## Nigeria: Poverty Reduction Strategy Paper—Progress Report—Joint Staff Advisory Note (_cr07271)

## Source details

**Canonical URL:** [Nigeria: Poverty Reduction Strategy Paper—Progress Report—Joint Staff Advisory Note (_cr07271)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07271.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07271.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07271.pdf.json)

---

### I. Overview
- The Annual Progress Report (the “Report”) assesses implementation of the National Economic Empowerment and Development Strategy (NEEDS) and was prepared in support of the authorities’ request for completion of the Third Review under the Policy Support Instrument (PSI).
- Key findings:
  - Authorities achieved macroeconomic stability and sustained a broad-based high growth underpinned by a range of deep structural reforms in most sectors of the economy.
  - 2007 is the last year under NEEDS; a draft new strategy—NEEDS 2 for 2008–-11—is being prepared by the outgoing administration in parallel to this Report. NEEDS 2 is expected to be reviewed and completed before year end by the new administration that assumed power on May 29.
  - State-level SEEDS for all 36 states now complement NEEDS; a second round of SEEDS benchmarking was undertaken in 2006 (see Report Annex I).
  - NEEDS and SEEDS are an important vehicle for donor coordination; development partners, including the World Bank and DFID, have been framing assistance around NEEDS and SEEDS.
- Monitoring and reporting weaknesses:
  - Limited data and paper-based record keeping persist despite progress in strengthening the National Bureau of Statistics.
  - No comprehensive update on poverty levels since the 2004 household living standards survey is available.
- Priority recommendation:
  - Further strengthen monitoring and evaluation through improvements in budgetary and administrative statistics and better accessibility of outcome indicators.

### II. Macroeconomic Policies and Framework
- Recent developments and factors:
  - Non-oil growth was robust.
  - Despite unrest in the Niger Delta, oil production could fully fill the OPEC quota.
  - The budgetary oil price rule was an essential anchor of fiscal policy and limited the macroeconomic impact of increased oil revenue.
  - The 2006 non-oil fiscal deficit increased in part to accommodate important infrastructure projects.
  - Inflation declined to single digits in 2006 due to increased confidence, favorable food prices, and exchange rate appreciation associated with exchange market unification; monetary policy implementation was uneven and challenged by IT problems.
  - External position strengthened significantly as a large reduction in debt (mainly from the Paris Club debt agreement) coincided with international reserve accumulation aided by high oil prices.
- Staff assessment:
  - Fund and World Bank staffs support the medium-term macroeconomic framework and the thrust of macroeconomic policies outlined in the Report.
  - Scenarios:
    - Conservative scenario: Robust growth broadly in line with projections under the PSI, hinging on sustained implementation of prudent macroeconomic policies and continued structural reforms.
    - “High growth/policy reform” scenario: Requires deepened structural reforms and major progress in resolving unrest in the Niger Delta; could lead to higher growth crucial for significant progress toward the MDGs.
- Risks and policy recommendations:
  - Risks: sustainability of fiscal expansion, quality of budget spending, adequacy of inter-government policy coordination.
  - Strengthen management and utilization of oil wealth by defining the budgetary oil price rule in line with macroeconomic stability and extending its coverage to natural gas.
  - Given large spending needs and large non-oil fiscal deficits, monetary policy will have a crucial role; recent steps to strengthen implementation need full implementation.
  - Trade policy: carry further trade liberalization from the 2005 tariff reform by preparing a timetable for removal of remaining import bans and eliminating the 50 percent tariff band in line with ECOWAS plans.
  - Planned discussions with staffs on macroeconomic policies later in 2007 in the context of the fourth review of the PSI and the Article IV consultation.

### III. Public Expenditure Management, Governance, Transparency and Accountability
- Reported progress:
  - Increased transparency of government budgets and accounts.
  - Civil service and ministry reforms and reductions in inefficiencies in government expenditure.
  - Continued procurement reform reduced costs of government contracts and improved contractor accountability.
  - A comprehensive audit of oil and oil revenue flows from 1999–2004 under the Nigeria Extractive Industries Transparency Initiative (NEITI) reconciled virtually all payments but identified many process weaknesses; the N-EITI bill has been enacted.
  - Payroll verification, removal of ghost workers, disengagement of low-skilled officers, monetization of most allowances, adoption of a new salary structure, and reorganizations of ministries.
- Outstanding issues and recommendations:
  - Many reforms need consolidation and continuation; better link public service reforms to improvements in service delivery and develop an affordable long-term salary policy.
  - Integrate all spending funded from oil savings into fiscal strategies and strengthen public financial management practices to improve quality of spending (particularly on infrastructure).
  - Institutional strengthening through final approval of the Fiscal Responsibility and Procurement Bills. (The Fiscal Responsibility Bill was approved by the two houses of parliament and awaits harmonization.)
  - Modern computer systems for personnel, payroll, and budget management faced significant delays; sustained efforts are needed to complete roll-out and ensure effectiveness.

### IV. Sectoral Policies
- Agriculture
  - Reforms: presidential initiatives to boost production of various agricultural commodities including cassava; National Agricultural Development Fund bill approved by the National Assembly; community-based rural development projects launched; efforts to improve rural finance.
  - Recommendations: focus on (i) expanding irrigation capacity; (ii) reforming research and extension systems; (iii) investing in rural infrastructure to improve market access for farmers; (iv) more clearly defining roles of the private and public sectors; (v) strengthening input supply system; (vi) enhancing access to financial systems.
- Education
  - Achievements: education spending (as a percentage of GDP) has significantly increased; school enrolment at all levels has risen partly reflecting enforcement of free education for the first 9 years; major institutional and structural reforms including reform of the Ministry of Education and the preparation of the National Framework and Federal Sector Plan for education; in April 2007 the government approved the Education Sector Reform Bill consolidating 21 existing education parastatals into 13 parastatals; adoption of a strategic vision for post-basic education in Science and Technology.
  - Issues and recommendations: (i) low quality of learning and teaching at all levels; (ii) inequitable access to facilities; (iii) inefficient use of resources. Urged actions include improving administrative and management capacity, strengthening federal monitoring of educational outcomes and resource utilization (including broader use of tracking surveys), and better coordinating education system design with labor market demands.
- Health
  - Progress: revision of the National Health Policy, a framework for achieving health-related MDG’s, a draft National Health Bill, formal launching of the National Health Insurance Scheme, development of sub-sectoral policies, and continued increases in federal government investment. Some diseases (including guinea worm and malaria) show more effective treatment partly reflecting community-based efforts.
  - Concerns and recommendations: maternal and infant mortality has risen since 2004 and access to basic primary health care remains weak. Important to delineate responsibilities among the three tiers of government and ensure access to a basic package of cost-effective health services across all states.
  - HIV/AIDS: decline in the AIDS infection rate noted due partly to a behavioral change communications strategy; decline should be viewed with caution given disparate regional trends and prevention and treatment efforts need reinforcement.
- Infrastructure and Business Environment
  - Progress: improved ranking on cost of doing business index reflecting improved contract enforcement and streamlined trade and licensing; government spending on physical infrastructure such as energy and transport has more than doubled since 2004; concessioning of ports improved service quality; railway system refurbishment underway; several market-based regulatory framework laws under consideration by the National Assembly.
  - Remaining constraints: unreliable electricity supply, poor physical infrastructure, difficulties obtaining long-term finance, challenges in starting a business, and administrative burden of paying taxes.
  - Staff recommendations: greater emphasis on federal-state coordination to reform the investment climate, continued improvements in customs and tax administration, and focused attention on binding constraints within specific industries and the informal small-scale sector.
- Financial Sector
  - Achievements: successful completion of banking consolidation, new microfinance policy, establishment of a secondary market for government securities; recent growth in private sector credit, secondary bond market trading and entry of new international microfinance operators.
  - Recommendations: sustain success through strengthened supervision and robust corporate governance frameworks; prioritize and appropriately sequence policies within specific action plans under the Financial System Strategy 2020 (FSS 2020).
- Energy and Power Sector
  - Situation: unsatisfactory with lack of progress; Report outlines an ambitious strategy to raise generation capacity to 10,000 MW by end-2007 through public-private partnerships.
  - Staff recommendations:
    - In parallel with generation expansion, pay adequate attention to improving transmission and distribution networks.
    - Ensure a credible and transparent process for privatization of unbundled utilities.
    - Complete commercialization of the Nigerian National Petroleum Corporation.
    - Privatize oil refinery complexes.
    - Develop a plan for introduction of a market-based mechanism for setting petroleum product prices.
  - Financial note: annual subsidy from the federal budget to cover financial losses and investments in the power sector amounts to nearly US$400 million, higher than the federal budget for health.
  - Tariff recommendation: establish electricity tariffs which allow cost recovery while introducing adequate measures to protect vulnerable groups.

### Transportation sector: assessment and staff recommendations (Section 2)
- Assessment:
  - The Report notes a number of improvements in the transportation sector, while underscoring the continued shortcomings in this important area.
  - The staffs support the key directions of the authorities’ strategy for strengthening the transportation sector.
- Recommendations:
  - Broaden opportunities for private sector participation in the sector, including in railways.
  - Develop specific institutional and policy reforms to facilitate improvements in service efficiency and sustainability.
  - Draft and enact legislation to establish the proposed Federal Highway Authority, the National Roads Board and the Road Fund.

### V. Conclusion and Follow-up priorities
- Summary conclusions (paragraph 25):
  - Nigeria’s progress report on the implementation of NEEDS demonstrates the major accomplishments that have already been realized.
  - Implementation of the macroeconomic aspects of the NEEDS in 2005 and 2006 has continued to be good.
  - The authorities have taken bold steps to improve macroeconomic policy management, improve government operations, and to tackle corruption.
  - Important reform steps in the areas of private sector development, energy, education and health have demonstrated the commitment of the authorities and laid the ground for future improvements in these sectors.
- Follow-up priorities and staff encouragement (paragraph 26):
  - The staffs encourage the new administration to put in place expeditiously the NEEDS successor strategy to consolidate the reforms, and build on the momentum generated by NEEDS.
  - Key challenges to be addressed through further reform effort include:
    - maintain sound macroeconomic policies and strengthen the links between NEEDS, sector strategies, medium-term forecasts, and annual government budgets;
    - strengthen the basis for private sector growth including by improving power and transport infrastructure;
    - improve transparency and accountability of the public sector, rationalize the public investment program, ensure value-for-money, and reduce corruption;
    - reinforce the focus on improvements in service delivery and accountability for outcomes and strengthen intergovernmental coordination including through stronger links between NEEDS and SEEDS;
    - update information on the incidence of poverty and improve information on key economic and social developments, among others through developing a poverty-related expenditure tracking and reporting system for all government levels.

*Prepared by the Staffs of the International Development Association (IDA) and the International Monetary Fund (IMF); approved June 13, 2007. Source: _cr07271 - Section 2*

### Section 1

### Nigeria: Poverty Reduction Strategy Paper—Progress Report—Joint Staff Advisory Note

### I. Overview
- The Annual Progress Report (the “Report”) assesses implementation of the National Economic Empowerment and Development Strategy (NEEDS) and was prepared in support of the authorities’ request for completion of the Third Review under the Policy Support Instrument (PSI).
- During the period under review, the authorities achieved macroeconomic stability and sustained a broad-based high growth underpinned by a range of deep structural reforms in most sectors of the economy.
- 2007 is the last year under NEEDS; a draft new strategy—NEEDS 2 for 2008–-11—is being prepared by the outgoing administration in parallel to this Report. NEEDS 2 is expected to be reviewed and completed before year end by the new administration that assumed power on May 29.
- The Report focuses on a broad assessment of progress against previous targets and recommends carrying forward detailed sectoral analyses to:
  - distill lessons learnt;
  - design operational targets and observable indicators;
  - prioritize and sequence the reform agenda;
  - support realism in setting challenging but achievable targets for NEEDS 2.
- State-level SEEDS for all 36 states now complement NEEDS; a second round of SEEDS benchmarking was undertaken in 2006 (see Report Annex I).
- NEEDS and SEEDS are an important vehicle for donor coordination; development partners, including the World Bank and DFID, have been framing assistance around NEEDS and SEEDS.
- Monitoring and reporting weaknesses persist due to limited data and paper-based record keeping despite progress in strengthening the National Bureau of Statistics. No comprehensive update on poverty levels since the 2004 household living standards survey is available.
- Priority: further strengthen monitoring and evaluation through improvements in budgetary and administrative statistics and better accessibility of outcome indicators.

### II. Macroeconomic Policies and Framework
- Recent improvements in key macroeconomic indicators reflect improved policy framework and favorable external environment.
  - Non-oil growth was robust.
  - Despite unrest in the Niger Delta, oil production could fully fill the OPEC quota.
  - The budgetary oil price rule was an essential anchor of fiscal policy and limited the macroeconomic impact of increased oil revenue.
  - The 2006 non-oil fiscal deficit increased in part to accommodate important infrastructure projects.
  - Inflation declined to single digits in 2006 due to increased confidence, favorable food prices, and exchange rate appreciation associated with exchange market unification; monetary policy implementation was uneven and challenged by IT problems.
  - External position strengthened significantly as a large reduction in debt (mainly from the Paris Club debt agreement) coincided with international reserve accumulation aided by high oil prices.
- Fund and World Bank staffs support the medium-term macroeconomic framework and the thrust of macroeconomic policies outlined in the Report.
  - Robust growth under the conservative scenario—broadly in line with projections under the PSI—hinges on sustained implementation of prudent macroeconomic policies and continued structural reforms.
  - A “high growth/policy reform” scenario—requiring deepened structural reforms and major progress in resolving unrest in the Niger Delta—could lead to higher growth crucial for significant progress toward the MDGs.
- Risks and recommendations:
  - Risks: sustainability of fiscal expansion, quality of budget spending, adequacy of inter-government policy coordination.
  - Management and utilization of oil wealth could be strengthened by defining the budgetary oil price rule in line with macroeconomic stability and extending its coverage to natural gas.
  - Large spending needs and large non-oil fiscal deficits imply monetary policy will have a crucial role; recent steps to strengthen implementation need full implementation.
  - Trade liberalization from the 2005 tariff reform should be carried further by preparing a timetable for removal of remaining import bans and eliminating the 50 percent tariff band in line with ECOWAS plans.
  - Discussions with staffs on macroeconomic policies are expected later in 2007 in the context of the fourth review of the PSI and the Article IV consultation.

### III. Public Expenditure Management, Governance, Transparency and Accountability
- Progress reported:
  - Increased transparency of government budgets and accounts.
  - Civil service and ministry reforms and reductions in inefficiencies in government expenditure.
  - Continued procurement reform reduced costs of government contracts and improved contractor accountability.
  - A comprehensive audit of oil and oil revenue flows from 1999–2004 under the Nigeria Extractive Industries Transparency Initiative (NEITI) reconciled virtually all payments but identified many process weaknesses; the N-EITI bill has been enacted.
  - Payroll verification, removal of ghost workers, disengagement of low-skilled officers, monetization of most allowances, adoption of a new salary structure, and reorganizations of ministries are important steps toward more effective service delivery.
- Outstanding issues and recommendations:
  - Many reforms need consolidation and continuation; better link public service reforms to improvements in service delivery and develop an affordable long-term salary policy.
  - To improve quality of spending funded from oil savings (particularly on infrastructure), all spending should be integrated into fiscal strategies and public financial management practices should be strengthened.
  - Institutional framework would be strengthened by final approval of the Fiscal Responsibility and Procurement Bills. (The Fiscal Responsibility Bill was approved by the two houses of parliament and awaits harmonization.)
  - Modern computer systems for personnel, payroll, and budget management faced significant delays; sustained efforts are needed to complete roll-out and ensure effectiveness.

### IV. Sectoral Policies
- Agriculture
  - Reforms noted: presidential initiatives to boost production of various agricultural commodities including cassava; National Agricultural Development Fund bill approved by the National Assembly; community-based rural development projects launched; efforts to improve rural finance.
  - Recommendations for future strategy: focus on (i) expanding irrigation capacity; (ii) reforming research and extension systems; (iii) investing in rural infrastructure to improve market access for farmers; (iv) more clearly defining roles of the private and public sectors; (v) strengthening input supply system; (vi) enhancing access to financial systems.
- Education
  - Achievements: education spending (as a percentage of GDP) has significantly increased; school enrolment at all levels has risen partly reflecting enforcement of free education for the first 9 years; major institutional and structural reforms including reform of the Ministry of Education and the preparation of the National Framework and Federal Sector Plan for education; in April 2007 the government approved the Education Sector Reform Bill consolidating 21 existing education parastatals into 13 parastatals; adoption of a strategic vision for post-basic education in Science and Technology.
  - Key issues and recommendations: (i) low quality of learning and teaching at all levels; (ii) inequitable access to facilities; (iii) inefficient use of resources. Urged actions include improving administrative and management capacity, strengthening federal monitoring of educational outcomes and resource utilization (including broader use of tracking surveys), and better coordinating education system design with labor market demands.
- Health
  - Progress: revision of the National Health Policy, a framework for achieving health-related MDG’s, a draft National Health Bill, formal launching of the National Health Insurance Scheme, development of sub-sectoral policies, and continued increases in federal government investment. Some diseases (including guinea worm and malaria) show more effective treatment partly reflecting community-based efforts.
  - Concerns and recommendations: maternal and infant mortality has risen since 2004 and access to basic primary health care remains weak. Important to delineate responsibilities among the three tiers of government and ensure access to a basic package of cost-effective health services across all states.
  - HIV/AIDS: decline in the AIDS infection rate noted due partly to a behavioral change communications strategy; decline should be viewed with caution given disparate regional trends and prevention and treatment efforts need reinforcement.
- Infrastructure and Business Environment
  - Progress: improved ranking on cost of doing business index reflecting improved contract enforcement and streamlined trade and licensing; government spending on physical infrastructure such as energy and transport has more than doubled since 2004; concessioning of ports improved service quality; railway system refurbishment underway; several market-based regulatory framework laws under consideration by the National Assembly.
  - Remaining constraints: unreliable electricity supply, poor physical infrastructure, difficulties obtaining long-term finance, challenges in starting a business, and administrative burden of paying taxes.
  - Staff recommendations: greater emphasis on federal-state coordination to reform the investment climate, continued improvements in customs and tax administration, and focused attention on binding constraints within specific industries and the informal small-scale sector.
- Financial Sector
  - Achievements: successful completion of banking consolidation, new microfinance policy, establishment of a secondary market for government securities; recent growth in private sector credit, secondary bond market trading and entry of new international microfinance operators.
  - Recommendations: sustain success through strengthened supervision and robust corporate governance frameworks; prioritize and appropriately sequence policies within specific action plans under the Financial System Strategy 2020 (FSS 2020).
- Energy and Power Sector
  - Situation: unsatisfactory with lack of progress; Report outlines an ambitious strategy to raise generation capacity to 10,000 MW by end-2007 through public-private partnerships.
  - Staff recommendations: in parallel with generation expansion, pay adequate attention to improving transmission and distribution networks; ensure a credible and transparent process for privatization of unbundled utilities; complete commercialization of the Nigerian National Petroleum Corporation; privatize oil refinery complexes; develop a plan for introduction of a market-based mechanism for setting petroleum product prices.
  - Financial concern: annual subsidy from the federal budget to cover financial losses and investments in the power sector amounts to nearly US$400 million, higher than the federal budget for health.
  - Recommendation: establish electricity tariffs which allow cost recovery while introducing adequate measures to protect vulnerable groups.

*Prepared by the Staffs of the International Development Association (IDA) and the International Monetary Fund (IMF); approved June 13, 2007.*

### Section 2

### _cr07271 - Section 2

### Transportation sector: assessment and staff recommendations
- The Report notes a number of improvements in the transportation sector, while underscoring the continued shortcomings in this important area.
- The staffs support the key directions of the authorities’ strategy for strengthening the transportation sector.
- The staffs underline the need for broadening opportunities for private sector participation in the sector, including in railways.
- The staffs recommend that the authorities develop specific institutional and policy reforms to facilitate improvements in service efficiency and sustainability, including drafting and enacting legislation to establish the proposed Federal Highway Authority, the National Roads Board and the Road Fund.

### V. Conclusion (paragraph 25)
- In sum, Nigeria’s progress report on the implementation of NEEDS demonstrates the major accomplishments that have already been realized.
- Implementation of the macroeconomic aspects of the NEEDS in 2005 and 2006 has continued to be good.
- The authorities have taken bold steps to improve macroeconomic policy management, improve government operations, and to tackle corruption.
- Important reform steps in the areas of private sector development, energy, education and health have demonstrated the commitment of the authorities and laid the ground for future improvements in these sectors.

### Follow-up priorities and staff encouragement (paragraph 26)
- The staffs encourage the new administration of put in place expeditiously the NEEDS successor strategy to consolidate the reforms, and build on the momentum generated by NEEDS.
- Many of the challenges for generating growth and reducing poverty remain and have to be addressed through a further reform effort, including:
  - to maintain sound macroeconomic policies and strengthen the links between NEEDS, sector strategies, medium-term forecasts, and annual government budgets;
  - to strengthen the basis for private sector growth including by improving power and transport infrastructure;
  - to improve transparency and accountability of the public sector, rationalize the public investment program, ensure value-for-money, and reduce corruption;
  - to reinforce the focus on improvements in service delivery and accountability for outcomes and strengthen intergovernmental coordination including through stronger links between NEEDS and SEEDS;
  - to update information on the incidence of poverty and improve information on key economic and social developments, among others through developing a poverty-related expenditure tracking and reporting system for all government levels.

*Source: _cr07271 - Section 2*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07271.pdf_