## _cr05302 ## Source details **Canonical URL:** [_cr05302](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05302.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05302.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05302.pdf.json) --- ### Executive summary — 2004 performance and macro outcomes - Macroeconomic policies aimed at macroeconomic stability and reducing vulnerability to oil price shocks. - Windfall oil revenue in excess of the budget reference price of US$25 per barrel was set aside in deposit accounts with the CBN; windfall oil revenue of about US$6 billion was set aside. - Monetary tightening contributed to lower inflation, a more stable exchange rate, and a significant buildup of international reserves. - Real GDP growth estimated at about 6 percent in 2004, driven largely by non-oil sectors (notably agriculture) and some manufacturing and services. - Employment growth sluggish and cost of doing business remained high. - Consolidated government fiscal stance in 2004 was prudent despite large increase in oil revenue: - Consolidated government’s overall surplus increased to 10 percent of GDP from a balance position in 2003. - Windfall oil revenue savings (consolidated, in billions of U.S. dollars): 3.3; 5.9 (two entries shown in memorandum). - Key indicators (2003–2004, annual percentage changes or levels where indicated): - Consumer prices (eop.): 2003 = 23.8; 2004 Prel. = 10.0 - Real GDP growth: 2003 = 10.9; 2004 Prel. = 6.1 - o/w non-oil GDP: 2003 = 4.4; 2004 Prel. = 7.4 - o/w oil and gas GDP: 2003 = 26.5; 2004 Prel. = 3.5 - Federal government non-oil primary balance, cash basis (in % of non-oil GDP): 2003 = -14.3; 2004 = -12.2 - Consolidated government non-oil primary balance, cash basis (in % of non-oil GDP): 2003 = -34.4; 2004 = -35.2 - Broad money (12-month rate, eop.): 2003 = 24.1; 2004 = 14.0 - Reserve money (12-month rate, eop.): 2003 = 16.4; 2004 = 6.3 - Current account balance (in percent of GDP): 2003 = -2.4; 2004 = 4.8 - Gross international reserves (in billions of U.S. dollars): 2003 = 7.5; 2004 = 17.0 ### Monetary policy, liquidity, and disinflation - CBN tightened monetary policy and "for the first time in well over two decades, it met its monetary policy targets." - Reforms improving monetary policy effectiveness: - New settlement bank system (April) causing one-off liquidity withdrawal. - Daily open market operations at end-2003. - CBN withdrew as buyer from the primary market for government securities; shift toward market-clearing interest rates in Q3 2004. - Specific one-off liquidity withdrawal: seven designated settlement banks deposited equivalent of about 14 percent of end-2003 base money in settlement collateral with the CBN. - Early 2005: CBN failed to sterilize a build-up of excess liquidity; broad money rose by 25 percent in the 12 months to March 2005. - Inflation and price developments: - 12-month inflation rate decelerated to 10 percent at end-2004 from 23.8 percent at end-2003. - Domestic fuel price increases of about 25 percent occurred in October 2004. - 12-month inflation rose to 16 percent in March 2005; food price inflation rose to 25 percent; nonfood inflation 3.6 percent. - Food accounts for about two-thirds of the CPI. ### Foreign exchange, reserves, and external position - Monetary tightening dampened FX pressures in 2004: - DAS FX sales virtually same as 2003; naira appreciated about 4 percent in Q1 2004 and remained stable. - Spread between interbank and DAS averaged 0.2 percent; parallel market premium about 5 percent. - "The exchange rate appreciated moderately in real terms in 2004." - Reserves and external balances: - International reserves rose to US$22 billion at end-April 2005 from US$7.5 billion at end-2003. - Reserves equivalence cited: 7.7 months of 2006 imports of goods and services or 10.8 months of imports of goods in 2005 (end-April 2005 figure). ### Fiscal policy, 2005 budget, and risks - 2005 appropriations act (signed April 12, 2005) implies 57 percent increase in federal primary spending versus 2004, financed by higher oil revenue, use of one half of 2004 windfall savings, and projected asset sales/privatization receipts; budget reference oil price raised from US$25 to US$30 per barrel. - Potential fiscal impacts and staff concerns: - Full implementation and distribution of higher oil revenue to SLGs could widen consolidated non-oil primary deficit to 45 percent of non-oil GDP from 36 percent in 2004. - Consolidated government would still record a sizable cash surplus at oil price of US$49.5 per barrel. - Staff view: consolidated government non-oil primary deficit would widen by about 4½ percentage points to about 41 percent of non-oil GDP in 2005 under authorities’ containment measures. - Fiscal projections (Federal Government Budget, 2004-05, commitment/cash as presented): - Oil price (US$ per barrel): 38.33 30.0 49.5 - Total revenue (commitment basis, in billions of naira): 1,486 1,492 1,938 - Oil revenue: 1,236 1,184 1,674 - Non-oil revenue: 250 308 265 - Total expenditure: 1,246 1,712 1,530 - Recurrent expenditure: 957 1,095 1,089 - of which debt service (interest): 345 268 347 - Capital expenditure: 289 582 441 - Overall balance: 239 -220 409 - (In percent of GDP): 2.5 -1.9 3.4 - Non-oil primary balance: -652 -1,136 -917 - (In percent of non-oil GDP): -13.4 -19.4 -15.6 - Memorandum: Oil revenue windfall gross deposits (consolidated, in billions of U.S. dollars) 4/5.9 ... 12.7 (In percent of non-oil GDP): 16.2 ... 28.8 ### Policy recommendations (summarized) - Fiscal policy: - Continue conservative oil price-based fiscal rule; save windfall oil revenue above reference price (2005 recommendation: above US$30 per barrel). - Implement quarterly fiscal framework; pass the Fiscal Responsibility Bill. - Introduce a single treasury account and functional budget classification; develop a medium-term expenditure framework consistent with NEEDS. - Design equitable and sustainable strategy to address pension arrears; encourage subnational PEM reforms. - Monetary and exchange rate policy: - Implement credible monetary framework aimed at single digit inflation; allow short-term interest rates to adjust; allow market-determined exchange rate. - Phase out government overdraft facility; remove CBN from primary government securities market. - Introduce daily liquidity forecasting; improve public communication. - Banking sector: - Establish high-level steering committee; develop exit strategy for weak banks; strengthen laws/regulations for closure and asset management companies. - Implement zero tolerance for misreporting/under-provisioning; strengthen rules on insider lending, large exposure, loan classification. - Introduce electronic financial analysis system; move to consolidated supervision. - Foreign exchange market reforms: - Implement action plan for timely move to wholesale auction; unify DAS and interbank markets; simplify FX regulations. - Other structural reforms: - Revamp Federal Office of Statistics (FOS)/create National Bureau of Statistics; lengthen maturity structure of treasury bills; introduce new ECOWAS CET-based tariff system; accelerate privatization. ### Banking sector restructuring and financial soundness - CBN announced capital requirement increase to N25 billion at end-2005 (described elsewhere as increase from about US$15 million to US$190 million at end-2005); consolidation encouraged through M&A. - As of March 2005: - 22 banks offered shares to the public; six completed offerings raising about N 86 billion. - 11 groups comprising 39 banks agreed to merge. - Deterioration in banks’ condition in 2004: - Unsound banks increased to 17 out of 89 from 12 at end-2003. - Marginally sound banks increased to 16 from 6 at end-2003. - Selected Financial Soundness Indicators (In percent): - Regulatory capital to risk-weighted assets: 2001: 16.2; 2002: 18.1; 2003: 17.8; 2004: 14.7 - Regulatory Tier 1 capital to risk-weighted assets: 2001: 14.2; 2002: 16.0; 2003: 15.7; 2004: 13.4 - Non-performing loans to gross loans: 2001: 19.7; 2002: 24.1; 2003: 19.8; 2004: 21.6 - Non-performing loans net of provisions to capital*: 2001: 19.9; 2002: 22.9; 2003: 18.1; 2004: 17.3 - Liquid assets to total assets: 2001: 29.2; 2002: 31.5; 2003: 27.8; 2004: 31.2 - MFD recommendations: steering committee, assess fiscal costs, remove legal impediments to consolidation, asset valuation guidance, strengthen risk assessment and supervisory capacity, implement electronic reporting and consolidated supervision. ### Structural reform progress (2004–early 2005) - Governance and transparency: - External auditor selected March 2005 for oil sector audits under EITI; authorities published revenue distribution since 1999. - EFCC seized about US$700 million in assets; about 100 high-level officials investigated. - Two ministers dismissed and a high-level parliamentarian resigned early 2005 over corruption allegations. - Civil service reform: - Monetization/restructuring led to retrenchment of 17,000 employees and elimination of 5,000 ghost workers. - Tax/customs administration: - FIRS restructured; one-third of customs management replaced; three-year reform program launched. - Pension reform: - PAYG pension replaced by contributory, fully funded system. - Public expenditure management: - Capital planning integrated into MoF; new chart of accounts; due process units established; procurement bill sent to parliament. - Deregulation and privatization: - Power sector reform bill signed March 2005; public-private partnership bill submitted; Apapa Port concession awarded March 2005. - Pace of privatization described as disappointing; authorities committed to accelerate privatization and liquidate nonviable companies. ### Medium-term outlook, scenarios, and key projections (2004–10) - Staff baseline and scenario features: - Baseline non-oil economy growth: 5-5½ percent a year. - Inflation projected to decline to 3 percent by 2010. - Non-oil primary balance to improve gradually with oil price-based rule, limiting budget deficit to 1-2 percent of GDP at US$25 per barrel (2002 US$). - Staff increased real long term reference oil price estimate to US$25 per barrel (2002 US$). - Debt Sustainability Analysis: external debt sustainable at current/projected oil prices; an oil price shock > one half standard deviation (equivalent to > US$4 per barrel fall) with unchanged fiscal policy would render external debt unsustainable. - Scenario summaries and selected numeric projections (Nigeria: Medium-term Macroeconomic Scenarios 2004-10; series shown as columns across years where presented): - Price of Nigerian oil (U.S. dollars per barrel): 38.34 49.5 48.8 45.4 44.0 - Baseline (selected): - Real GDP (at 1990 factor cost): 6.1 3.4 8.0 6.1 6.4 - Non-oil GDP (at 1990 factor cost): 7.4 4.9 5.0 5.3 5.5 - Consumer price index (annual average): 15.0 16.3 7.3 5.9 3.0 - Overall balance (commitment basis, in percent of GDP): 7.7 9.9 11.3 9.6 8.8 - Non-oil primary balance (commitment basis, in percent of non-oil GDP): -36.4 -40.7 -39.6 -38.1 -37.0 - External current account balance (in percent of GDP): 4.6 5.8 8.4 6.8 6.1 - Gross external reserves (billions of U.S. dollars): 17.0 28.5 41.9 59.8 90.7 - High growth (selected): - Non-oil GDP growth faster (e.g., 7.0, 7.8, 9.0 in later years) with higher reserves relative to baseline. - Muddle-through (selected): - Non-oil GDP growth stagnant (2.8 percent series); CPI much higher (20.0, 21.1, 19.9, 18.5); reserves fall (17.0 28.5 30.0 24.4 8.0). - Staff projections for 2005 (headline): - Real GDP projected to grow by 3½ percent. - Non-oil economy projected to grow by 5 percent. - End-year inflation expected 12-15 percent (above authorities’ initial target 7-9 percent). - Gross international reserves expected to increase by about US$11.5 billion to US$28.5 billion at end-2005 (equivalent to 10 months of imports of goods and services). ### Debt sustainability and external vulnerabilities - External public debt indicators: - External debt fell from 115 percent of exports in 2003 to 92 percent in 2004. - Arrears to Paris Club creditors amounted to US$5.7 billion at end-2004. - Baseline DSA assumptions and findings (2005-25 baseline highlights): - Growth: average 5 percent; non-oil GDP about 5½ percent. - Oil prices: US$49.5 per barrel in 2005, declining to US$35 per barrel in 2019 then constant. - Nominal external debt burden falls from 50 percent of GDP in 2004 to below 40 percent in 2005 and close to 20 percent in 2025. - NPV-of-debt-to-GDP falls from 48 percent in 2004 to 39 percent in 2005, below 30 percent in 2010, below 20 percent by end-2025. - Stress test: country-specific oil price shocks (permanent reductions of US$6 or US$8 per barrel) lead to rising debt ratios; with a US$6 shock and unchanged fiscal policy, reserves cushion exhausted by 2018 and debt become unsustainable later (debt ratios above NPV 30 percent by 2022). - Staff recommendation: approach new borrowing carefully; sustain fiscal discipline and reform implementation. ### Statistics, technical assistance, and capacity building - Serious deficiencies across national accounts, government finance, money and banking, and external accounts; coordination, computerization, and outdated Statistical Act (1957) cited as root problems. - Staff call to action: revamp FOS (National Bureau of Statistics formation noted), implement STA recommendations, provide timely monthly key economic data for intensified surveillance. - Fund TA and capacity-building focus areas: tax administration and policy, public expenditure management, banking supervision, liquidity management, FX market unification, and statistics. - Historical and ongoing TA missions listed (2000–2005) across FAD, STA, MFD, LEG, MAE, and others. ### Risks, vulnerabilities, and staff engagement - Major vulnerabilities: - Legacy effects of prolonged mismanagement, poor infrastructure/public utilities, corruption, weak institutions, constitutional revenue allocation dispersing about half of oil revenue to SLGs, and administrative/technical capacity constraints. - Downside risks to outlook: - Highly volatile oil prices and uncertain external outlook. - Social tensions in the Niger Delta disrupting oil production. - Agricultural output vulnerable to climatic conditions. - Expansionary fiscal stance jeopardizing inflation objective, pressuring real interest rates and real exchange rate, undermining non-oil growth. - Fuel pricing/subsidies affecting fiscal and inflation outcomes. - Bank recapitalization enforcement could exert pressures on financial system and capital flows if not well managed. - Staff engagement: - Authorities requested potential Fund support under a possible non-borrowing instrument if operational. - IMF staff committed to policy advice and capacity-building assistance; intensified surveillance and close policy dialogue to continue. *Source: Executive Summary and excerpts from Nigeria—2005 Article IV Consultation (IMF), content unit _cr05302.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Macroeconomic performance in 2004 - Macroeconomic policies were consistent with objectives of achieving macroeconomic stability and reducing vulnerability to oil price shocks. - All three tiers of government adhered to a conservative oil price-based fiscal rule; the windfall oil revenue in excess of the budget reference price of US$25 per barrel was set aside in deposit accounts with the CBN. - Monetary policy tightening contributed to: - lower inflation, - a more stable exchange rate, - a significant buildup of international reserves. - Real GDP growth was robust and is estimated to have increased by about 6 percent in 2004, benefiting largely from higher growth in the non-oil economy (notably agriculture), and some areas within manufacturing and services. - Employment growth remained sluggish and the cost of doing business remained high. - Consolidated government fiscal stance was prudent in 2004 despite a large increase in oil revenue: - Consolidated government’s overall surplus increased to 10 percent of GDP from a balance position in 2003. - The windfall oil revenue of about US$6 billion was set aside. Key indicators (2003–2004, annual percentage changes or levels where indicated) - Consumer prices (eop.): 2003 = 23.8; 2004 Prel. = 10.0 - Real GDP growth: 2003 = 10.9; 2004 Prel. = 6.1 - o/w non-oil GDP: 2003 = 4.4; 2004 Prel. = 7.4 - o/w oil and gas GDP: 2003 = 26.5; 2004 Prel. = 3.5 - Federal government non-oil primary balance, cash basis (in % of non-oil GDP): 2003 = -14.3; 2004 = -12.2 - Consolidated government non-oil primary balance, cash basis (in % of non-oil GDP): 2003 = -34.4; 2004 = -35.2 - Broad money (12-month rate, eop.): 2003 = 24.1; 2004 = 14.0 - Reserve money (12-month rate, eop.): 2003 = 16.4; 2004 = 6.3 - Current account balance (in percent of GDP): 2003 = -2.4; 2004 = 4.8 - Gross international reserves (in billions of U.S. dollars): 2003 = 7.5; 2004 = 17.0 Federal Government Budget (cash basis) selected items (2003–2004, and 2004 Staff Estimates where shown) - Oil price (in U.S. dollars per barrel): 2003 = 28.9; 2004 Auth. Rev. = 35.8; 2004 Prog./Staff Est. = 38.3 - Total revenue (in billions of naira): 2003 = 96; 2004 Auth. Rev. = 1422; 2004 Prog./Staff Est. = 1,486 - Oil revenue: 2003 = 74; 2004 Auth. Rev. = 1,115; 2004 Prog./Staff Est. = 1,236 - Non-oil revenue: 2003 = 22; 2004 Auth. Rev. = 306; 2004 Prog./Staff Est. = 250 - Total expenditure (in billions of naira): 2003 = 1,049; 2004 Auth. Rev. = 1,157; 2004 Prog./Staff Est. = 1,075 - Recurrent expenditure: 2003 = 792; 2004 Auth. Rev. = 862; 2004 Prog./Staff Est. = 844 - Capital expenditure: 2003 = 257; 2004 Auth. Rev. = 295; 2004 Prog./Staff Est. = 231 - Overall balance (in billions of naira): 2003 = -85; 2004 Auth. Rev. = 26; 2004 Prog./Staff Est. = 541 - (In percent of GDP): 2003 = -1.1; 2004 Auth. Rev. = 2.7; 2004 Prog./Staff Est. = 4.3 - Non-oil primary balance (in percent of non-oil GDP): 2003 = -14.3; 2004 Auth. Rev. = -12.8; 2004 Prog./Staff Est. = -12.2 - Memorandum: Oil revenue windfall savings (consolidated, in billions of U.S. dollars) = 3.3; 5.9 (two entries shown) ### Structural reform progress in 2004–early 2005 - Authorities made good progress on structural reforms aimed at tackling public sector corruption, improving transparency of public policies, advancing civil service reform and the Extractive Industries Transparency Initiative (EITI), and strengthening budgetary procedures. - Authorities resisted pressure to reverse liberalization of the downstream petroleum sector. - Pace of privatization was disappointing. - Implementation status highlights (Box 1, 2004 Article IV recommendations): - Fiscal: All states participated in the fiscal rule; consolidated fiscal stance restrained; Fiscal Responsibility Bill ongoing; budget cycle improvements partially implemented. - Monetary: Inflation reduced and reserves increased; movement toward indirect instruments and market-clearing rates partially implemented; more work needed on communication. - Banking: CBN announced zero tolerance toward misreporting and increased banks’ minimum capital requirement to N25 billion at end-2005; ongoing work on weak banks. - Foreign exchange: Unification pending; wholesale Dutch auction announced early 2006 to unify DAS and interbank markets. - Statistics and tariff reform: Little progress on statistics; comprehensive tariff reform planned for July 1, 2005; import bans to be phased out by end-2006. - Privatization: Little progress. ### Outlook for 2005 and medium term - Economic outlook for 2005 is positive but with notable downside risks that bear close monitoring. - Given favorable terms of trade, gross international reserves are projected to increase substantially. - Expected benefits to growth from improved infrastructure and policy initiatives to spur non-oil GDP growth and removal of distortions. - The 2005 federal government appropriations act poses substantial risks; authorities have identified measures to contain spending. - The non-oil fiscal deficit will increase significantly in 2005, putting pressure on domestic resources. - Monetary policy implications: - The burden of containing inflation will fall on monetary policy. - Short-term interest rates should be allowed to adjust as needed to meet monetary targets. - The exchange rate should be market-determined. - It may be difficult to keep inflation within the authorities’ original target range. - Medium-term outlook hinges on: - Consolidating progress in macroeconomic stability, - Strengthening public expenditure management, - Progressing significantly in implementing structural reforms. - Staff agrees with the authorities’ ambitious structural reform agenda focused on: - improving governance, - enhancing public service delivery, - strengthening the financial system, - unifying the foreign exchange markets, - liberalizing trade, - improving customs and tax administration. - Reform implementation is expected to boost productivity, allow more efficient resource allocation, and accelerate growth. - As a matter of urgency, the national statistical system should be overhauled. ### Policy recommendations and priorities (summarized) - Fiscal policy: - Continue conservative oil price-based fiscal rule; save windfall oil revenue above reference price (2005 recommendation: above US$30 per barrel). - Implement a quarterly fiscal framework consistent with a prudent spending level. - Pass the Fiscal Responsibility Bill. - Introduce a single treasury account and functional budget classification. - Design an equitable and sustainable strategy to address pension arrears. - Develop a medium-term expenditure framework consistent with NEEDS. - Encourage public expenditure reforms at subnational level. - Monetary and exchange rate policy: - Implement a credible monetary policy framework aimed at achieving single digit inflation. - Allow for market-determined exchange rate; allow interest rates to adjust to achieve money targets. - Phase out the government’s overdraft facility. - Remove the CBN from the primary market of government securities. - Introduce daily liquidity forecasting and improve public communication. - Banking sector: - Establish high level steering committee and develop an exit strategy for weak banks. - Strengthen laws and regulations to allow exit of insolvent banks and creation of asset management companies. - Implement zero tolerance for misreporting and under-provisioning. - Strengthen regulations on insider lending, large exposure, and loan classification. - Introduce electronic financial analysis system and daily bank reporting; move to consolidated banking supervision. - Foreign exchange market reforms: - Implement action plan to ensure operational and regulatory framework for timely move to wholesale auction. - Unify DAS and interbank foreign exchange markets. - Simplify foreign exchange regulations in line with the new market framework. - Other structural reforms: - Revamp Federal Office of Statistics (FOS) as a priority and provide timely data on key economic indicators. - Lengthen maturity structure of treasury bills and develop treasury bill market to restructure domestic debt and reduce rollover risks. - Introduce new tariff system based on ECOWAS’s CET; consider accelerating removal of import bans and temporary 50 percent tariff rate. - Accelerate privatization program. ### Risks, vulnerabilities, and staff engagement - Major vulnerabilities stem from: - legacy effects of prolonged economic mismanagement, - poor infrastructure and public utilities, - corruption and weak public institutions, - constitutional revenue allocation that disperses about half of oil revenue to state and local governments (SLGs), - administrative and technical capacity constraints. - These factors constrain non-oil growth, social welfare improvements, and reform implementation pace. - Staff notes a unique window of opportunity to accelerate and lock in reform gains given political stability and reform commitment. - Authorities requested potential Fund support under a possible non-borrowing instrument if it becomes operational. - IMF staff committed to providing policy advice and capacity-building assistance to Nigeria. *Source: Executive Summary, Nigeria—2005 Article IV Consultation (IMF).* ### 7. The CBN tightened monetary policy to meet the disinflation objective. For the ### _cr05302 - 7. The CBN tightened monetary policy to meet the disinflation objective. For the ### Monetary policy, liquidity, and disinflation - The CBN tightened monetary policy and, "for the first time in well over two decades, it met its monetary policy targets." - Reforms that improved monetary policy effectiveness included: - introducing the new settlement bank system in April that resulted in a one-off liquidity withdrawal; - moving to daily open market operations at end-2003; - the CBN withdrawing as a buyer from the primary market for government securities and the gradual shift to market-clearing interest rates starting in the third quarter of 2004. - A specific one-off liquidity withdrawal: "the seven designated settlement banks deposited the equivalent of about 14 percent of end-2003 base money in settlement collateral with the CBN." - However, in early 2005 the CBN failed to sterilize a build-up of excess liquidity, which resulted in a 25 percent increase in broad money in the 12-months to March 2005. ### Foreign exchange market and exchange rate developments - Monetary tightening dampened foreign exchange market pressures in 2004: - Foreign exchange sales in the Dutch Auction System (DAS) were virtually the same as in 2003. - The naira appreciated against the U.S. dollar by about 4 percent in the first quarter of 2004 and remained stable since. - The spread between the interbank and DAS exchange rate averaged 0.2 percent. - The parallel market premium remained stable at about 5 percent. - "The exchange rate appreciated moderately in real terms in 2004." ### Inflation and price developments - Monetary tightening and the strengthening naira helped lower inflation: - The 12-month inflation rate decelerated to 10 percent at end-2004 from 23.8 percent at end-2003. - Domestic fuel price increases of about 25 percent occurred in October 2004. - Inflation dynamics in early 2005: - The 12-month inflation jumped to 16 percent in March 2005. - Primary driver: a sharp increase in food prices; food price inflation rose to 25 percent. - Inflation for the nonfood price index remained moderate at 3.6 percent. - Food accounts for about two-thirds of the CPI. ### External position and reserves - Improvement in terms of trade strengthened the external position: - The external current account shifted to a surplus; the non-oil current account also improved. - International reserves rose to US$22 billion at end-April 2005 (equivalent to 7.7 months of 2006 imports of goods and services or 10.8 months of imports of goods in 2005) from US$7.5 billion at end-2003 (equivalent to 3.4 months of imports of 2005 goods and services or 3.6 months of imports of goods in 2004). ### Public and external debt servicing - Gross external public debt declined in 2004 relative to GDP and exports. - External debt fell from 115 percent of exports in 2003 to 92 percent in 2004. - Arrears to Paris Club creditors amounted to US$5.7 billion at end-2004. - Debt servicing behavior: - The government serviced its commercial and multilateral external debt obligations. - It paid only about half of its obligations to Paris Club creditors. - Consultations with the Paris Club occurred and bilateral negotiations under the 2000 rescheduling agreement made further progress, with only one bilateral agreement pending at end-2004. ### Sovereign risk and credit outlook - Sovereign risk spreads decreased from their highs of late 2002 but remained about 400 basis points above the global emerging market spread. - The Nigerian government is seeking a Standard and Poor’s credit rating. ### Structural reforms and governance progress (Box 2 highlights, July 2004–March 2005) - Governance and transparency: - An external auditor was selected in March 2005 for oil sector audits under EITI. - Authorities published revenue distribution to the three tiers of government since 1999. - The EFCC seized about US$700 million in assets; about 100 high-level public officials are being investigated for economic crimes and corruption. - In early 2005, two ministers were dismissed and a high-level parliamentarian resigned over corruption allegations. - The Federal Capital Territory computerized land records and is validating more than 50,000 plot allocations. - Civil service reform: - Monetization and restructuring led to the retrenchment of 17,000 employees and elimination of 5,000 ghost workers. - Tax and customs administration: - The Federal Inland Revenue Service was restructured; one-third of customs administration’s management was replaced and a three-year reform program launched. - Pension reform: - The pay-as-you-go pension system was replaced by a contributory, fully funded pension system. - Public expenditure management: - Capital planning integrated into the MoF; new chart of accounts; line ministries' capital accounts consolidated; due process units established; a new procurement bill sent to parliament. - Deregulation and privatization: - A major power sector reform bill was signed into law in March 2005. - A public-private partnership bill submitted to parliament. - An international company was awarded a concession to manage Apapa Port in March 2005. ### Banking sector restructuring and financial soundness - In July 2004 the CBN announced major bank restructuring: - Minimum capital requirement to be increased from about US$15 million to US$190 million at end-2005. - Capitalization program supported by measures encouraging bank consolidation through mergers and acquisitions. - As of March 2005: - 22 banks have offered shares to the public; six completed share offerings, raising about N 86 billion. - 11 groups comprising 39 banks have agreed to merge. - Banking supervision reforms: - Adopt a zero-tolerance policy toward prudential regulation violations. - Move toward a risk-based supervisory framework. - Strengthen supervision over nonbank financial institutions. - The CBN requested technical assistance from the Monetary and Financial Systems Department (MFD). - Deterioration in banks’ condition in 2004: - Number of unsound banks increased to 17 out of 89 banks, from 12 at end-2003. - Another 16 banks were marginally sound, up from 6 banks at end-2003. - Selected Financial Soundness Indicators (In percent): - Regulatory capital to risk-weighted assets: 2001: 16.2; 2002: 18.1; 2003: 17.8; 2004: 14.7 - Regulatory Tier 1 capital to risk-weighted assets: 2001: 14.2; 2002: 16.0; 2003: 15.7; 2004: 13.4 - Non-performing loans to gross loans: 2001: 19.7; 2002: 24.1; 2003: 19.8; 2004: 21.6 - Non-performing loans net of provisions to capital*: 2001: 19.9; 2002: 22.9; 2003: 18.1; 2004: 17.3 - Liquid assets to total assets: 2001: 29.2; 2002: 31.5; 2003: 27.8; 2004: 31.2 ### Fiscal policy, 2005 budget, and risks - The 2005 appropriations bill signed on April 12, 2005 implies a 57 percent increase in federal primary spending compared with 2004. - Financed by higher oil revenue, the use of one half of the 2004 savings of the windfall oil revenue, and projected sales of government assets and privatization receipts. - Budget reference oil price raised from US$25 to US$30 per barrel. - Potential fiscal impact and risks: - Full implementation and distribution of higher oil revenue to state and local governments could widen the consolidated non-oil primary deficit to 45 percent of non-oil GDP from 36 percent in 2004. - The consolidated government would still record a sizable cash surplus at the oil price of US$49.5 per barrel (March 2005 WEO projections). - Authorities indicated plans to scale back the spending increase in 2005. - Monetary framework revisions (early February 2005): - Limit naira fluctuation to a range of (+/-) 3 percent against the U.S. dollar to anchor inflation expectations. - Immediately cut the minimum rediscount rate (MRR) by 2 percentage points to 13 percent. - Begin to review the appropriateness of the MRR on a quarterly basis. - Statutory limit on the federal government’s overdraft account lowered from 12½ percent of current projected revenue to 5 percent. ### Macroeconomic outlook, projections, and vulnerabilities - Staff projections for 2005: - Real GDP projected to grow by 3½ percent. - Crude oil and gas GDP would remain almost constant. - Non-oil economy projected to grow by 5 percent. - End-year inflation expected to be contained to a range of 12-15 percent (above authorities’ initial target range of 7-9 percent). - Gross international reserves expected to increase by about US$11.5 billion to US$28.5 billion at end-2005 (equivalent to 10 months of imports of goods and services). - Downside risks highlighted: - Highly volatile oil prices and uncertain external outlook. - Social tensions in the Niger Delta could disrupt oil production. - Agricultural output vulnerable to climatic conditions. - Expansionary fiscal stance could jeopardize the inflation objective and exert pressure on real interest rates and the real exchange rate, undermining non-oil growth. - Fuel prices could weigh on the inflation outlook. - Enforcing banks’ new minimum capital requirement by end-year could exert pressures on the financial system and impact capital flows if not properly managed. - Medium-term conditionality: - Sustaining macro stability, strengthening public expenditure management, and advancing structural reforms are necessary to achieve higher sustained growth. - Staff emphasized pro-growth reforms: tackling corruption, improving infrastructure, strengthening the financial system, unifying foreign exchange markets, liberalizing trade, and enhancing customs and tax administration efficiency. - Staff considered the current exchange rate broadly appropriate, citing narrow spread between official and parallel exchange rates, robust non-oil GDP growth, and relative real exchange rate stability despite sharp terms of trade improvement. _Source: _cr05302 - 7. The CBN tightened monetary policy to meet the disinflation objective. For the_ ### 24. In this context, staff presented its medium-term macroeconomic framework ### 24. In this context, staff presented its medium-term macroeconomic framework ### Medium-term macroeconomic framework and scenarios - Staff presented a medium-term macroeconomic framework under a range of scenarios to illustrate vulnerability to an expansionary fiscal stance, lower oil prices, and policy slippages. - Baseline scenario key features and projections: - Non-oil economy growth: 5-5½ percent a year. - Main growth drivers: agriculture, light manufacturing, solid minerals, and services. - Inflation: projected to decline to 3 percent by 2010. - Non-oil primary balance: to improve gradually as authorities implement an oil price-based rule, limiting the budget deficit to 1-2 percent of GDP at US$25 per barrel in constant 2002 U.S. dollars. - Despite increased public spending in 2005, fiscal stance is consistent with maintaining oil and gas wealth over the long run. - External current account: worsens with declining oil prices; non-oil current account deficit narrows and net capital inflows increase reflecting improved investment climate and external competitiveness. - Long-run fiscal sustainability assessment: - Staff increased estimate of the real long term reference oil price to US$25 per barrel in constant 2002 U.S. dollars. - A fiscal stance with a non-oil primary deficit of 37-41 percent of non-oil GDP is consistent with maintaining real government wealth over the long term. - Debt sustainability: - DSA using the Bank-Fund template suggests Nigeria’s external debt is sustainable at current and projected oil prices. - Country-specific sensitivity analysis: an oil price shock of more than one half of a standard deviation (equivalent to oil prices falling by more than US$4 per barrel compared with the baseline scenario), and assuming unchanged fiscal policy, would render the external debt unsustainable. - Staff emphasized sustained commitment to reform implementation and a sound fiscal and public debt management framework. ### Scenario summaries - High growth scenario: - Objective: increase annual average growth for the non-oil economy to 7-8 percent to produce 2 million new jobs a year and achieve the poverty MDG. - Private investment requirement: rise to about 25 percent of GDP from the baseline scenario level of 13 percent, equivalent to about US$4-5 billion a year in additional foreign savings. - Faster reform implementation and productivity gains could accelerate growth. - Muddle-through scenario: - Reflects domestic policy slippages, notably failure to implement a prudent fiscal framework and control spending. - Outcomes: growth below potential, fiscal spending increases as a percent of non-oil GDP, private investment crowded out, delays in the reform agenda, sharply weakened external current account, rapid fall in international reserves as monetary authorities defend an overvalued exchange rate. - Authorities’ stance: - Authorities stated categorically that the “muddle-through” scenario was not an option and that policy implementation would be consistent with the baseline scenario. - Authorities viewed the external debt burden as unsustainable given vulnerability to oil sector shocks and indicated discussions with Paris Club creditors about clearing external arrears and reducing external debt. ### Key numeric projections (Nigeria: Medium-term Macroeconomic Scenarios 2004-10) - Price of Nigerian oil (U.S. dollars per barrel): 38.34 49.5 48.8 45.4 44.0 - Baseline: - Real GDP (at 1990 factor cost): 6.1 3.4 8.0 6.1 6.4 - Non-oil GDP (at 1990 factor cost): 7.4 4.9 5.0 5.3 5.5 - Consumer price index (annual average): 15.0 16.3 7.3 5.9 3.0 - Overall balance (commitment basis, in percent of GDP): 7.7 9.9 11.3 9.6 8.8 - Non-oil primary balance (commitment basis, in percent of non-oil GDP): -36.4 -40.7 -39.6 -38.1 -37.0 - Deviation from permanent price rule, balanced budget at 2002 oil prices (in percent): -7.9 -7.5 -6.0 -5.1 -4.7 - External current account balance (in percent of GDP): 4.6 5.8 8.4 6.8 6.1 - Gross external reserves (billions of U.S. dollars): 17.0 28.5 41.9 59.8 90.7 - High growth: - Real GDP (at 1990 factor cost): 6.1 3.4 9.4 7.7 8.8 - Non-oil GDP (at 1990 factor cost): 7.4 4.9 7.0 7.8 9.0 - Consumer price index (annual average): 15.0 16.3 7.3 5.9 3.0 - Overall balance (commitment basis, in percent of GDP): 7.7 9.9 10.9 9.2 7.4 - Non-oil primary balance (commitment basis, in percent of non-oil GDP): -36.4 -40.7 -40.3 -37.1 -34.7 - Deviation from permanent price rule, balanced budget at 2002 oil prices (in percent): -7.9 -7.5 -6.4 -5.2 -5.3 - External current account balance (in percent of GDP): 4.6 5.8 8.2 5.8 3.1 - Gross external reserves (billions of U.S. dollars): 17.0 28.5 41.6 58.1 83.1 - Muddle-through: - Real GDP (at 1990 factor cost): 6.1 1.9 6.5 4.4 4.7 - Non-oil GDP (at 1990 factor cost): 7.4 2.8 2.8 2.8 2.8 - Consumer price index (annual average): 15.0 20.0 21.1 19.9 18.5 - Overall balance (commitment basis, in percent of GDP): 7.7 5.3 10.2 1.6 -5.7 - Non-oil primary balance (commitment basis, in percent of non-oil GDP): -36.4 -52.2 -47.6 -58.8 -68.6 - Deviation from permanent price rule, balanced budget at 2002 oil prices (in percent): -7.9 -11.6 -8.2 -13.9 -19.8 - External current account balance (in percent of GDP): 4.6 5.6 4.8 1.6 -1.0 - Gross external reserves (billions of U.S. dollars): 17.0 28.5 30.0 24.4 8.0 ### Fiscal policy findings and projections - Staff concerns: - Significant relaxation of fiscal policy envisaged in the 2005 appropriations act would entail serious macroeconomic risks. - Authorities’ revenue projections were viewed as overly optimistic for petroleum profit taxes at the budget reference oil price. - Distributing windfall oil revenue from domestic crude oil sales (as occurred in 2004) could greatly increase subnational government spending and jeopardize the disinflation objective. - Recommended undertaking a proper inventory and due diligence of domestic arrears and ensure equitable burden sharing in any clearance strategy. - Questioned whether a considerable increase in public spending could be effectively absorbed while getting value for money. - Authorities’ commitments and measures: - Agreed that full implementation of the 2005 appropriations act entailed significant macroeconomic risks; reiterated commitment to fiscal policy consistent with macroeconomic stability and absorptive capacity. - Pledged to set aside oil revenue in excess of the budget reference oil price, including windfall domestic crude oil revenue, and distribute oil revenue to the three tiers of government on the basis of calculated receipts at the reference oil price of US$30 per barrel. - Limit increase in primary spending to below 20 percent in real terms over 2004 by: - Executing 75 percent of the capital budget and strictly applying due process and procurement practices; - Containing overhead costs to 80 percent of the budget; - Revisiting the contractor arrears clearance strategy and holding off payments until due diligence is completed. - Once due diligence is completed, issue special bonds with maturities of 3-10 years to clear arrears above a certain threshold and pay cash for the rest. - Cash management committee and quarterly fiscal programs plus due process certification to help ensure lower spending limits are met; intend to publish a semi-annual budget report. - Fiscal projections and budget figures (Nigeria: Federal Government Budget, 2004-05) - Oil price (in U.S. dollars per barrel): 38.33 30.0 49.5 - Total revenue (commitment basis, in billions of naira): 1,486 1,492 1,938 - Oil revenue: 1,236 1,184 1,674 - Non-oil revenue: 250 308 265 - Total expenditure: 1,246 1,712 1,530 - Recurrent expenditure: 957 1,095 1,089 - of which: debt service (interest): 345 268 347 - Capital expenditure: 289 582 441 - Overall balance: 239 -220 409 - (In percent of GDP): 2.5 -1.9 3.4 - Non-oil primary balance: -652 -1,136 -917 - (In percent of non-oil GDP): -13.4 -19.4 -15.6 - Memorandum items: - Non-oil primary balance, consolidated (cash basis, in percent of non-oil GDP): -35.2 ... -40.1 - Non-oil primary balance (commitment basis, in percent of non-oil GDP): -36.4 ... -40.7 - Primary balance, consolidated (in percent of GDP): 11.8 ... 13.3 - Overall balance, consolidated (in percent of GDP): 7.7 ... 9.9 - Oil revenue windfall gross deposits (consolidated, in billions of U.S. dollars) 4/5.9 ... 12.7 - (In percent of non-oil GDP): 16.2 ... 28.8 - Oil production (millions of barrels per day): 2.49 ... 2.40 - Notes: - 1/ Includes clearance of arrears. - 2/ Commitment basis plus carry over from previous year minues carry over into next year. - 3/ Includes amortization. - 4/ The windfall is calculated as the difference between oil revenue at the budget reference oil price and actual or WEO oil price. - Staff view on 2005 consolidated government non-oil primary deficit: - Would widen by about 4½ percentage points to about 41 percent of non-oil GDP in 2005 under the authorities’ containment measures. - Staff welcomed the decision to reduce pressure on domestic resources but cautioned that the approach carried risks without revision of budget appropriations and emphasized need for discipline, policy coordination and strong monitoring. - Noted implications for inflation target and private sector crowding out; private sector non-oil demand projected to rise by 2.3 percent in real terms in 2005, well below the projected growth rate of non-oil GDP. ### Monetary and exchange rate policy - Main challenge for the CBN: implement a credible monetary framework to lower inflation and keep it in a single digit over the medium term. - Concerns: - Expansionary fiscal stance combined with an underdeveloped domestic money market and unsound banks will challenge liquidity management in 2005. - Exchange rate and money targeting: - Maintaining an exchange rate band and targeting money seem feasible in the short term given high foreign reserves and favorable projected oil prices, but an exchange rate band would unnecessarily restrict CBN’s ability to use exchange rate as a cushion against shocks. - Money-targeting regime acquired credibility in 2004 as a nominal anchor for inflation control; authorities intend to continue money targeting but will look at a broader range of indicators including exchange rate and foreign exchange demand and supply. - Authorities: exchange rate band objective will be subordinated to the money target if inconsistent and the exchange rate would be allowed to adjust. - 2005 CBN monetary program targets: - 12-month base money growth of 11 percent. - Broad money growth of 15 percent. - CBN will sterilize some excess liquidity via market-based operations: sales of treasury bills, CBN securities, and foreign exchange consistent with the net international reserve target; consider shifting deposits of nonfinancial public enterprises from commercial banks to the CBN. - Staff recommendations and cautions: - Difficult to keep inflation below 10 percent in 2005 given price pressure and fiscal expansion. - Withdrawal of public sector deposits should be seen as a one-off operation; may not be feasible or desirable given bank consolidation reforms. - Importance of allowing short-term interest rates to adjust to meet monetary targets; fiscal policy must be aligned with macro stability objectives. - Encouraged CBN to consider reforms toward an inflation-targeting regime and to: - (i) phase out the government’s overdraft facility by end-2006; - (ii) lengthen further the maturity structure for treasury bills and fully withdraw from the primary treasury bill market; - (iii) expedite the introduction of the liquidity forecasting framework to enhance daily open market operations; - (iv) adopt a proactive and forward-looking framework with monetary decisions made in relation to expected developments in money supply and inflation; and - (v) improve communication with the public, including frequent assessments of the monetary and inflation outlook. ### Medium-term public expenditure management (PEM) reforms - Identified challenge: strengthen PEM to ensure spending is effective, efficient, and clearly linked to NEEDS objectives. - Staff recommendations: - Increase automation and move more quickly to functional and program budget classification. - Develop an effective medium-term expenditure framework (MTEF). - Undertake a public investment review to assess capacity to evaluate, prioritize, and manage public investment. - Move to a single treasury account to strengthen cash control and improve budget transparency. - Authorities’ actions and subnational reforms: - Several states and local governments are strengthening PEM systems and aligning budgets with development requirements; subnational governments account for about 60 percent of the consolidated government’s non-oil primary spending. - Federal Government PEM reforms (selected items): - Introduce functional budget classification on the basis of line ministries’ 2005 budget submissions using the new chart of accounts; - Establish a special unit within the MOF to conduct cost/benefit analyses of large investment projects; - Undertake a fiscal module of a Report on the Observance of Standards and Codes (Fiscal ROSC) for assessing transparency of fiscal management practices; - Introduce a virtual poverty fund (VPF) to develop a poverty-reducing expenditure tracking system with donor assistance; - Roll out the Transactions Recording and Reporting System to all line ministries to enhance budget automation; - Plan to build on the success of the CCA and establish a single treasury account; - Build the 2006 budget process around a “top-down” MTEF; major line ministries to formulate objectives in line with NEEDS and link spending programs to these objectives within a medium-term framework. - Subnational Government PEM reforms (selected items): - All states committed to preparing State Economic Empowerment and Development Strategy (SEEDS) coordinated with NEEDS; - Donors and federal government developed an incentive system with matching grants based on measurable benchmarks to assess progress in implementing SEEDS; almost all states have agreed to be evaluated; - VPF will develop a strategy for close collaboration with SLGs; - MOF will extend training programs to 8 pilot states on cost/benefit analysis of investment projects; - One third of SLGs will introduce due process procedures similar to those in the federal government. *Source: IMF staff report excerpt.* ### 38. The authorities further noted that, as part of the PEM reforms, they planned to ### _cr05302 - 38. The authorities further noted that, as part of the PEM reforms, they planned to ### Public expenditure management, civil service and parastatals - Wages account for about 60 percent of recurrent expenditure and are the main driver of cost. - Plan to roll out civil service reforms to all federal line ministries and begin to restructure the federal parastatals. - Once the core civil service has been restructured, authorities plan to reform the more than 500 federal parastatals.16 - Policy intent for parastatals: - Stop funding commercial parastatals, subject them to independent audits and privatize them. - Semicommercial entities (including universities) will be required to undergo annual audits. - Once the federal civil service is restructured, the authorities will review civil service wages. - Staff recommendation: accelerate automation of payroll and personnel data to enhance payroll transparency and strengthen expenditure control. ### Intergovernmental fiscal relations and Fiscal Responsibility Bill (FRB) - Priority: improve intergovernmental fiscal relations and clarify the role of the executive and the legislature in the budget process. - The FRB is intended to address these issues.17 - Process note: stakeholder comments delayed submission of the draft bill to the National Assembly, now expected around mid-2005. - Risk: states concerned the FRB encroaches on constitutional autonomy; alternative is to limit coverage to the federal government while building support for similar state/local legislation. ### Tax administration and policy - Major overhaul underway with goals to broaden the tax base, make the budget less vulnerable to oil price shocks, and address tax distortions. - Staff encouraged reform of the value-added tax regime, including: - expanding input credits, - zero rating non-oil exports, - introducing a registration threshold. ### Banking sector reform — diagnosis and risks - Overall assessment: the Nigerian banking system has not fostered financial stability nor supported economic development; problems include widespread insider lending, misreporting, and systemic underprovisioning.18 - Consequences: compromised monetary policy effectiveness, undermined public confidence, discouraged financial intermediation, savings, and investment. - CBN view: about 20 percent of banks, accounting for 15 percent of banking sector assets, will probably not meet the new capital requirement and about 15-20 banks or groups of banks out of 89 banks will survive.19 - CBN measure: to encourage strong banks to take over weak banks, it would write off past overdraft loans (about 0.7 percent of GDP). - Postconsolidation concern: bigger banks may expand into unduly risky activities seeking returns on additional capital. - Staff concern: consolidation strategy contains significant risks—potential loss of confidence, pressure on the financial system, and high fiscal costs if not properly managed. ### Key MFD recommendations in banking consolidation and supervision - Establish a high-level steering committee to assess fiscal cost of consolidation, agree incentives, prepare contingency plans and a sound exit strategy for banks failing to meet end-2005 minimum capital. - Remove legal and judicial impediments to consolidation; introduce legislation to allow for asset management companies; issue guidelines for purchasing assets. - Evaluate mergers and acquisition proposals and ensure merged banks have undergone due diligence. - Develop and disseminate guidance for asset valuation. - Strengthen CBN supervisors’ risk assessment capacity (on site and off site) and regulations governing large exposure limits, insider lending, loan classification and provisioning. - Speed up implementation of the electronic financial analysis information system project. - Develop guidelines for conducting consolidated supervision. ### Implementation status and CBN actions - CBN agreed with MFD recommendations and indicated legislative reviews were proceeding. - In early April 2005, the CBN issued guidelines governing the merger process and required all banks to submit monthly reports to the CBN. - Extent of bank consolidation costs unknown partly because of weak reporting practices. ### Foreign exchange reform - Current situation: foreign exchange markets remain segmented and a source of distortion; multiple currency practice (MCP) arises from spreads between the official DAS rate and other exchange rates.20 - Staff view: does not recommend approval of existing MCPs; insufficient information to determine whether certain exchange measures give rise to exchange restrictions subject to Article VIII approval. - Authorities announced move to a wholesale auction to unify the retail DAS and interbank market for foreign exchange: - Timing: to be introduced in the first quarter of 2006, once bank consolidation is successfully completed and conditions for the wholesale auction are met. - CBN concern: moving faster could affect bank valuation because not all banks would be allowed to participate as authorized dealers. - Staff concurrence: prudent to introduce wholesale auction only after banking consolidation; technical preconditions could not be met until September 2005, so benefits of waiting until early 2006 outweighed risks. - MFD assistance: designed a detailed action plan to ensure timely implementation of the foreign exchange market reform. - Reducing parallel market size requires additional reforms: staff welcomed trade reform slated for July 2005, encouraged streamlining foreign exchange regulations, lowering banks’ documentation requirements, and ensuring regulations are consistent with the new framework. ### Governance, transparency and anti-corruption - Progress welcomed: significant progress in tackling public sector corruption and advancing EITI commitments. - Actions taken: - Arrest and trial of high-level officials; - Public awareness campaigns; - Approach to EITI centered on broad-based stakeholder participation. - EITI legal basis: passage of an EITI bill expected before end-2005 to provide legal basis for collecting and publishing oil revenue data. - Audit plan: an independent international firm will audit oil and gas accounts of 1999-2004; results expected to be made public before end-2005. - Anti–money laundering (AML) progress: - Passage of amended AML Act; - Establishment of the Financial Intelligence Unit (FIU) within the Economic and Financial Crimes Commission (EFCC); - Doubling of the EFCC’s budget; - CBN and Nigeria Deposit Insurance Corporation cooperating in providing sensitive banking data to the FIU. - Objective: reforms aim for Nigeria’s removal from the Financial Action Task Force list of non-compliant countries. ### Privatization and public enterprise restructuring - Authorities committed to accelerating privatization program with a realistic 2005 program. - Targets: - Accelerate liquidation of nonviable companies and privatize about 30 companies. - For 2005, BPE expects to complete sales of an aluminum smelter company and the Nigeria Telecom Company. - Ports: following successful concessioning of Lagos Apapa Port, BPE expects to concession remaining ports more rapidly; passage of a draft transportation bill will allow emergence of new ports and an independent regulatory agency. - NEPA power sector plan: - Power bill signed in early March 2005. - NEPA to be unbundled into 17 companies (generation, transmission, distribution) and a regulatory commission to be established. - Refinery privatization: BPE believes one refinery could be privatized in 2005, but staff noted difficulties due to uncertain petroleum product pricing regulation, inefficiencies, and labor issues. ### Trade reforms and customs - Major tariff reform scheduled to take effect in July, 2005.21 - New tariff system based on ECOWAS’ common external tariff (CET) with four tariff bands: 0, 5, 10, and 20 percent. - Temporary 50 percent tariff band will apply to selected locally produced import-competing goods. - Duty concessions will no longer be granted. - Import bans to be phased out by end-2006 and the 50 percent tariff band by end-2007. - Expected effects: - Average unweighted tariff will drop to below 20 percent from about 30 percent. - Tariff structure simplified and medium-term predictability of trade policies enhanced. - Reform will redress antiexport bias and diminish incentives for smuggling and parallel market foreign exchange transactions. - Customs administration reform: - Three-year program introduced to improve customs administration; task force established in June 2004 and management replaced. - Objectives: lower costs, expedite movement of goods, make procedures more predictable and transparent. - Separate revenue-collection plan put in place. - Combined customs restructuring, port concessioning and tariff reform aim to reduce cargo clearance time from over 3 weeks to 48 hours by 2007. ### Statistics, capacity building, and other issues - Concern: limited progress in improving economic and social statistics—particularly government finances, balance of payments, and national accounts. - Key problems: lack of computerization and automation, weak technical capacity, poor coordination among agencies. - Staff call to action: - Revamp the Federal Office of Statistics (FOS). - Implement main recommendations of previous Statistics Department technical assistance reports to strengthen quality and coverage of statistics. - Fund support focus areas: tax administration and policy, public expenditure management, banking supervision, liquidity management, foreign exchange market unification, and statistics. - Technical assistance to concentrate where authorities show commitment to effective implementation. - The authorities requested Fund support for their reform program under a possible non-borrowing instrument if it becomes operational. ### Staff appraisal, macroeconomic assessment and policy recommendations - 2004 assessment: Nigeria’s macroeconomic performance under the homegrown reform program was commendable—lowered inflation, enhanced predictability and transparency, and reduced vulnerability to oil price shocks. - Remaining challenges: legacy of massive economic mismanagement, neglect of social service delivery and infrastructure, and resistance from entrenched interests. - Opportunity: improved 2004 performance, better outlook, relative political stability, and strong reform commitment present unique opportunity to deepen reforms. - Main policy challenge: build on 2004 progress and broaden the reform agenda; ensure macroeconomic policies consistent with fiscal prudence and environment conducive to investment and sustainable growth. - Fiscal risks and 2005 appropriations act: - Fiscal policy will remain expansionary and involves significant challenges. - Need high degree of coordination and careful monitoring to keep fiscal development in line with government target. - Pressure on domestic resources from the wider non-oil fiscal deficit will complicate monetary policy management; authorities’ inflation target likely to be exceeded and possibly some crowding out. - Risk of bottlenecks and spending inefficiencies from increased public spending. - Public expenditure management priority: - Strengthen PEM to ensure spending supports NEEDS objectives and MDGs. - Staff welcomes creation of virtual poverty fund and cost-benefit analysis unit for large investment projects. - Calls for expeditious introduction of budget classification systems to track poverty-alleviating spending; encourage subnational governments to adopt similar reforms. - Fiscal Responsibility Bill importance: - Passage and full implementation would markedly enhance fiscal transparency and accountability, introduce formal fiscal rules, and lay foundation for medium-term fiscal sustainability. - Monetary policy and liquidity management: - Given sharp increase in monetary aggregates in early 2005, staff calls on CBN to take prompt action to limit broad money growth. - Encourage CBN to use market-based instruments to sterilize excess liquidity. - For sterilization to be effective, short-term interest rates and the exchange rate should be allowed to adjust as needed to meet monetary targets. - Staff welcomes lowering of the statutory limit on the federal government’s overdraft account and progress in relying more on indirect instruments for liquidity management. - Encourages CBN to consider more far-reaching reforms to enhance monetary policy effectiveness. - Operational framework recommendation: - Staff supports continued money targeting as the operational framework for anchoring inflationary expectations. - Moving to a narrow exchange rate band is considered a second-best option. - Staff recommends CBN move, once conditions are right, to an inflation-targeting regime. *Source: _cr05302 - 38. The authorities further noted that, as part of the PEM reforms, they planned to (PDF chapter/section).* ### 67. While staff recognizes that bank consolidation is intended to increase the ### _cr05302 - 67. While staff recognizes that bank consolidation is intended to increase the ### Banking consolidation, CBN strategy, and supervisory actions - Staff recognizes that bank consolidation is intended to increase the soundness of the banking system, but finds that the CBN’s strategy carries significant risks. - Urgent actions called for: - set up a high-level steering committee, - develop a strategic plan to deal with failing banks, - strengthen its legal powers to close failing banks, - enhance banking supervision. - Additional recommendations: - ensure that sound accounting standards are applied in valuing banks’ assets, - advance the legal processes for establishing asset management companies to minimize budgetary costs. ### Foreign exchange management - Staff welcomes the CBN’s commitment to introduce a daily wholesale auction for foreign exchange management in early 2006. - Calls on the CBN to: - state this commitment publicly, - put in place the necessary infrastructure and implementing regulations, consistent with its action plan. - Further urges the authorities to: - streamline current foreign exchange regulations, - work toward accepting the obligations of Article VIII. ### Structural reform agenda and governance - Staff agrees with the priorities of the authorities’ structural reform agenda, noting it is ambitious and appropriately focused on: - improving governance and transparency, - enhancing public service delivery, - streamlining the role of the government in the economy, - improving the business environment. - Expected outcomes: - stimulate broad-based economic growth and sustained poverty reduction. - Staff supports plans to institutionalize reforms through legislative initiatives. - Specific institutional notes: - welcomes the revamping of the BPE, - agrees with the ambitious agenda for privatization, - agrees with authorities’ emphasis on broad-based participation to improve transparency in the oil and gas sector under EITI. ### Trade policy and tariff reforms - Staff welcomes the authorities’ tariff reforms scheduled to go into effect in July 2005. - The reforms should reduce distortions and rent-seeking. - Authorities’ intentions noted: - phase out all import bans by end-2006, - fully adopt ECOWAS’ Common External Tariff by end-2007. - Staff recommendation: - consider accelerating the timetable for implementation of these two reforms. ### External creditors and domestic arrears - Staff calls on the authorities to regularize relations with its external creditors and pursue options that are mutually agreeable. - On domestic expenditure arrears: - suggests high importance be accorded to verification and equitable burden sharing. ### Economic statistics and data quality - Staff stresses the importance of improving the reliability and timeliness of economic statistics to support formulation and monitoring of macroeconomic and social policies. - Current assessment: - progress has been made in some areas, but ongoing weaknesses remain, - serious deficiencies in data availability, reliability, and coverage. - Specific call to action: - revamp the FOS as a matter of urgency, - Nigeria needs to provide key economic data monthly for intensified surveillance. ### Intensified surveillance and policy dialogue - Staff believes the enhanced policy dialogue and monitoring of policy implementation under intensified surveillance has served Nigeria well during 2004, and is ready to continue with a close policy dialogue. ### Capacity building and technical assistance - The Fund remains committed to helping build capacity in Nigeria to support the NEEDS. - Key areas of possible future technical assistance: - tax administration and policy, - public expenditure management, - banking supervision, - liquidity management, - foreign exchange market unification, - the quality of statistics. *Source: _cr05302 - 67. While staff recognizes that bank consolidation is intended to increase the* ### 75. It is expected that Nigeria’s next Article IV consultation will take place on the ### _cr05302 - 75. It is expected that Nigeria’s next Article IV consultation will take place on the ### Real sector developments (2000–05; staff estimates and projections) - Real GDP (at 1990 factor cost): 1.4 (2002), 0.9 (2003), 6.1 (2004), 3.4 (2005), 8.0 (2006), 5.0 (2007), 6.6 (2008), 4.7 (2009), 6.4 (2010) — (annual percent changes listed in Table 1) - Oil GDP growth: -11.6 (2002), 26.6 (2003), 3.5 (2004), 0.2 (2005), 14.5 (2006), 4.3 (2007), 8.9 (2008), 3.3 (2009), 8.2 (2010) - Non-oil GDP growth: 8.0 (2002), 4.4 (2003), 7.4 (2004), 4.9 (2005), 5.0 (2006), 5.4 (2007), 5.5 (2008), 5.5 (2009), 5.5 (2010) - Real GDP per capita: -1.3 (2002), 7.9 (2003), 3.3 (2004), 0.8 (2005), 5.3 (2006), 2.4 (2007), 4.0 (2008), 2.2 (2009), 3.8 (2010) - GDP deflator (period average): 3.9 (2002), 0.8 (2003), 19.9 (2004), 20.0 (2005), 5.5 (2006), 2.8 (2007), 3.6 (2008), 2.1 (2009), 2.0 (2010) - Consumer price index (annual average): 13.7 (2002), 14.0 (2003), 15.0 (2004), 16.3 (2005), 7.3 (2006), 6.5 (2007), 6.5 (2008), 4.2 (2009), 3.0 (2010) ### External sector (selected indicators and projections) - Current account balance (percent of GDP): -11.7 (2002), -2.7 (2003), 4.6 (2004), 5.8 (2005), 8.4 (2006), 6.4 (2007), 7.0 (2008), 5.5 (2009), 6.1 (2010) - Gross international reserves (end of period, US$ billions): 7.7 (2002), 7.5 (2003), 17.0 (2004), 28.5 (2005), 41.9 (2006), 53.5 (2007), 66.2 (2008), 77.9 (2009), 90.7 (2010) - Price of Nigerian oil (U.S. dollars per barrel): 25.0 (2002), 28.9 (2003), 38.3 (2004), 49.5 (2005), 48.8 (2006), 46.5 (2007), 45.3 (2008), 44.5 (2009), 44.0 (2010) - Production of crude oil (million barrels per day): 1.96 (2002), 2.45 (2003), 2.49 (2004), 2.40 (2005), 2.69 (2006), 2.74 (2007), 2.98 (2008), 3.03 (2009), 3.27 (2010) - Exports f.o.b. (annual percent changes): -9.8 (2002), 54.2 (2003), 36.9 (2004), 21.1 (2005), 12.8 (2006), -0.3 (2007), 6.9 (2008), 1.7 (2009), 7.7 (2010) - Imports f.o.b. (annual percent changes): 28.9 (2002), 26.1 (2003), 11.3 (2004), 28.0 (2005), 6.4 (2006), 5.5 (2007), 5.1 (2008), 6.2 (2009), 5.9 (2010) ### Consolidated government operations and fiscal stance (2002–10; commitment and cash bases) - Total revenue and grants (percent of GDP, commitment basis): 36.4 (2002), 37.1 (2003), 43.1 (2004), 45.2 (2005), 45.1 (2006), 43.5 (2007), 43.5 (2008), 43.4 (2009), 42.2 (2010) - Of which oil and gas revenue (percent of GDP): 26.2 (2002), 28.0 (2003), 35.0 (2004), 37.9 (2005), 37.5 (2006), 35.2 (2007), 34.7 (2008), 33.1 (2009), 33.5 (2010) - Total expenditure and net lending (percent of GDP, commitment basis): 40.7 (2002), 38.4 (2003), 35.4 (2004), 35.3 (2005), 33.8 (2006), 34.2 (2007), 33.6 (2008), 34.2 (2009), 34.0 (2010) - Overall balance (commitment basis, percent of GDP): -4.2 (2002), -1.3 (2003), 7.7 (2004), 9.9 (2005), 11.3 (2006), 9.3 (2007), 9.7 (2008), 8.0 (2009), 8.8 (2010) - Non-oil primary balance (in percent of non-oil GDP, commitment basis): -29.9 (2002), -33.8 (2003), -36.4 (2004), -40.7 (2005), -39.6 (2006), -38.4 (2007), -37.2 (2008), -37.0 (2009), -37.0 (2010) - Cash-basis overall balance (percent of GDP): -2.5 (2002), 0.0 (2003), 9.9 (2004), 13.1 (2005), 11.1 (2005 projected in Table 2a) - Federal government budget (2003–05): total revenue (in billions of naira) 964 (2003), 1,486 (2004), 1,492 (2004 actual), 1,938 (2005 proj); total expenditure (in billions of naira) 1,049 (2003), 1,075 (2004), 1,712 (2004 actual), 1,412 (2005 proj) ### Monetary and financial indicators (CBN and banking sector) - Broad money (end of period, billions of naira): 1,985 (2003), 2,264 (2004), 2,604 (2005 proj) - Broad money growth (annual percent): 24.1 (2003), 14.0 (2004), 15.0 (2005 proj) - Net foreign assets (CBN; billions of naira): 1,059 (2003), 2,250 (2004), 3,730 (2005 proj) - Reserve money (end period, billions of naira): 689 (2003), 732 (2004), 813 (2005 proj) - CBN analytical balance sheet: net domestic assets -370 (2003), -1,518 (2004), -2,914 (2005 proj) - Banking-sector indicators (2000–04): regulatory capital to risk-weighted assets 17.5 (2000), 16.2 (2001), 18.1 (2002), 17.8 (2003), 14.7 (2004); NPLs to gross loans 22.6 (2000), 19.7 (2001), 21.4 (2002), 19.8 (2003), 21.6 (2004); ROA 4.0 (2000), 3.3 (2001), 2.4 (2002), 1.7 (2003), 3.1 (2004) ### Balance of payments (2002–10 highlights) - Current account balance (US$ millions): -5,400 (2002), -1,568 (2003), 3,302 (2004), 5,164 (2005), 8,343 (2006), 6,547 (2007), 7,605 (2008), 6,273 (2009), 7,457 (2010) - Trade balance (US$ millions): 4,041 (2002), 10,058 (2003), 18,165 (2004), 20,668 (2005), 24,881 (2006), 23,292 (2007), 25,410 (2008), 24,561 (2009), 27,021 (2010) - Exports (US$ millions): 17,672 (2002), 27,250 (2003), 37,297 (2004), 45,160 (2005), 50,942 (2006), 50,789 (2007), 54,309 (2008), 55,242 (2009), 59,510 (2010) - Imports (US$ millions): -13,631 (2002), -17,193 (2003), -19,132 (2004), -24,492 (2005), -26,062 (2006), -27,498 (2007), -28,899 (2008), -30,681 (2009), -32,489 (2010) - Gross official reserves, end-of-period (US$ millions): 7,681 (2002), 7,468 (2003), 16,955 (2004), 28,499 (2005), 41,859 (2006), 53,550 (2007), 66,179 (2008), 77,801 (2009), 90,688 (2010) ### Oil and gas sector overview (2002–10 projections) - Oil price (U.S. dollars per barrel): 25.0 (2002), 28.9 (2003), 38.3 (2004), 49.5 (2005), 48.8 (2006), 46.5 (2007), 45.3 (2008), 44.5 (2009), 44.0 (2010) - Production of crude oil (million b/d): 1.96 (2002), 2.45 (2003), 2.49 (2004), 2.40 (2005), 2.69 (2006), 2.74 (2007), 2.98 (2008), 3.03 (2009), 3.27 (2010) - Gas total production (billion cubic feet): 1,772 (2002), 1,829 (2003), 2,120 (2004), 1,954 (2005), 2,197 (2006), 2,239 (2007), 2,557 (2008), 2,715 (2009), 2,931 (2010) - Net oil and gas revenue (US$ millions): 7,186 (2002), 12,448 (2003), 21,495 (2004), 28,650 (2005), 34,930 (2006), 34,785 (2007), 36,748 (2008), 36,735 (2009), 40,087 (2010) ### Vulnerability and risk indicators (selected) - Real GDP growth (percent): 5.6 (2000), 3.3 (2001), 1.4 (2002), 10.9 (2003), 6.1 (2004) - CPI inflation (period average): 6.9 (2000), 18.0 (2001), 13.7 (2002), 14.0 (2003), 15.0 (2004) - EMBI secondary market spread (bps, end of period): 2,037 (2000), 1,488 (2001), 2,212 (2002), 732 (2003), 733 (2004) - Gross international reserves (US$ billion): 9.4 (2000), 10.4 (2001), 7.7 (2002), 7.5 (2003), 17.0 (2004) - Current account balance (percent of GDP): -10.5 (2000), 3.0 (2001), -11.0 (2002), -2.4 (2003), 4.9 (2004) - Public sector gross debt (percent of GDP): 85.3 (2000), 81.3 (2001), 87.9 (2002), 74.8 (2003), 65.4 (2004) ### Medium-term non-oil savings-investment balances (2003–10) - Non-oil GDP at market prices (billions of naira): 4,254 (2003), 5,053 (2004), 6,072 (2005), 6,799 (2006), 7,586 (2007), 8,397 (2008), 9,198 (2009), 9,968 (2010) - Gross domestic non-oil savings (percent of non-oil GDP): -8.2 (2003), -3.9 (2004), -3.5 (2005), -1.3 (2006), -1.6 (2007), -1.2 (2008), 0.5 (2009), 0.4 (2010) - Balance on non-oil current account (percent of non-oil GDP): -35.3 (2003), -31.3 (2004), -32.3 (2005), -33.2 (2006), -33.4 (2007), -33.4 (2008), -33.7 (2009), -33.9 (2010) *Source: Nigerian authorities; and Fund staff estimates and projections.* ### APPENDIX I ### _cr05302 - APPENDIX ### I. Membership status and IMF resource positions - Membership: Joined: 03/30/1961; Article XIV - General Resources Account (SDR Million / %Quota): - Quota: 1,753.20 100.00 - Fund Holdings of Currency: 1,753.12 100.00 - Reserve position in the Fund: 0.14 0.01 - SDR Department (SDR Million / %Allocation): - Net cumulative allocation: 157.16 100.00 - Holdings: 1.08 0.69 ### II. Outstanding purchases and loans - None ### III. Latest financial arrangements (approved amounts and draws) - Stand-by Aug. 04, 2000 — Oct. 31, 2001: Amount Approved (SDR million) 788.94; Amount Drawn (SDR million) 0.00 - Stand-by Jan. 09, 1991 — Apr. 08, 1992: Amount Approved (SDR million) 319.00; Amount Drawn (SDR million) 0.00 - Stand-by Feb. 03, 1989 — Apr. 30, 1990: Amount Approved (SDR million) 475.00; Amount Drawn (SDR million) 0.00 ### IV. Projected obligations to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs) - Charges/Interest forthcoming by year: - 2005: 2.87 - 2006: 3.90 - 2007: 3.90 - 2008: 3.91 - 2009: 3.90 - Total forthcoming by year: - 2005: 2.87 - 2006: 3.90 - 2007: 3.90 - 2008: 3.91 - 2009: 3.90 ### V. Exchange rate arrangement and market structure - Classification: managed float with no preannounced target for the exchange rate of the naira. - Market segmentation: - Central Bank of Nigeria (CBN) sells foreign exchange to legitimate end-users through banks that bid; requests must be supported by required documentation. - The open Nigerian inter-bank market (NIFEX) is for foreign exchange obtained from other sources than the CBN, including non-oil exports and personal transfers; the NIFEX rate is freely negotiable among commercial banks and customers. - On February 20, 2001, the CBN issued a circular forbidding banks from transferring funds obtained from the CBN to other banks through the NIFEX, effectively segmenting the two markets. - On July 22, 2002, the authorities adopted the Dutch Auction System (DAS) for selling official foreign exchange to end-users: a sealed-bid multiple price auction system with the marginal rate clearing the market. Auctions take place twice a week; the CBN announces the amount on offer the day before the auction and the auction results the day after. - Funds purchased from the CBN must be used for eligible transactions only, subject to documentation requirements, and are not transferable in the inter-bank foreign exchange market. - Number of exchange rates in use: four — the DAS auction rate, the NIFEX rate quoted by a group of commercial banks, the Bureaux de change rate, and the parallel market rate. - Quoted exchange rates on April 15, 2005: - IFEM/DAS US$1 = N132.9. - NIFEX US$1 = N131.5. - Bureaux de change/parallel market US$1 = N139.0. - SDR exchange rate on April 15, 2005: - N193.5 = SDR 1. ### VI. Article IV consultation status - Nigeria is on the standard 12-month Article IV consultation cycle. - Last Article IV consultation discussions: Lagos and Abuja during March 23-April 8 and May 12-19, 2004. - Staff report: IMF Country Report No. 04/239. - Executive Board discussion and consultation conclusion date: July 16, 2004. ### VII. Technical Assistance (TA) since 2000 (Department / Purpose / Duration) - FAD: Fiscal regime for oil and gas — February 8–26, 2000 - STA: Balance of payments statistics — November 8–21, 2000 - FAD: Resident treasury advisor — November. 25, 2000–Feb. 25–2001 and April 8–July 7, 2001 - FAD: Resident budget advisor — January 11–March 11, 2001 - FAD: Fiscal federalism — January 24–Feb. 11, 2001 - STA: Government finance statistics — January 21–Feb. 3, 2001 - FAD: Expenditure Management — February 2–10, 2001 - STA: Money and banking statistics — March 22–April 4, 2001 - MAE: Foreign exchange management — May 28–June 8, 2001 - FAD: Resident budget advisor — October 2000 – Dec. 2001 - MAE: FSAP — Dec. 5 – Dec. 15, 2001 - MAE: FSAP — Feb. 4 – Feb. 20, 2002 - FAD: Public Expenditure Management — January 29 – February 8 - STA: Government Finance Statistics — Feb. 28 – March 13, 2002 - FAD: Resident budget advisor — Apr. 19 2002– June, 2003 - MFD: Domestic Debt Management — February 25-March 5, 2003 - STA: General Data Dissemination Standards — July 2-15, 2003 - STA: National Accounts — July 24-August 12, 2003 - FAD: Budget Process Reforms — August 20-29, 2003 - FAD: Pension Reform — October 20-29, 2003 - FAD: Public Expenditure Management Advisor — January–December 2004 - MFD: Domestic Debt Management — February 5-17, 2004 - LEG: FIU Creation and Organization — May 31 - June 04, 2004 - LEG: Legislative Drafting/FIU — July 12-16, 2004 - FAD: Tax Administration — July 19-August 3, 2004 - MFD: Monetary Operations/Foreign Exchange — August 26-September 10, 2004 - LEG: Exchange Rates Systems — November 16- 22, 2004 - MFD: Bank Supervision/Restructuting — November 16-29, 2004 - STA: Balance of Payment Statistics — February 2-16, 2005 - FAD: Tax Administration — February 8-21, 2005 - MFD: Banking supervision, Financial, Exchange Market, and Currency Reforms — March 9-24, 2005 ### VIII. Resident Representative - Mr. Idrissa Thiam has entered on duty as Senior Resident Representative in Abuja on December 20, 2003. --- ### IX. Nigeria: Relations with the World Bank Group — Partnership and strategic engagement - National framework: - Homegrown poverty reduction strategy: The National Economic Empowerment and Development Strategy (NEEDS) implemented at federal level, with State Economic Empowerment and Development Strategies (SEEDS). - NEEDS/SEEDS aim: comprehensive program of reforms for economic and social transformation. - World Bank strategy and lending envelope: - June 2004: Board approved a Second Interim Strategy Progress Report endorsing expansion from $200 million annually (low case) to $500 million on average per annum (base case). - Three main pillars: (i) improving economic governance, (ii) promoting accelerated private sector led growth, particularly in the non-oil economy, and (iii) empowering communities to take an active role. - Joint World Bank/DFID Country Partnership Strategy (CPS) in advanced development: - CPS coverage: FY06 to FY09. - CPS pillars aligned with NEEDS/SEEDS: (i) empowering people through improved service delivery for human development; (ii) promoting private enterprise through improved business environment for non-oil growth and improved access to productive infrastructure; (iii) changing the way government does its work through improved transparency and accountability. - CPS proposes deeper engagement and larger lending envelope targeted at accelerating growth and achieving the MDGs; assistance concentrated at Federal level and in a set of lead states. ### X. World Bank–IMF relations and collaboration - Close collaborative relationship: coordination on policy advice, analytical work, and joint technical assistance missions. - Examples of joint missions: - September 2003: joint TA mission for the Budget Office (at government request). - November 2003: joint mission advising on the proposed Pension Reform Bill. - Recent collaboration: preparation of a Debt Sustainability Analysis for Nigeria. ### XI. World Bank lending and non-lending activities - World Bank portfolio growth: - FY03: about $911 million - FY04: about $1.2 billion - FY05 (current at time of report): about $1.5 billion - As at March 31, 2005: about $247 million disbursed out of total commitment. - Portfolio restructuring: simplifying Bank processes and providing greater implementation flexibility to improve implementation and impact. - Current lending program composition (16 projects) — sector shares: - Health (18 percent) - Education (7 percent) - Private Sector Development (10 percent) - Urban Development (8 percent) - Rural Sector (12 percent) - Transport (7 percent) - Energy & Mining (8 percent) - Social Development/Social Protection (4 percent) - Economic Policy (11 percent) - Power (7 percent) - Water Supply & Sanitation (8 percent) - Cross-cutting issues mainstreamed: environment, HIV/AIDS, gender, conflict. ### XII. Non-lending analytical and advisory work - Focus areas: public expenditure management (federal and state), state finances, states’ governance and capacity, pension reform dialogue, procurement reform, anticorruption, sub-national debt management. - Planned analytical work during CPS period: - Public Expenditure Management and Financial Accountability Report (FY06) - Country Economic Memorandum on Competitiveness and Growth (FY06) - Poverty Assessment (FY05/06) - Agricultural Sector Review (FY06) - EITI Management/Gas and Oil Sector Policy ### XIII. IFC activities and focus areas - Portfolio size and sectors: - Nigeria is IFC’s largest country portfolio in Africa with US$289 million committed. - Sectors: finance and insurance; oil, gas and mining; private equity funds. - IFC objectives: encourage SMEs, private sector development, banking industry, and infrastructure; assist diversification away from oil sector and remove non-oil private sector bottlenecks. - Notable activities: - SMEs: financing and technical support; joint UNIDO support to NGOs (FATE Foundation and Onitsha/Nnewi/Aba Cluster) via Support Training Entrepreneurship Program (STEP); financing and capacity-building for small-scale oil service companies in the Niger Delta; program design with World Bank for SME finance and business development services. - Telecommunications: FY02 IFC approved an investment of $100 million for MTN Nigeria to expand nationwide GSM network; by February 2006 MTN expects to have well in excess of 15 million subscribers. - Financial sector: since 1999–2000 IFC worked with seven commercial banks, extending term facilities totaling over $160 million; supports medium-term financing and development of the corporate bond market. ### XIV. World Bank Institute (WBI) activities - Nigeria is one of WBI’s six focus countries in Africa. - Participants in WBI programs: - FY01: 280 participants - FY04: 1,600 participants - Increase driven by Distance Learning and more local events. - Targeted professional groups: public expenditure managers, social protection/social risk management practitioners, parliamentarians, journalists. - WBI strategic focus: capacity building at community level, leveraging Africa Region and development partner efforts, and use of Capacity Enhancement Needs Assessment (CENA) methodology. - Integration: increased WBI integration into Nigeria Country Team and IDA project teams. ### XV. MIGA activities - Role: promote foreign direct investment by issuing guarantees against non-commercial risks, providing technical assistance to the Nigerian Investment Promotion Council (NIPC), and offering investment information services. - Exposure and guarantees: - Total exposure: about $130 million. - Telecommunications guarantees: about $60 million issued to Econet Wireless Limited ($10 million) and MTN International Limited ($50 million) for GSM network investments. ### XVI. Nigeria: IDA Credit Portfolio (As at March 31, 2005) — selected project figures (US$, millions) - Overall result: - IDA Amount: 1,485.0 - Disbursed: 246.6 - Undisbursed: 1,398.9 - Selected projects (Project ID — Project Name — Fiscal Year Approved — IDA Amount — Disbursed — Undisbursed): - P063622 — Fadama II — 2003 — 100.0 — 12.2 — 92.4 - P065301 — Economic Mgt. Capacity Bldg. — 2000 — 20.0 — 15.0 — 5.1 - P069086 — Comm.-Based Pov. Reduction — 2000 — 60.0 — 37.1 — 31.9 - P069892 — Local Empowerment & Envir. Mgmt. — 2003 — 70.0 — 4.3 — 74.9 - P069901 — Community-based Urban Dev. — 2002 — 110.0 — 8.4 — 123.6 - P070290 — 2nd Health Systems Dev. — 2002 — 127.0 — 27.1 — 125.3 - P070291 — HIV/AIDS Program Dev. — 2001 — 90.3 — 25.2 — 80.8 - P070293 — Privatization Support Project — 2001 — 114.3 — 30.1 — 103.8 - P071075 — Urban Water Sector Reform — 2004 — 120.0 — 3.4 — 122.3 - P071494 — Universal Basic Education — 2002 — 101.0 — 6.7 — 108.4 - P072018 — Transmission Development — 2001 — 100.0 — 29.5 — 88.0 - P0749963 — Lagos Urban Transport Project — 2002 — 100.0 — 17.4 — 97.3 - P080295 — Polio Eradication — 2003 — 80.4 — 30.0 — 50.7 - P083082 — Micro, Small & Medium Enterprise — 2003 — 32.0 — 0.2 — 33.9 - P086716 — Sustainable Mgt. of Mineral Resources — 2004 — 120.0 — - — 120.3 - P088150 — Economic Reform and Governance — 2004 — 140.0 — - — 140.2 - Note: Undisbursed amount may be than approved amount due to exchange rate fluctuations vis-à-vis SDR. *Source: APPENDIX I and II (Nigeria: Relations with the Fund; Nigeria: Relations with the World Bank Group) as provided in the content unit.* ### APPENDIX II ### _cr05302 - APPENDIX II ### Recent Non-lending Operations (As at March 31, 2005) - Completion Fiscal Year (FY) — Recent Completions: - Strategic Conflict Assessment 2004 - Service Delivery Survey 2004 - Macro & Growth 2004 - Education CSR 2004 - Lagos SPAR 2004 - Lagos CFAR 2004 - Pension Reform Dialogue 2004 - Risk and Vulnerability Assessment 2004 - Anticorruption 2004 - Sub-national Debt Management 2004 - Power Sector Policy 2004 - EFA Preparation Support Strategy 2004 - Country Gender Assessment 2005 - Basic Agricultural Services 2005 - Oil Revenue Management 2005 - Underway: - Agriculture Sector Review 2005 - Lagos Strategy for Economic Dev. & Poverty Reduction 2005 - Debt Management 2005 - Poverty Assessment 2006 - Health CSR 2006 - Planned: - CEM on Diversification, Sources of Growth 2006 - Public Expenditure Review 2006 - Education Sector Analysis 2006 - Financial Sector Assessment Program (FSAP)2006 ### IDA Proposed Lending Summary FY05–FY07 (As at March 31, 2005) - Fiscal Year 2005 — Projects and Amounts (US$(M)) - Urban Youth Employment & Empowerment: 300.0 - Niger-Delta Development: 25.0 - State Governance and Capacity Buiding: 100.0 - Supplemental Polio Eradication: 22.0 - Result 2005: 447.0 - Fiscal Year 2006 — Projects and Amounts (US$(M)) - Adult Civic Education & Empowerment: 27.0 - Lagos Metropolitan Development: 60.0 - Lagos Water Restructuring: 100.0 - Rural Access and Mobility: 100.0 - Private Provision of Rural Infrastructure: 70.0 - National Electricity Development: 200.0 - Result 2006: 557.0 - Fiscal Year 2007 — Projects and Amounts (US$(M)) - Health Systems Development III: 100.0 - Fadama III: 30.0 - Community-based Poverty Reduction II: 0.2 - Federal Roads Development: 100.0 - Universal Basic Education II: 100.0 - Result 2007: 330.2 - Overall result (FY05–FY07): 1,334.2 ### International Finance Corporation — Held and Disbursed Portfolio (Amounts in millions of U.S. dollars) - Select portfolio entries (Held: Loan, Equity, Quasi, Partic.; Disbursed: Loan, Equity, Quasi, Partic.) - 1998 AEF Ansbby: Held Loan 0.1; Disbursed Loan 0.1 - 1999 AEF Global Fabri: Held Loan 0.3; Disbursed Loan 0.3 - 1999 AEF Hercules: Held Loan 1.3; Disbursed Loan 1.3 - 1999 AEF Hygeia: Held Equity 0.2; Disbursed Equity 0.2 - 2000 AEF Oha Motors: Held Loan 0.8; Disbursed Loan 0.8 - 2000 AEF Safety Center: Held Loan 0.5, Equity 0.1; Disbursed Loan 0.5, Equity 0.1 - 1995 AEF Vinfesen: Held Loan 1.0; Disbursed Loan 1.0 - 1994 Abuja International: Held Loan 1.8, Equity 0.7; Disbursed Loan 1.8, Equity 0.7 - 2003 Adamac: Held Loan 25.0; Disbursed Loan 11.6, Disbursed Partic. 6.9 - 2000 CAPE FUND: Held Equity 7.5; Disbursed Equity 5.4 - 2000 Citibank (Nig): Held Loan 6.4; Disbursed Loan 6.4 - 2001 Delta Contractor: Held Loan 15.0; Disbursed Loan 0.2 - 2000 Diamond Bank: Held Loan 10.0; Disbursed Loan 10.0 - 2000 FSB: Held Loan 9.5, Quasi 11.3; Disbursed Loan 9.5, Disbursed Quasi 6.8 - 1992 FSDH: Held Equity 0.9; Disbursed Equity 0.9 - 2000/04 GTB: Held Loan 20.0 - 2000 IBTC: Held Loan 20.0; Disbursed Loan 20.0 - 1981/88 Ikeja Hotel: Held Equity 0.3; Disbursed Equity 0.3 - 2002 NTEF: Held Loan 20.0 - 2001 UBA: Held Quasi 10.0 - 2004 UPDC Hotels Ltd: Held Loan 11.0 - Total portfolio held and disbursed summary: - Total portfolio Held: 142.8 9.6 21.3 15.0 - Total portfolio Disbursed: 63.6 7.5 6.8 6.9 - Approval pending effectiveness - 2005 Zenith Bank: Loan 30.0; Equity 6.0; Quasi 4.0; Partic. 0.0 - Total pending commitment: 30.0 6.0 4.0 0.0 ### External and Public Debt Sustainability Analysis (DSA) — Overview - Purpose: - Assess sustainability of Nigeria’s external and public debt under the staff’s baseline scenario and standardized shocks in the LIC DSA framework. - Examine implications for debt sustainability of alternative oil price assumptions. - Time horizon: 2005-25 (baseline scenario) ### A. Baseline Scenario — Key Assumptions (2005-25) - Growth: - Growth will average 5 percent - Buoyant growth in non-oil GDP of around 5½ percent - Modest growth of oil GDP of 3½ percent - Monetary policy: - Geared toward achieving government’s objective of lowering inflation to 3 percent by 2010 and remaining at that level thereafter - Exchange rate: - CPI-based real effective exchange rate increases significantly in 2005 and remains constant thereafter - Oil prices: - Oil prices average US$49.5 per barrel in 2005 - Decline gradually to US$35 per barrel in 2019 and remain constant in real terms in the outer years - Growing at about 2 percent per annum in nominal terms - Fiscal policy: - Non-oil primary deficit (NOPD) of 41 percent of non-oil GDP in 2005-06 - Around 40 percent in 2007-15 - Fiscal deficit gradually lowered to 31 percent of non-oil GDP by 2025 to limit overall deficit to less than 5 percent of GDP - Balance of payments: - Favorable outlook and assumed fiscal stance imply balance of payments will remain comfortably in surplus with significant build-up of gross international reserves ### B. External Sustainability — Findings - Nominal external debt burden: - Falls from 50 percent of GDP in 2004 to below 40 percent in 2005 - Falls to close to 20 percent in 2025 - NPV-of-debt-to-GDP ratio: - Falls from 48 percent in 2004 to 39 percent in 2005 - Falls to below 30 percent in 2010 - Falls to below 20 percent by end-2025 - Grant element: - Insignificant as most debt is contracted on commercial terms - Share of concessional credits will increase over medium term, but so will arrears; grant element not projected to significantly improve - NPV-of-debt-to-GDP and nominal external-debt-to-GDP do not diverge by much over medium term - Stress tests: - Standard stress tests and alternative scenarios (excluding country-specific oil price shock scenarios) show external debt burden would lessen over the medium term - Most severe short-term impact occurs if growth in the U.S. dollar GDP deflator in 2006-07 was one standard deviation less than the historical average, with external debt peaking at 50 percent in 2007 ### C. External Debt Sustainability Limits - World Bank preliminary CPIA for 2004: “2.8” - Relevant external debt sustainability thresholds for Nigeria: - NPV of debt in percent of exports: 100 - NPV of debt in percent of government revenues: 200 - NPV of debt in percent of GDP: 30 - Debt service ratio thresholds: 15 percent of exports and 25 percent of government revenues - Assessment: - Nigeria’s debt and debt service are well below the four exports- and revenue-related thresholds - NPV-of-debt-to-GDP ratio at end-2004 was 48 percent and not expected to fall below 30 percent until towards the end of the decade - Recommendation: approach new borrowing very carefully in the immediate period ahead ### D. Fiscal Sustainability — Findings - Domestic arrears: - Baseline assumes domestic arrears are eliminated in 2006 through issuance of N500 billion in domestic securities - Reserves and assets: - High oil prices and stable NOPD around 40 percent of non-oil GDP up to 2015 allow significant accumulation of financial assets at the central bank - Deposits of the consolidated government exceed US$60 billion by end-2015 under baseline - These deposits are gradually drawn down as oil prices fall and overall budget surplus turns to deficit by 2021 - NPV-of-public-sector-gross-debt burden: - Falls from 63 percent of GDP in 2004 to 48 percent in 2005 - Falls to below 40 percent from 2010 onwards - Stress tests: - Baseline is relatively robust to standard stress tests and alternative scenarios - In baseline, NPV-of-debt-to-GDP ratio falls gradually from 51 percent in 2005 to 39 percent in 2010 - However, it would jump to 72 percent in 2007 if the primary balance was at the historical average minus one standard deviation in 2006-07 ### E. Country-Specific Alternative Scenarios — Oil Price Vulnerability and Debt Relief Considerations - Oil dependence (2004): - Oil revenue accounted for 80 percent of consolidated government’s revenue base - Oil-related export proceeds accounted for over 90 percent of Nigeria’s total export earnings - Rationale: - High dependency on oil and high projected medium-term oil prices relative to historical average motivated country-specific alternative scenarios for oil price shocks - Scenarios also examine implications of different debt reduction scenarios in light of discussions for Paris Club debt relief - Baseline role of reserves: - High oil prices enable building considerable reserves that could finance fiscal deficits later when oil prices fall - Sensitivity to negative oil price shocks: - With a negative oil price shock of US$6 per barrel, under unchanged fiscal policies, reserves cushion would be exhausted by 2018 and additional financing would be needed to cover fiscal deficits - Additional borrowing would quickly lead to Nigeria’s debt becoming unsustainable ### F. Assumptions for Country-Specific Oil Shock Scenarios - Baseline oil price mean: - Mean of US$32 per barrel (in constant 2002 U.S. dollars), described as about one standard deviation above the historical average - Sensitivity analyses: - Negative oil price shocks of US$6 and US$8 per barrel analyzed - Price reductions are permanent in constant U.S. dollar terms from 2006 onwards - Other scenario assumptions: - Alternative scenarios differ only in oil prices and stock of debt at end-2005; other parameters including fiscal policy are unchanged from baseline - Fiscal financing gaps are covered with new concessional loans (IDA conditions) ### G. Sensitivity Analysis Results — Oil Price Shocks - Under assumptions above: - A permanent reduction of oil prices by US$6 or US$8 per barrel leads to quickly rising debt ratios from 2018 onwards - Debt ratio would increase above the sustainability threshold (NPV of debt to GDP of 30 percent) by 2022 *Source: APPENDIX II–III, Nigeria: Summary of Non-lending Operations; IDA Proposed Lending Summary FY05–FY07; IFC Portfolio; External and Public Debt Sustainability Analysis (As at March 31, 2005).* ### 14. The World Bank assessed Nigeria’s debt sustainability in a scenario with additional ### The World Bank assessed Nigeria’s debt sustainability in a scenario with additional spending measures needed for Nigeria to achieve the MDGs ### World Bank MDG scenario: findings and implications - In the Bank’s MDG scenario, higher spending results in higher growth and real exchange rate appreciation compared to the Fund's baseline. - Financing the spending needed to achieve the MDGs would raise public debt to the threshold of 60 percent of GDP by 2012. - A rapidly rising fiscal gap would emerge thereafter and its financing would have a net present value well above Nigeria's current debt stock. - Scenarios in which oil price assumptions are weaker than in the baseline would yield less favorable public debt dynamics. - Bank staff viewed the MDG cost estimates as preliminary and recognized that they needed further refinement. ### Key historical and projected external debt indicators (selected series from Table 1) - External debt (nominal) 1/: 67.2, 57.2, 50.4, 40.5, 36.7, 36.0, 34.2, 33.4, 32.0, 29.2, 21.7 - Change in external debt: 5.0, -10.1, -6.8, -9.9, -3.8, -0.7, -1.7, -0.8, -1.4, -0.4, -0.7 - Identified net debt-creating flows: 8.5, -15.7, -21.8, -13.5, -16.1, -12.8, -13.4, -11.1, -11.8, -3.3, 2.8 - NPV of external debt 4/: 47.6, 38.2, 34.6, 33.8, 32.0, 31.1, 29.6, 26.7, 19.7 (series shown beginning in projections) - NPV of debt (in percent of exports): 87.2, 72.5, 64.7, 65.2, 61.6, 61.3, 58.1, 59.3, 57.2 ### Key public sector debt indicators (selected series from Table 3) - Public sector debt 1/: 65.4, 52.4, 50.8, 49.1, 46.1, 44.5, 42.3, 36.9, 25.8 - Change in public sector debt: -9.5, -13.0, -1.5, -1.8, -2.9, -1.6, -2.2, -0.8, -1.0 - Identified debt-creating flows: -25.5, -22.6, -16.2, -11.8, -13.4, -10.5, -12.0, -2.7, 2.4 - Primary deficit (series scattered in table): -11.3, -5.2, 5.2, -12.9, -14.2, -12.0, -12.1, -10.2, -10.8 - Automatic debt dynamics: -14.2, -9.7, -1.6, 0.5, -1.2, -0.2, -1.1, 0.0, -0.6 - Residual, including asset changes: 16.0, 9.6, 14.7, 10.0, 10.5, 8.9, 9.8, 1.9, -3.5 - NPV of public sector debt: 62.6, 48.4, 47.3, 45.6, 42.8, 41.2, 39.0, 33.8, 23.5 - NPV of public sector debt (o/w foreign-currency denominated): 47.6, 36.5, 33.2, 32.5, 30.9, 30.0, 28.7, 26.1, 19.4 - Gross financing need 2/: -5.6, -7.8, -9.5, -7.9, -8.3, -6.6, -7.7, 0.3, 4.2 - NPV of public sector debt-to-revenue ratio (in percent) 3/: 145.4, 107.0, 104.8, 104.8, 98.7, 97.6, 91.2, 88.6, 76.9 - Debt service-to-revenue ratio (in percent) 3/4/: 13.3, 11.2, 10.4, 9.2, 8.8, 8.5, 7.1, 7.7, 3.7 - Primary deficit that stabilizes the debt-to-GDP ratio: -1.8, 0.2, -12.7, -10.2, -9.2, -8.6, -8.5, -1.9, 4.1 ### Key macroeconomic assumptions and indicators (selected numbers) - Real GDP growth (in percent, Table 1 key macro): 1.5, 10.7, 6.0, 4.1, 3.2, 3.3, 7.8, 4.9, 6.5, 4.6, 6.3, 5.6, 4.4, 4.5, 4.7 - GDP deflator in US dollar terms (change in percent): -4.8, 12.8, 16.9, 14.1, 33.2, 21.2, 3.0, -1.7, 0.0, -0.2, 0.6, 3.8, -0.2, 1.8, 0.7 - Effective interest rate (percent) 5/: 5.2, 5.1, 4.7, 5.9, 0.9, 4.5, 4.3, 4.4, 4.3, 4.3, 4.2, 4.3, 4.1, 4.1, 4.1 - Growth of exports of G&S (US dollar terms, in percent): -8.9, 52.4, 36.1, 18.8, 34.2, 20.7, 12.6, -0.1, 6.9, 1.9, 7.7, 8.3, 0.3, 4.1, 2.7 - Growth of imports of G&S (US dollar terms, in percent): 23.8, 24.5, 11.7, 11.2, 11.2, 23.7, 4.8, 5.1, 4.9, 5.8, 5.6, 8.3, 6.2, 4.3, 5.1 - Grant element of new public sector borrowing (in percent): 56.9 (repeated across projection years as shown) ### Nominal GDP (selected series) - Nominal GDP (billions of US dollars, memorandum item): 46.1, 57.6, 71.3, 89.3, 99.1, 102.1, 108.7, 113.5, 121.4, 153.6, 266.9 ### Sensitivity and stress-test observations (selected) - Alternative scenarios and bound tests include: key variables at historical averages, new public sector loans on less favorable terms, oil price shocks (-$8 and -$6), real GDP growth shocks, export value growth shocks, US dollar GDP deflator shocks, net non-debt creating flow shocks, combination shocks, and one-time 30 percent nominal depreciation. - Oil price shocks (permanent reduction in oil prices) produce materially worse outcomes for NPV debt-to-GDP and NPV debt-to-exports ratios, as shown in the scenario and figure series. - Grant element assumed on residual financing (i.e., financing required above baseline) is shown as 57 across projection scenarios (memorandum). ### Statistical issues affecting analysis - Nigeria’s statistical base suffers serious deficiencies across national accounts, government finance, money and banking, and the external accounts, including major inconsistencies between balance of payments and customs data on trade. - Causes cited include lack of data sharing between data producing and collecting agencies, insufficient use of computerization in compilation of statistics, and an outdated Statistical Act (1957) that no longer addresses federal-structure requirements. - Annual national accounts published by the Federal Office of Statistics (FOS) have about a one-year lag and are of poor quality owing to deterioration in business and household surveys; many sectoral deflators are not soundly based and there are inconsistencies. - The use of the official exchange rate in the past resulted in a gross understatement of value added in the oil and export sectors. - Nigeria began participation in the Fund’s General Data Dissemination System (GDDS) in April 2003 and posted its metadata on the Fund’s dissemination standards bulletin board (DSBB). *Source: Staff simulations; staff projections and simulations; country authorities; Fund staff estimates and projections.* ### 3. A July 2003 mission to help the authorities implement the GDDS recommendations ### 3. A July 2003 mission to help the authorities implement the GDDS recommendations ### National accounts and institutional reform: mission findings - The July 2003 mission found that progress has been made and that the authorities were receiving significant technical assistance from DfID and others such as the World Bank. - With donor help the authorities have developed a master plan. - Results of a 2003 household living standards survey are now available. - The base year has been updated to 1990 from 1984 to better reflects the economic structure of the economy. ### Prices: CPI and price indices - The official monthly consumer price index (CPI) is a composite of urban and rural price data, and the consumption weights are based on the 1985–86 National Consumer Survey. - Some data on producer prices are collected, but these statistics are not comprehensive and no producer price index is compiled. - As a consequence, some sectoral GDP deflator indices are based not on producer prices, but on consumer price subindices and ad hoc assumptions. - Expenditure deflators also suffer from methodological shortcomings. - There are short term plans to update the weighting to 1996/97 using a National Consumer Survey. ### Government finance: data coverage, institutional constraints, and action plan Findings on historical shortcomings - Fiscal data in Nigeria have historically been opaque and complicated by the federal structure, a multiplicity of off-budget funds and accounting practices that underestimate the actual size of public expenditure. - The multisector statistics mission (September 6-21, 1999) noted the most pressing shortcomings related to inadequate data coverage, the lack of monthly and quarterly compilation, and timeliness. GFS missions and assessment - A government finance statistics (GFS) mission in early 2001 found that authorities had implemented few of the recommendations made by the 1999 multisector mission. - Following creation of a National Committee on Government Finance Statistics (NCGFS), a March 2002 GFS mission found no further progress, owing to insufficiently clear institutional arrangements and lack of staff. - The 2002 mission identified inconsistencies and difficulties of interpretation across source data. - A compilation exercise using data for 2000 showed substantial room for improvement in consistency of source data and reconciliation between above- and below-the-line data. - The exercise compiled data for the consolidated central government and general government, with special effort to capture numerous special funds and dedicated accounts that carry out large financial transactions. - The mission used the new Government Finance Statistics Manual 2001 (GFSM 2001) framework (but on a cash basis), which integrates stocks and flows and facilitates presentation of consolidation of fiscal data. Action plan and recommendations (detailed 3-stage “action plan”) - Immediate actions recommended: - Expand the NCGFS and increase GFS unit staffing. - Improve the consistency of OAGF and Central Bank of Nigeria (CBN) source data. - Expand CBN work to reconcile government financing data (available in-house). - Have the GFS unit document an inventory of source data. - Second step recommended: - Focus on improving the coverage of reporting to include state and local government operations. - Ensure adequate GFS dissemination of GFS data. - Third step recommended: - Focus on a more complete application of the guidelines contained in GFSM 2001. Follow-up July 2003 mission assessment - The July 2003 follow up mission found that the authorities had implemented very few of the recommendations/work plan put forward by the 2002 mission, including on the proposed strategy for transition to the GFSM 2001. - The mission did not reach its full potential, largely because of limited access to some of the relevant agencies. - The authorities had expected more time to be devoted to general training. - The mission was told that the work plan proposed by the 2002 mission had been approved, but the mission was unable to confirm specific progress. - The expert was unable to successfully review the issues on source data raised by the 2002 mission. - The mission reported progress in specific areas, in particular in regard to the work of the CBN. Reporting to IMF datasets - Annual fiscal data are not reported for inclusion in the GFS Yearbook, but aggregated annual fiscal data are reported for inclusion in the IFS. - No quarterly or monthly data for inclusion in the IFS are reported. ### Monetary accounts: key weaknesses identified - Authorities have taken steps toward implementing key recommendations of past STA money and banking technical assistance missions and the 1999 STA multisector mission. - A March 2001 follow-up mission found that problems remained, particularly regarding the consistency of the interbank positions. - Large and volatile discrepancies in interbank positions, both among the commercial banks and between the CBN and the commercial banks, distort monetary aggregates and undermine the usefulness of monetary statistics for policy analysis and decision making. - Central government deposits at the CBN are currently reported within unclassified liabilities. - Lags in publishing monetary data remain considerable. - Presentation of monetary data makes identification of the net financial position of the government difficult. ### Balance of payments: compilation problems and omissions - Balance of payments statistics are compiled from foreign exchange records in the banking system and from data derived from surveys. - Oil sector data are weakened by the low response rate to survey requests from oil businesses. - In non-oil sectors, only enterprises with foreign capital participation are surveyed. - Estimates of non-oil imports of goods and services are based on banking data. - Private capital movements are underrecorded. - Trade data reported by the FOS (based on customs data) sharply differ from those reported by the CBN (based on banking data); FOS data are likely to significantly under-report informal trade. - The 1999 STA multisector mission identified actions to improve BOP data quality. - A November 2000 follow-up mission found no progress by the authorities in implementing the 1999 STA recommendations; slowness of progress was noted again during a February 2005 STA mission. - After a hiatus of several years, the CBN recently resumed submitting balance of payments data to STA; however, the balance of payments contain very large negative errors of omissions, which probably reflect an underestimation of current account debit transactions. - Except for some methodological changes, compilation of balance of payments continues to be severely affected by organizational weaknesses and resource constraints in the FOS, customs and the CBN. - The Nigerian authorities have not yet initiated compiling international reserves data in line with the Data Template on International Reserves and Foreign Currency Liquidity. - Staff has been unable to assess whether data on official reserve assets is in principle consistent with the template; the data may not be adequate for monitoring because they may not adequately reflect foreign currency liabilities or distinguish other foreign currency assets. ### External debt: debt management improvements and remaining coverage gaps - A United Kingdom-financed technical assistance effort was launched in October 1998 to address problems with external debt data. - After initial delays, the Debt Management Office was established in August 2000. - Good progress has been made in verifying individual loan accounts with creditors’ statements and improving efficiency of debt management in Nigeria. - An audit of Nigeria’s loan portfolio for correctness and duplication was carried out after the two separate databases of the Federal Ministry of Finance and the CBN were merged. - In September 2000, the process of reconciling Nigeria’s external obligations to multilateral creditors began. - Following the Paris Club agreement of December 13, 2000, verification of individual loan accounts with each Paris club creditor was launched and, by October 2001, was reported to be complete. - The authorities do not collect data on private sector external debt; over time they should work to extend coverage of their database to include private sector liabilities. *Source: Staff Report for the 2005 Article IV Consultation — Supplementary Information (Prepared by the African Department; Approved by Michael Nowak and Carlo Cottarelli; July 14, 2005).* ### 1. This supplement contains information that has become available since the staff report ### This supplement contains information that has become available since the staff report for the 2005 Article IV consultation was issued to the Board on June 27, 2005 ### Monetary developments and inflation - In late June, the Central Bank of Nigeria (CBN) initiated a number of actions to contain the increase in broad money, including: - open market operations; - increased sales of foreign exchange; - the transfer of public deposits from commercial banks to the CBN (N60 billion in public enterprise deposits equivalent to 8 percent of reserve money at end-March); - a small increase in reserve requirements. - The 12-month consumer price inflation increased to almost 18 percent in April from 10 percent at end-2004. ### Banking sector consolidation and oversight - The CBN has created a high-level steering committee in line with recommendations from the Monetary and Financial Systems Department of the Fund to help guide the bank consolidation process. ### Petroleum sector pricing, subsidies, and fiscal implications - Despite the liberalization of the downstream petroleum sector in 2003, the Nigerian National Petroleum Corporation (NNPC) has not fully passed on crude oil price increases to consumers of petroleum products. - Attempts to adjust pump prices to the higher international prices have been met with general strikes and civil unrest. - Consequences: - An implicit subsidy on petroleum products of about 1 percent of non-oil GDP in the first half of 2005. - Reduced the amount of windfall oil earnings being sterilized. - Government response: - Intends to develop a medium-term strategy to reduce the gap between international prices and domestic prices for petroleum products. - Meanwhile, will give explicit financing to NNPC to cover its losses out of general government resources. ### Statistical capacity and institutional reform - The authorities have replaced the top management of the Federal Office of Statistics and merged the office with the National Data Bank to create the National Bureau of Statistics. - The intention is to improve the availability, quality, and timeliness of statistics. ### Debt restructuring discussions with Paris Club creditors - Paris Club creditors recently agreed in principle to a phased approach in which Nigeria would: - clear its arrears in full; - receive a debt write-off up to Naples terms; and - buy back the remainder of its debt. - Conditions and next steps: - The agreement is conditional on a favorable review of its macroeconomic and structural policies supported by the Fund under a possible non-borrowing instrument. - Paris Club creditors expressed their readiness to invite Nigeria to negotiate in Paris the elements of the agreement left open—including the overall rate of debt cancellation, the length of the phasing period, and possible trigger clauses—in the event such an instrument were in place for Nigeria. *Source: _cr05302 - This supplement contains information that has become available since the staff report for the 2005 Article IV consultation was issued to the Board on June 27, 2005.* ### 7. In the meantime, the authorities have requested a continuation of Fund ### _cr05302 - 7. In the meantime, the authorities have requested a continuation of Fund ### Fund monitoring and program updates - Authorities requested continuation of Fund monitoring of their program under intensified surveillance. - Authorities provided quarterly fiscal and monetary targets designed in consultation with staff, and an updated structural reform matrix (see Appendix VII of IMF Country Report No. 04/239), including their assessment of implementation (see last column of the matrix). - Quarterly profiles are consistent with the annual targets, reversing the build up in liquidity in the first five months of the year. - With approval of the budget in April 2005, capital spending is projected to pick up consistent with the authorities’ overall macroeconomic framework. - The matrix has been updated in several areas, including public expenditure management, exchange rate system, local government reform, statistics, and liberalization (NNPC). ### Macroeconomic outcomes and targets - 2004 GDP growth: 6 percent; nonoil GDP growth: 7.4 percent. - Medium-term growth targets: 5 percent per annum GDP growth, 7-8 percent per annum nonoil GDP growth (with 2004 target surpassed); conditional target for 2005–2006: 6 percent per annum GDP growth contingent upon implementation of Reform Program, 8-9 percent per annum nonoil GDP growth. - Inflation: average inflation of 15 percent in 2004 (down from 22 percent in 2003); point-to-point inflation down to 9.5 percent Dec. 2004 compared to 23 percent Dec. 2003. Target: ensure inflation not greater than 11 percent (1st Quarter of 2004 and thereafter). - Foreign exchange reserves: $16.9 billion and 14 months of imports at end-2004; by end-March 2005, reserves at $20.9 billion. Target: foreign exchange reserves at 8 months of imports by end 2005. - Financeable fiscal deficit target: no more than 3 percent of GDP in medium term 2004-2006. Fiscal deficit in 2004 budget: 1.5 percent of GDP at $25 a barrel budget price. Projected 2005 budget deficit: 2.8 percent of GDP at $30 a barrel oil price. - External debt service (FGN share, in millions of U.S. dollars): 1,357; 1,316; 1,278; 1,278 (series shown in memorandum). ### Fiscal accounts — headline figures and projections (Federal Government budget) - Oil price (in U.S. dollars per barrel) series shown: 29.03 38.33 30.04 47.64 49.5 (presented in table header). - Total revenue (in billions of naira) series shown: 964, 1,486, 1,492, and quarterly/profile 471, 470, 488, 509 leading to annual 1,938. - Petroleum revenue (in billions of naira) series shown: 740, 1,236, 1,184, and quarterly/profile 416, 409, 412, 438 leading to annual 1,674. - Nonpetroleum revenue (in billions of naira) series shown: 224, 250, 308, and quarterly/profile 55, 62772? (table formatting indicates quarterly elements; principal annual nonpetroleum revenue shown as 265). - Total expenditure (in billions of naira) series shown: 1,049, 1,075, 1,712, and quarterly/profile 261, 340, 405, 405 leading to annual 1,412. - Recurrent expenditure (in billions of naira) series shown: 792, 844, 1,095, and quarterly/profile 195, 310, 252, 252 leading to annual 1,010. - Capital expenditure (in billions of naira) series shown: 257, 231, 582, and quarterly/profile 66, 301, 421, 423 leading to annual 380. - Overall balance (cash basis, in billions of naira): -85, 411, -220, and quarterly/profile 210, 130, 83, 104 leading to annual 527. - Overall balance (excluding clearance of arrears and recapitalizations) annual series shown: -185, 210, 130, 941, 155, 49 (table formatting indicates alternate presentation). - Financing breakdown (in billions of naira): External: -138, -155, -88, -22, -22, -22, -22, -88 (amortization, cash); Domestic financing and components also shown (e.g., Central bank (net) 415, -612, 241, -214, 98, -163, -112, -390). - Memorandum items: Non-oil primary balance (in percent of non-oil GDP) series shown: -14.3, -12.2, -19.4, -15.0; Non-oil revenue (in percent of non-oil GDP) series shown: 5.5, 5.2, 4.5. (Note: the fiscal tables present detailed quarterly and annual profiles across 2003–2005; the lines above extract key headline series and projections exactly as presented.) ### Central bank and monetary indicators - CBN analytical quarterly balance sheet (reserve money and foreign assets): - Net foreign assets (CBN) (end-period, in billions of naira) series shown: 1,059; 2,250; 2,852; 3,170; 3,436; 3,730. - Net domestic assets (CBN) series shown: -370; -1,518; -2,107; -2,420; -2,667; -2,917. - Reserve money (end-period, in billions of naira) series shown: 689; 732; 741; 750; 769; 813. - Reserve Money 12-month growth rate (series shown): 16.4, 6.3, 16.7, 14.6, 18.2, 11.0. - Reserve Money q/q growth rate (series shown): 7.2, 12.6, 1.2, 1.2, 2.5, 5.7. - Monetary survey (broad money and monetary aggregates): - Net foreign assets (monetary survey, in billions of naira) series: 1,476; 2,712; 3,326; 3,644; 3,933; 4,204. - Net domestic assets series: 541; -448; -684; -985; -1,307; -1,600. - Broad money (M2) series (in billions of naira): 1,985; 2,264; 2,647; 2,659; 2,626; 2,604. - Claims on private sector (levels and y/y growth): level series 1,185; 1,497; 1,632; 1,740; 1,836; 1,987; (y/y growth rate) 27, 26.3, 19.8, 19.7, 22.6, 32.8. - Sources: Nigerian authorities and staff estimates and projections. (CBN presents long-term liabilities in other items net. Consolidated government includes windfall oil revenue savings by subnational governments and extrabudgetary funds.) ### Authorities’ Core Economic Reform Program — Macroeconomic stability (matrix highlights and status) - Prepared and launched National Economic Empowerment and Development Strategy (NEEDS) — Done; NEEDS document finalized and launched—May 29, 2004. - Macroeconomic targets and outcomes: - 2004 target surpassed: GDP growth at 6 percent; nonoil GDP growth at 7.4 percent. - Target inflation not greater than 11 percent (1st Quarter 2004 and thereafter); outcome average inflation 15 percent in 2004, point-to-point 9.5 percent Dec. 2004. - Foreign exchange reserves outcome: $16.9 billion and 14 months of imports at end-2004; $20.9 billion by end-March 2005. - Financeable fiscal deficit target: no more than 3 percent of GDP. 2004 budget: 1.5 percent of GDP at $25 a barrel; 2005 projected deficit 2.8 percent at $30 a barrel. - External debt management: - Bilateral agreements with Paris Club creditors: concluded (Debt Management Office). - Continue to pay about US$1 billion to Paris Club creditors in 2004 and 2005. - Domestic debt management: - Successful launch of FGN bond program November, 2003: N150 billion medium- and long-term bonds launched; N78 billion subscribed. - For the first time, there was no recourse to monetary financing of deficit in 2004. - Temporary CBN issuance of approximately N65 billion in bonds on behalf of MOF end-2004 as cover for expected looted Swiss funds; bonds to be retired when looted funds are released. ### Public expenditure and public service reforms — measures and implementation status - Budget process reforms: - Introduced fiscal strategy paper and notion of Medium-Term Expenditure Framework (MTEF) — Done. - Sectoral/ministerial expenditure ceilings introduced in 2004 — Done. - Budget classification exercise completed end-June 2004; new codes in use for 2005 budget (additional work needed). - Stock taking on contractor arrears completed; total contractor arrears over N500 billion. Strategy prepared to pay down and securitize arrears; expected pace about N50 billion a year; contractor arrears will take up to 10 years to eliminate. - List of 500 viable uncompleted projects in Due Process database; identification of unviable projects underway with list expected by end-Sept. 2005. - Budget summary booklet circulated since end-March 2004; completed budget published on Ministry website; monthly publication in local newspapers of State, Federal and Local Govt. shares ongoing. - Quarterly reports on budget implementation: half-yearly monitoring report transmitted to National Assembly on Sept. 21; full year report under preparation with expected completion by end-June 2005. - Special monitoring of 15 largest capital projects and cost-benefit analysis templates: team established and training underway. - AGF’s Office undergoing pilot computerization; plans for Financial Management System linking AGF to Budget Office for implementation in 2005, 2006. ### Fighting corruption, transparency, and accountability — programs and status - Extractive Industries Transparency Initiative (EITI): - Country enrolled and stakeholder processes established — Done. - Selection of auditors and audit program: auditors (Hart of U.K.) selected January 2005; physical and financial audits underway; preliminary report expected end-June 2005; final report December 2005. - Oil and Gas Accounts Modeling and oversight unit in Ministry of Finance established — Done; head in place since mid-January 2004; model in place. - Initial studies unearthed additional tax/royalty payments owed by oil companies, 2003-04, to the tune of $300 million plus; recovery in process by FIRS. - Support to EFCC (Economic and Financial Crimes Commission): - EFCC staff increased from 80 to 315; EFCC cases and seizures: more than 53 cases under prosecution, 500 people in custody, over $750 million worth of goods seized; one conviction thus far. - EFCC 2004 appropriation approximately N752 million (2004) compared to N400 million take off grant in 2003; EFCC budget in 2005 N1.5 billion. - Financial Intelligence Unit (FIU) established and opening with 21 staff — Done. - Money laundering legislation meeting FATF guidelines passed by National Assembly in May 2004; AML/CFT Strategy submitted September 17, 2004; Nigeria expects FATF action at its plenary in June 2005 or December 2005. - ICPC and legal/judicial reforms: - Amended ICPC legislation passed — Done; 62 plus cases in process with ICPC. - Draft Legal and Judicial Reform Strategy completed; implementation plan and presentation to Economic Management Meeting pending. - Police reform: - Police force increased from 130,000 to 240,000 by February 2004; police strength 310,000 as of March 2005. - Procurement and due process: - Due Process Certification produced savings about N140 billion by February 2004. - Resident Due Process teams set up in most Ministries and Agencies; procurement legislation sent to National Assembly December 2004 (first vote in Lower House narrowly defeated 169 to 164; second vote expected by end-August 2005; passage expected September 2005). ### Governance, institutional strengthening, statistics, and monitoring - Local government reform: White Paper and implementation process done; Local Government Bill passed and signed into law in April 2005 to ensure local government funds fully disbursed to LGs from joint State/Local Government Accounts. - NNPC reforms: management changed November 2003; restructuring and reorganization in process; about 7,000 staff laid off and new skills recruited. - Policy and program monitoring: clarification of roles across BMPIU, FOS, CBN, National Planning Commission, Presidency Monitoring Unit, Ministry of Finance underway; Presidency Monitoring Unit establishment in process. - Statistics and data gathering: - Statistics master plan developed — Done (end June 2004). - Review and measures to strengthen Federal Office of Statistics (FOS) — Done (end March 2004). - Implementation of statistics master plan underway; new Corporate Headquarters partially occupied; Statistical Master Plan Implementation Unit constituted; EU provided consultants; transformation toward National Bureau of Statistics (NBS) in process. ### Accelerated privatization and liberalization — petroleum sector - Liberalization of petroleum sector: - Complete liberalization of pricing and marketing of petroleum products implemented on October 1, 2003; petrol prices move to import parity approximately N40 a litre minimum as of October 1, 2003. - Phase-out of government subsidies to NNPC on the purchase of Domestic Crude implemented on October 22, 2003. *Source: Authorities; and Fund staff estimates (material excerpted from the provided IMF attachment).* ### 2003. As a result of these meas ### _cr05302 - 2003. As a result of these meas ### Petroleum pricing, subsidies, and social mitigation - Deregulation moved NNPC to pay international price for domestic crude refined in country and moved the price of gas at the pump to import parity prices. - Labour initiated a serious strike when petrol climbed to N50-N52 a litre at the start of deregulation. - Court injunction requested the National Labour Congress (NLC) to halt its strike and asked government and fuel marketers to revert to pump price of N38-N40 a litre that obtained at the start of deregulation on October 1. - Since the injunction, NNPC temporarily used accumulated reserves to subsidize petrol at the rate of N350 million a day (July–August) because no money was available from the government treasury for this purpose; NNPC reserves were virtually exhausted. - Note that court injunction has now been lifted. - As at September 25, 2004, petrol prices at the pump were at import parity levels, N52-N60 per litre depending on location. - Continued high oil prices triggered protests leading to actual consumer prices of N48-N55 per litre depending on location—this is N10-N16 per litre above the import parity prices at deregulation in October 2003. - NNPC continued to bear a subsidy of N172 million a day to keep prices from rising beyond this point. - Government policy responses: - Adopted an explicit subsidy of N2 billion a month for 3 months in the first instance to kerosene (used by the poor for cooking and lighting). - Considering a one-time explicit support to the NNPC of N54 billion to help cushion the impact of the subsidy on its operations. - Developing a medium-term price modulation mechanism for petrol pump prices. - Phase-out measure: Phase out of government price subsidies to NNPC on domestic crude (move NNPC to international spot price) implemented October 22, 2003. - Reported savings of approximately N109 billion per year to the treasury (Budget 2004 Estimates). (Savings refer to the last move $18 to $23 a barrel.) - NNPC laid off 7,000 workers and moved to improve efficiency; goal is full commercialization. ### Macroeconomic performance and policy outcomes (2004–2005) - Real GDP is estimated to have increased by about 6 percent in 2004, driven largely by higher growth in the non-oil economy (in particular agriculture) and some areas within manufacturing and services. - Consolidated government fiscal stance in 2004 was prudent despite large increase in oil revenue; a windfall oil revenue of about US$6 billion was set aside. - Central Bank of Nigeria (CBN) tightened monetary policy; 12-month inflation decelerated to 16 percent in March 2005, from 24 percent at end-2003. - International reserves rose to US$23 billion at end-May 2005. - Government serviced commercial and multilateral external obligations and paid US$1 billion (about half of its obligations) to Paris Club creditors while maintaining dialogue. ### IMF Executive Board assessment and policy recommendations - Directors commended strong 2004 performance under the National Economic Empowerment and Development Strategy (NEEDS): transparency, non-oil growth, and reduced vulnerability to oil price shocks. - Directors cautioned that Nigeria still faces challenges from weak institutions, capacity constraints, and legacy mismanagement; they urged perseverance and broadening reforms. - Fiscal policy concerns and recommendations: - Expressed concern about expansionary fiscal stance in 2005 and larger non-oil deficit, which could complicate monetary management and crowd out private investment. - Urged strengthening public expenditure management to ensure spending advances NEEDS objectives and Millennium Development Goals. - Welcomed establishment of a virtual poverty fund to track poverty-reducing spending and creation of a cost-benefit analysis unit in the Ministry of Finance for large projects. - Called for improved government budget classification systems and welcomed the Fiscal Responsibility Bill to enhance fiscal transparency and accountability. - Monetary and exchange rate policy guidance: - More of the burden of controlling inflation would fall on the CBN given fiscal expansion; Directors supported CBN actions to limit broad money growth. - Welcomed reliance on indirect monetary instruments; urged allowing short-term interest rates and the exchange rate to adjust as needed. - Supported continuation of money targeting as operational framework and recommended consideration of moving to inflation targeting once preparations are complete and financial sector strengthened. - Called for reform of segmented foreign exchange markets; welcomed CBN commitment to introduce a wholesale auction for foreign exchange in early 2006 to unify the exchange system and urged expedited infrastructure and regulation work. - Urged streamlining of foreign exchange regulations and steps toward accepting Article VIII obligations of the Fund. - Financial sector and banking reform: - Regretted deterioration in financial condition of some banks in 2004; welcomed capitalization program and high-level steering committee for bank restructuring and consolidation. - Urged CBN to develop strategic plan for banks not meeting minimum capital requirement at end-2005, strengthen legal powers to close insolvent banks, enhance supervision, ensure sound accounting standards, and advance legal processes for asset management companies. - Supported authorities’ request for IMF technical assistance on the banking reform program. - Governance, privatization, and structural reforms: - Welcomed measures to tackle public sector corruption, improve transparency (including EITI), advance civil service reform, and strengthen budgetary procedures. - Encouraged expediting privatization pace and rallying public support; noted revamping of Bureau of Public Enterprises (BPE). - Supported tariff reform program, phase-out of import bans by end-2006, and full adoption of ECOWAS Common External Tariff by end-2007, but recommended accelerating the timetable. - Welcomed merging of Federal Office of Statistics with the National Data Bank to create the National Bureau of Statistics. ### Selected economic and financial indicators (2002–05) — key figures (annual percent changes or levels as reported) - Real GDP (at 1990 factor cost): 2002: 1.4; 2003: 10.9; 2004: 6.1; 2005: 3.4 - Oil GDP: 2002: -11.6; 2003: 26.5; 2004: 3.5; 2005: 0.2 - Non-oil GDP: 2002: 8.0; 2003: 4.4; 2004: 7.4; 2005: 4.9 - Real GDP per capita: 2002: -1.3; 2003: 7.9; 2004: 3.3; 2005: 0.8 - GDP per capita (U.S. dollars): 2002: 341; 2003: 415; 2004: 500; 2005: 610 - GDP deflator (period average): 2002: 3.9; 2003: 20.8; 2004: 19.9; 2005: 20.0 - Consumer price index (end of period): 2002: 12.2; 2003: 23.8; 2004: 10.0; 2005: 13.5 - Exports, f.o.b. (annual % changes): 2002: -9.8; 2003: 54.2; 2004: 36.9; 2005: 21.1 - Imports, f.o.b. (annual % changes): 2002: 28.9; 2003: 26.1; 2004: 11.3; 2005: 28.0 - Total revenue and grants (percent change): 2002: -8.7; 2003: 36.1; 2004: 47.5; 2005: 30.1 - Oil revenue: 2002: -14.8; 2003: 42.7; 2004: 59.3; 2005: 34.3 - Non-oil revenue: 2002: 12.1; 2003: 19.4; 2004: 11.6; 2005: 11.9 - Broad money (annual % change): 2002: 21.6; 2003: 24.1; 2004: 14.0; 2005: 15.0 - Investment (percent of GDP): 2002: 26.2; 2003: 23.9; 2004: 22.4; 2005: 22.8 - Public fixed investment: 2002: 10.0; 2003: 9.7; 2004: 9.1; 2005: 9.6 - Private fixed investment: 2002: 16.2; 2003: 14.2; 2004: 13.2; 2005: 13.1 - Gross national savings (percent of GDP): 2002: 14.5; 2003: 21.1; 2004: 27.0; 2005: 28.6 - Public: 2002: 12.2; 2003: 13.2; 2004: 20.9; 2005: 22.9 - Private: 2002: 2.3; 2003: 7.9; 2004: 6.1; 2005: 5.6 - Consolidated government: Total revenues and grants (in percent of GDP): 2002: 36.4; 2003: 37.1; 2004: 43.1; 2005: 45.2 - Total expenditure and net lending (commitment basis, percent of GDP): 2002: 40.7; 2003: 38.4; 2004: 35.4; 2005: 35.3 - Overall balance (commitment basis, percent of GDP): 2002: -4.2; 2003: -1.3; 2004: 7.7; 2005: 9.9 - Gross domestic debt (percent of GDP): 2002: 18.1; 2003: 15.5; 2004: 13.9; 2005: 12.1 - Current account balance (percent of GDP): 2002: -11.7; 2003: -2.7; 2004: 4.6; 2005: 5.8 - External debt outstanding (in billions of U.S. dollars): 2002: 31.0; 2003: 32.9; 2004: 35.9; 2005: 36.2 - Current account balance (in billions of U.S. dollars): 2002: -5.4; 2003: -1.6; 2004: 3.3; 2005: 5.2 - Overall balance of payments (in billions of U.S. dollars): 2002: -4.5; 2003: -1.6; 2004: 8.1; 2005: 9.2 - Gross international reserves (end of period, in billions of U.S. dollars): 2002: 7.7; 2003: 7.5; 2004: 17.0; 2005: 28.5 - (equivalent months of goods and services): 2002: 3.9; 2003: 3.4; 2004: 6.2; 2005: 9.9 - Price of Nigerian oil (U.S. dollars per barrel): 2002: 25.0; 2003: 28.9; 2004: 38.3; 2005: 49.5 - Production of crude oil (million barrels per day): 2002: 1.96; 2003: 2.45; 2004: 2.49; 2005: 2.40 - Including oil and gas equivalent: 2002: 2.15; 2003: 2.72; 2004: 2.81; 2005: 2.82 - Interbank Foreign Exchange Market/DAS exchange rate (naira per U.S. dollar; average): 2002: 122.2; 2003: 130.9; 2004: 134.3 *Source: Public Information Notice (PIN) No. 05/110 — IMF Executive Board conclusions on the 2005 Article IV consultation with Nigeria (August 10, 2005).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05302.pdf_