 0.0; 2026: 0.0; 2027: 0.0; 2028: 0.0 ### Policy recommendations and prioritized risk responses - Monetary policy - Decisively tighten monetary policy including mopping up excess liquidity. - Raise the MPR until it is positive in real terms. - Refrain from monetary financing of the deficit; set and respect a realistic domestic borrowing ceiling. - Strengthen monetary policy communications and operational targets. - Fiscal policy and revenue mobilization - Significantly increase domestic revenue mobilization (authorities’ target: 18 percent of GDP over five years). - Phase out fuel and electricity subsidies completely as they are costly and mis-targeted. - Use digitalization to improve spending efficiency and curb corruption. - Provide temporary and targeted social transfers to the most vulnerable. - External and reserve management - Carefully assess options to strengthen reserves; settle overdue CBN dollar obligations. - Share comprehensive information on Nigeria’s reserves position. - Seek alternative external financing to fund the spike in external debt service in 2024 and 2025. - Financial sector resilience - Increase deposit insurance coverage gradually. - Conduct frequent stress tests and require timely capital injections by shareholders when needed. - Disclose bank-level financial soundness indicators and corrective actions. - Climate, governance, and structural reforms - Increase adaptation investments and agricultural inputs to mitigate climate shocks. - Strengthen governance in oil and gas (including consistent implementation of PIA and publication of gross and net oil revenues). - Strengthen AML/CFT regime and anti-corruption measures (asset declaration, beneficial ownership transparency, corporate governance). *Source: IMF Executive Summary and staff report excerpts (1ngaea2024001).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - New administration under President Tinubu implemented two major reforms quickly: removing fuel subsidies and unifying the various official foreign exchange windows. - Growth is lackluster, inflation high and accelerating, and pressures on the naira persist. - Widespread poverty and rising food insecurity are evident: 25 million (13 percent of the population) are food insecure; the poverty rate was 37 percent in 2022. - External environment remains difficult despite high oil and gas prices, with challenges in access to financing and elevated food prices. ### Policies (authorities’ focus and short- to medium-term priorities) - Authorities are focused on restoring economic and financial stability while developing a comprehensive growth agenda. - Short-term main challenge: rein in inflation and safeguard external stability. - Medium-term priorities: significantly raise domestic revenue mobilization and develop structural reforms to facilitate high and inclusive growth. Monetary and exchange rate policy - The Central Bank of Nigeria (CBN) is refocusing on price stability and has taken initial steps to tighten financial conditions. - A sustained tightening cycle is needed to bring down inflation, rebuild confidence in the CBN, stabilize the naira, and mitigate risks of an inflation-depreciation spiral. Fiscal policy - Authorities aim to aggressively increase revenues and bring down the deficit. - The 2024 budget must accommodate electricity and partially returned implicit fuel subsidies and needed social transfers. - Setting a realistic domestic borrowing ceiling is key to phasing out monetization of the deficit. Financial sector policies - The CBN has taken important actions to mitigate risks in the banking system. - Tight supervision is needed to safeguard stability. Capacity to repay the Fund - Nigeria’s capacity to repay the Fund is assessed as adequate though subject to risks. - In an adverse scenario involving an inflation-depreciation spiral and a climate shock, repayment indicators would weaken. ### Background (structural and recent policy actions) - Nigeria exited the Covid-19 recession quickly, but growth is barely keeping up with population dynamics; large exchange rate depreciation this year significantly affects GDP per capita. - Non-oil growth averaged 5 percent between 2021-22; hydrocarbon economy declined (–14 percent). - A Presidential Fiscal Policy and Tax Reforms Committee was appointed to propose measures to raise domestic revenue for infrastructure, health, and education. - To ease inflationary impact, government actions included releasing cereals from the grain reserve, providing subsidized fertilizer, capping retail fuel and electricity prices (partially reversing fuel subsidy removal), implementing a civil service wage award, and suspending the VAT on diesel—actions that have fiscal costs. ### Recent developments and outlook - Growth: - Growth averaged 2.4 percent in H1-2023 and improved to 3.1 percent in Q3. - Growth projected at 2.9 percent for 2023 and 3 percent in 2024. - Medium-term growth projected around 3 percent, implying a decline in per-capita GDP in dollar terms; non-oil non-agricultural component main engine (3½ percent growth per annum). - Inflation: - Headline inflation reached 27 percent year-on-year in October; food inflation 32 percent. - Financial conditions are loose (M3 growth of 35 percent year-on-year in July; a negative real monetary policy rate). - Inflation projected to peak at end 2023; staff projection: 17 percent year-on-year at end-2024 assuming monetary tightening and base effects. - External sector and reserves: - Current account registered a surplus in H1-2023, but reserves declined significantly. - CBN reported 30-day average gross international reserves (GIR) declined to $33 billion in October (almost $4 billion below end-2022), covering 6 months of imports and 83 percent of the IMF’s ARA metric. - Following IMF definition, $8 billion in securities are considered pledged collateral, reducing GIR to $25 billion at end-October 2023. - Through 2024–25, financial account likely to deteriorate with no projected Eurobond issuance, large Fund and Eurobond repayments of $3.5 billion, and portfolio outflows. - Officially reported reserves projected to decline to $24 billion in 2024 before increasing to $38 billion in 2028 as portfolio inflows resume. - Staff projections assume authorities can roll over all maturing forwards and swaps. - Exchange rate: - After unification of official FX windows, official exchange rate depreciated by 60 percent, converging toward the parallel market. - Official rate has traded between 750-850 naira/dollar; parallel market rate about 1,100 with the parallel market premium widening to over 40 percent (parallel market depreciated by 35 percent between end-July and end-October). - Market focus on CBN net international reserves position influenced by: (i) partial information on FX liabilities in the 2022 statement; (ii) CBN’s overdue dollar obligations to domestic banks of $7 billion; and (iii) backlog of pending dollar demand from corporates. - Banking sector: - Banking sector remains liquid (reported liquid assets to short-term liabilities ratio of 34 percent at end-June 2023) but capitalization declining (capital adequacy ratio declined to 11 percent). - At end-June 2023 most banks reported profits from revaluation of FX assets and effective management of FX exposures. - Non-performing loans expected to increase as debtors face repayment difficulties. - Some banks face problems maintaining correspondent bank relationships due to dollar shortages, affecting cross-border operations. ### Risks to the outlook - Overall risks are to the downside, though strong policy action could yield an upside scenario. - Inflation-depreciation spiral: - Without sufficient monetary tightening or with further commodity price shocks, inflation could continue to accelerate. - An adverse confidence shock could reinforce dollar demand and capital outflows, exerting more pressure on the naira and creating a self-reinforcing spiral. - Agricultural and oil production shocks: - Climate shocks would impact agriculture and food security due to heavy reliance on rainfall. - Oil production could decline if onshore security worsens; a negative oil export shock would pressure the naira. - Governance and AML/CFT risks: - Nigeria was listed by the Financial Action Task Force in 2023 for increased monitoring due to strategic AML/CFT deficiencies; lack of progress could impact correspondent banking relationships and international confidence. - Conflict, security, and domestic risks: - Intensification would affect livelihoods, growth, and capital flows. - Upside: - Swift and determined implementation of the authorities’ policy intentions could boost confidence and support acceleration of growth. ### Policy discussions — main messages - Main short-term challenge: rein in inflation, safeguard external stability, and restore market confidence. - Required actions: decisive tightening of monetary policy, elimination of CBN budget financing, and rebuilding trust in the CBN. - Medium-term: comprehensive reform strategy to raise revenue collection and underpin high and inclusive growth. A. Monetary Policy — findings and staff recommendations - Recent CBN actions: - CBN raised policy rate cumulatively by 725 bps between May 2022 and July 2023 to 18.75 percent (in small steps—25 bps at the July meeting). - Real policy rate remains in negative territory. - New CBN team eliminated the ceiling on the special deposit facility (SDF), allowing the SDF overnight rate to act as a floor for monetary instruments, and mopped up naira 500 billion in excess liquidity. - Overnight rate increased to 17 percent, comparable to the 12-month Open Market Operations (OMO) rate, while the 12-month government paper yield remains slightly lower at 15 percent. - CBN announced it will phase out its development finance programs. - Staff recommends further monetary tightening and operational measures: - Raise the monetary policy rate at the next Monetary Policy Committee (MPC) meeting with the aim of making it positive in real terms over the next 6-12 months. The pace and terminal rate should be calibrated meeting to meeting based on incoming data. - Continue withdrawing excess liquidity using short-term instruments (OMOs or repos). Initial aim: extract the remaining naira 800 billion in excess reserves, and up to naira 2 trillion over the next 12 months. - Discontinue the asymmetric use of the cash reserve requirement and apply the requirement uniformly to all banks. - Strengthen communications by clearly specifying the monetary policy objective, operational targets, and milestones. *Source: IMF Executive Summary (1ngaea2024001 - EXECUTIVE SUMMARY)* ### 20. Authorities’ Views: The CBN agreed with the need to tighten monetary policy and ### 20. Authorities’ Views: The CBN agreed with the need to tighten monetary policy and ### Monetary Policy and CBN Views - The CBN agreed with the need to tighten monetary policy and emphasized that they see price stability as their core objective. - The CBN pointed to early policy actions taken and stressed that the next MPC will be the first opportunity since taking office to lay out their policy approach. - Staff recommendation: Continue to raise the MPR until it is positive in real terms. - Settling the CBN’s overdue dollar obligations noted as essential to rebuild confidence. ### Exchange Rate Policy - Authorities have taken steps to liberalize the foreign exchange market: - Unification of the various official foreign exchange windows. - Providing Bureau de Change operators access to the official market. - Removal of the ban on access to fx for certain imports. - Recent repayments and announcements: - First payment of $500 million in the first week of November helped sentiment. - Staff views and cautions: - Complete repayment of legitimate claims along with tighter policies is essential to support confidence. - Ultimately, allow the naira to settle at its market-determined equilibrium level to support competitiveness and resource reallocations and allow everyone access to foreign exchange. - Staff advises against issuance of fx-denominated government securities domestically as it could lead to market fragmentation and dollarization (staff has not seen the Executive Order itself). - Options under consideration to shore up fx liquidity include: - A deposit by another central bank. - A loan from a bank consortium collateralized by hydrocarbon revenues. - Selling an equity stake in a gas field for upfront cash. - Authorities’ view: Aim to move all legitimate foreign transactions to the official market and to crack down further on illegal parallel market transactions; they are confident of attracting significant foreign exchange inflows. ### Fiscal Policy - Institutional and reform steps: - President appointed a Fiscal Policy and Tax Reforms Committee with a 12-months mandate; initial recommendations expected to be reflected in the 2024 budget. - Committee mandate includes proposing measures to raise revenue collection to 18 percent of GDP over the next five years and lay the foundation for sustained growth acceleration. - Authorities emphasize digitalization to enhance spending efficiency and tackle endemic corruption. - 2023 fiscal stance and measures: - 2023 is a transition year, with the overall deficit unchanged from 2022 at 5.4 percent of GDP. - Key reform: phasing out the fuel subsidy with an estimated 2023 saving of 0.6 percent of GDP. - A supplementary budget accommodates increased security spending, support for the vulnerable, maintenance and capital spending, and agricultural inputs (about 1 percent of GDP). - The supplementary budget raises the domestic borrowing ceiling by 0.9 percent of GDP. - Depending on revenue performance and availability of external financing in the last quarter, there may be a funding gap of up to 1½ percent of GDP that would likely have to be filled by CBN financing—still significantly lower than in previous years. - 2024 targets and staff assessment: - Medium-Term Expenditure Framework targets reduction of the overall deficit by 2.2 percent of GDP to 3.2 percent of GDP for 2024. - Revenue drivers: higher oil revenues (0.9 percent of GDP) and some non-oil revenue increases by 0.2 percent of GDP from tax measures. - Authorities plan to contain expenditure by 1.1 percent of GDP while accommodating a wage structure review in February. - Staff notes spending pressures from electricity and fuel subsidies of over 1 percent of GDP, and projects an overall deficit of 4.3 percent of GDP in their assessment. - Staff emphasizes realistic projection of financing needs to ensure market-based funding within legal borrowing limits. - Debt and fiscal risks: - Government debt projected to increase to 46 percent of GDP in 2023 on account of naira depreciation. - Fx debt-to-GDP ratio remains 16 percent of GDP. - Interest expenditure is projected to absorb 83 percent of revenues in 2023 at the federal government level. - Baseline without authorities’ revenue ambitions would broadly stabilize debt at the 2023 level. - Significantly increasing domestic revenue mobilization is key to safeguarding fiscal sustainability over the medium-term. - Authorities’ view: Broad agreement with staff’s 2023 projections and intention to phase out CBN financing of the deficit; plan to introduce revenue measures once Committee recommendations are final and stress conservative debt management with long average maturity. ### Illustrative Upside Scenario (Box 1) - Assumptions: - Authorities tighten macroeconomic policies and implement a pro-growth reform agenda immediately. - CBN fiscal financing is phased out in 2024. - CBN credibility strengthened by clearing overdue dollar obligations. - Revenue mobilization efforts of 4 percent of GDP over the medium-term and increased external financing. - Ambitious, private-sector-led growth agenda. - Outcomes: - Growth rises to 5½ percent by 2028. - Inflation returns to the target range of 9–12 percent over the next 2-3 years. - Reserves reach $56 billion by 2028. - FDI and portfolio inflows return; hydrocarbon exports boosted. ### Financial Sector Policies - CBN actions and risks: - CBN stress tests show possibility of a significant drop in banks’ CAR (to 6 percent) from severe shocks. - CBN required banks to retain fx gains and build additional capital. - Withdrawal of licenses of small micro-finance banks for non-compliance and payment to insured depositors welcomed by staff. - Staff recommendations: - Gradually increase the current amount of deposit insurance coverage provided by Nigeria Deposit Insurance Corporation to reflect inflation and currency depreciation. - Conduct monthly stress test scenarios and take proactive actions (restricting new lending activities and dividend distributions) whenever a bank breaches regulatory requirements. - Require banks’ shareholders to inject fresh capital whenever a bank’s capital falls below the regulatory threshold. - Disclose financial soundness indicators for each bank, rather than aggregated figures, and specific actions taken by authorities to ensure compliance. - Authorities’ view: Recognized that financial soundness indicators might deteriorate and reiterated readiness to take corrective measures if necessary. ### Capacity to Repay and Adverse Scenario - Baseline capacity: - Projected outstanding Fund credit is SDR 1.8 billion (75 percent of quota, 9 percent of gross international reserves) at end-2023. - RFI repayments projected to peak in 2024 at 7.5 percent of GIR, 40.7 percent of external public debt service, and 3.1 percent of exports, and are expected to be completed on schedule by 2025. - Nigeria’s SDR allocation balance was SDR 3.3 billion at end-November. - Downside scenario features and impacts: - Monetary policy tightened insufficiently; inflation remains above 20 percent; exchange rate pressures persist. - An adverse climate shock in early 2024 exacerbates agriculture weakness, output declines, and food prices surge. - Exchange rate depreciates by an estimated 35 percent in 2024. - Inflation peaks at 44 percent before eventual sharp monetary tightening. - Growth falls to zero in 2024 and recovers to 2 percent in 2028. - Fiscal deficit increases to above 6 percent of GDP in 2024 and 2025, partly due to increased transfers to quell social unrest (1 percent of GDP) and a rise in the implicit fuel subsidy. - Increased use of CBN and domestic financing; authorities implement expenditure measures in 2026 (e.g., phasing out implicit fuel subsidy) but debt-to-GDP ratio still rises by 6 percentage points above the baseline by 2028. - Portfolio outflows and loss of Eurobond access; reserves decline to $17 billion in 2025. - Obligations due under the RFI peak at over 8 percent of officially reported reserves. - Capacity to repay in downside: - Nigeria would be able to repay the Fund in the downside scenario assuming continued prioritization of external debt service, but trade-offs with urgent humanitarian needs would be severe. - Policy response recommended for downside: - Develop a comprehensive macroeconomic and growth strategy with development partners. - Implement aggressive monetary tightening, fiscal adjustment to restore macroeconomic stability, and climate adaptation measures. - Authorities’ view: Stress they are tightening monetary policy and are looking to build resilience and boost climate adaptation investments. ### Staff Appraisal - Positive steps noted: - New administration adopted fuel subsidy removal and unification of official exchange rates. - New CBN team made price stability its core mandate and stepped back from development finance. - Government developing an ambitious domestic revenue mobilization agenda. - Constraints and challenges: - Difficult external environment, scarce external financing, and surging global food prices. - Per-capita growth has stalled; poverty and food insecurity are high. - Low reserves and very limited fiscal space constrain policy options. - Policy recommendations emphasized: - Continue monetary tightening and raise the MPR until positive in real terms. - Careful assessment of options to strengthen reserves; settle overdue CBN dollar obligations. - Share comprehensive information on Nigeria’s reserves position. - Focus on revenue mobilization and digitalization to improve public service delivery and fiscal sustainability. - Provide temporary and targeted social transfers to the most vulnerable. - Phase out fuel and electricity subsidies completely as they are costly and mis-targeted. *Source: IMF staff report excerpts as provided in the source content.* ### 41. Staff assesses that Nigeria’s capacity to repay the Fund is adequate under the baseline. ### 1ngaea2024001 - 41. Staff assesses that Nigeria’s capacity to repay the Fund is adequate under the baseline. ### Staff assessment and downside considerations - Staff assesses that Nigeria’s capacity to repay the Fund is adequate under the baseline. - In a downside scenario where difficult trade-offs arise between urgent humanitarian needs and debt service (including to the Fund), the authorities’ policy intentions are judged well placed to address risks. - Policy package needed in such downside circumstances: - Aggressive monetary tightening. - Fiscal adjustment. - Support from development partners. - These measures would be needed to restore macroeconomic stability. ### Key projected macroeconomic indicators (selected) - Real GDP (at 2010 market prices): 2023: 2.9; 2024: 3.0; 2025: 3.1; 2026: 3.1; 2027: 3.1; 2028: 3.1 - Oil and Gas GDP: 2023: 1.4; 2024: 2.5; 2025: 3.8; 2026: 2.0; 2027: 2.0; 2028: 2.1 - Non-oil GDP: 2023: 3.0; 2024: 3.1; 2025: 3.0; 2026: 3.1; 2027: 3.1; 2028: 3.1 - Production of crude oil (million barrels per day): 2023: 1.46; 2024: 1.47; 2025: 1.52; 2026: 1.52; 2027: 1.52; 2028: 1.52 - Nominal GDP per capita (US$): 2023: 1,699; 2024: 1,219; 2025: 1,271; 2026: 1,300; 2027: 1,334; 2028: 1,477 - Consumer price index (annual average): 2023: 25.0; 2024: 25.2; 2025: 14.8; 2026: 14.5; 2027: 14.0; 2028: 14.0 - Gross national savings: 2023: 19.7; 2024: 20.2; 2025: 21.8; 2026: 22.3; 2027: 23.2; 2028: 22.6 - Investment: 2023: 19.2; 2024: 19.5; 2025: 21.2; 2026: 22.0; 2027: 23.0; 2028: 22.7 - Total revenues and grants (percent of GDP): 2023: 9.4; 2024: 10.8; 2025: 10.9; 2026: 11.6; 2027: 11.6; 2028: 11.7 - Total expenditure and net lending (percent of GDP): 2023: 14.8; 2024: 15.1; 2025: 15.5; 2026: 16.3; 2027: 16.3; 2028: 16.4 - Overall balance (percent of GDP): 2023: -5.4; 2024: -5.4; 2025: -4.3; 2026: -4.5; 2027: -4.7; 2028: -4.7 - Public gross debt (percent of GDP): 2023: 45.6; 2024: 44.5; 2025: 44.3; 2026: 44.8; 2027: 45.3; 2028: 46.3 - Of which: Fx debt (percent of GDP): 2023: 15.6; 2024: 16.7; 2025: 17.9; 2026: 20.2; 2027: 21.8; 2028: 23.5 - Gross international reserves (US$ billions, CBN definition): 2023: 27.9; 2024: 23.8; (memorandum) In months of next year's imports of goods and services: 2023: 5.0; 2024: 4.4 ### External sector and balance of payments (selected) - Current account balance (percent of GDP): 2023: 0.5; 2024: 0.7 - Exports of goods and services (percent of GDP): 2023: 16.0; 2024: 21.1 - Imports of goods and services (percent of GDP): 2023: 17.7; 2024: 24.0 - Price of Nigerian oil (US$ per barrel): 2023: 82.4; 2024: 81.2; 2025: 77.4; 2026: 74.3; 2027: 71.6; 2028: 69.3 - External debt outstanding (US$ billions): 2023: 110.1; 2024: 109.1; 2025: 114.0; 2026: 123.1; 2027: 130.2; 2028: 138.6 - Net international reserves (increase -) (Billions of U.S. dollars): 2023: 8.7 (Table 2 overall balance and reserves flows) ### Indicators of Fund credit — baseline and downside (selected) - Stock of existing and prospective Fund credit (SDR million): 2023: 1840.9; 2024: 613.6; 2025: 0.0; 2026: 0.0; 2027: 0.0; 2028: 0.0 - Obligations (SDR million): 2023: 736.7; 2024: 327.7; 2025: 654.6; 2026: 29.2; 2027: 29.2; 2028: 29.2 - Baseline: Fund obligations (repurchases and charges) in percent of Quota: 2023: 30.0; 2024: 54.1; 2025: 26.7; 2026: 1.2; 2027: 1.2; 2028: 1.2 - Baseline: Fund credit outstanding in percent of Gross international reserves: 2023: 8.9; 2024: 3.5; 2025: 0.0; 2026: 0.0; 2027: 0.0; 2028: 0.0 - Downside vs Baseline differences are modest in these indicators (see Tables for full time-profile). ### Policy recommendations and risk responses (from Risk Assessment Matrix) - External risks (conflict escalation, commodity price volatility, sovereign debt distress): - Prioritize fiscal intervention to relieve food insecurity. - Tighten macroeconomic/monetary policy to prevent de-anchoring of inflation expectations. - Allow greater exchange rate flexibility to preserve external buffers. - Seek alternative external financing to fund the spike in external debt service in 2024 and 2025. - Extreme climate events: - Rebuild fiscal and external buffers. - Improve business environment to boost productivity and diversify the economy. - Nigeria-specific risks: - Continued high inflation / exchange rate–inflation spiral: - Decisively tighten monetary policy including mopping up excess liquidity. - Refrain from monetary financing of the deficit; use domestic issuance to drain excess liquidity. - Concurrently raise taxes on excises, telecom, and plastics usage charges. - Agriculture and oil production shocks, security deterioration: - Increase adaptation investments and agricultural inputs. - Strengthen security and investment environment for onshore oil and gas. - Strengthen governance in oil and gas, including consistent implementation of PIA and publication of gross and net oil revenues. - Slow progress on corruption, tax evasion, AML/CFT weaknesses: - Step up anti-corruption and governance efforts (asset declaration, manage risks from politically exposed persons, transparency of beneficial ownership, corporate governance). - Strengthen AML/CFT regime, including implementing past Fund recommendations and recommendations of the 2021 Mutual Evaluation Report and FATF action plan. *Source: Nigerian authorities; and IMF staff estimates and projections.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ngaea2024001.pdf_