## 1. Risk Assessment Matrix (RAM) — _cr1584

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### Context and recent macro‑financial developments
- Real GDP grew by 6.1 percent in Q3 2014 (y-o-y); non-oil sector up 7.3 percent; oil sector declined by 3.6 percent.
- Inflation declined to 8 percent at end-2014 (CBN target range 6-9 percent).
- Credit to the private sector grew 28½ percent in 2014 (24 percent in 2013).
- Trade surplus for 2013 was $43.8 billion (8.4 percent of GDP); 2014 Q1–Q3 surplus about 23 percent lower.
- Gross international reserves (GIRs) stood at $34.25 billion at end-2014, a decline of $8.5 billion from end-2013.
- Total public debt is 12.4 percent of GDP; external debt is 1.7 percent of GDP.
- About 30-40 percent of Federal Government domestic debt was held by non-residents at end-2013.
- Federal Government debt service on total public debt is nearly 9 percent of general government revenue (compared with an average of 5.5 percent in developing and emerging economies).
- Recent policy actions:
  - Fiscal: Revised 2015 MTEF benchmark oil price of $65 per barrel (pb) in December (original MTEF used $78 pb in October).
  - Monetary/exchange: rDAS midpoint adjusted from N155 to N168 per U.S. dollar (8 percent adjustment) and band widened from ± 3 to ± 5 percent; MPR raised from 12 percent to 13 percent; cash reserve requirement on private sector deposits raised from 15 percent to 20 percent.
- External shock and near-term outlook drivers:
  - Oil exports projected at $52 billion in 2015 (down from $88 billion in 2014), a reduction of 6 percentage points of GDP.
  - Fiscal oil revenues projected at 3.4 percent of GDP (down from 5.8 percent in 2014).
  - Staff projects aggregate demand shocks could lower growth by about 1½ percentage point from 2014 to 4¾ percent in 2015.
  - Excess Crude Account (ECA) reached $2.0 billion by end-2014—well below the $6.3 billion required to cover a one-half standard deviation shock to oil receipts.
- FX market characteristics and pressures:
  - Foreign exchange market segmented: IFEM and BDC rates trade at premia over rDAS.
  - Spread between period average IFEM and rDAS rates reached 12 percent in January.
  - Net open foreign exchange position remains small (about 6 percent of total capital) in the banking sector.

### Outlook, scenarios, and vulnerabilities
- Baseline outlook:
  - Growth moderates as economy adjusts to permanently lower oil prices; non-oil growth affected via cuts in public investment and reduction in real purchasing power of oil receipts.
  - Exchange rate depreciation will add to inflation (pass-through), partially offset by lower food prices from increased local production of staple food crops.
  - Low fiscal and external buffers reduce capacity to absorb shocks relative to the 2008-09 financial crisis.
- Authorities’ view:
  - Authorities see the oil price shock as significant and at least in part permanent but expect a smaller effect on activity than staff due to targeted measures (agriculture, power, small enterprises) and remittances; rising food self-sufficiency expected to limit pass-through to inflation.

### Key risks — direction, channels, and exposures
- Overall assessment: Risks are on the downside.
- External risks:
  - Investor sentiment could deteriorate with further oil price declines or adverse global/regional developments, triggering capital outflows and pressure on exchange rate and GIRs.
- Domestic risks:
  - Security risks related to election-related violence or intensification of insurgency could disrupt reforms and investor sentiment.
- Financial-sector and market risks:
  - Sources: side-effects from global financial conditions; bond market stress from sovereign-risk reassessment.
  - Relative likelihood: High for side-effects from global financial conditions; Medium for bond market stress.
  - Expected impact: Medium to High.
  - Specific exposures:
    - Sovereign issuance: $1.5 billion since 2007; private sector issuance: $4.95 billion since 2007.
    - Total capital importation since 2012 is over $50 billion.
  - Channels: capital flow reversals; sovereign bond market repricing; stress in domestic financial institutions with foreign currency exposures.
- Inconsistent and partial implementation of financial regulatory reforms:
  - Relative likelihood: Medium. Expected impact: Low.
  - Concern: Lack of international consensus on cross-border resolution regimes could impede effective regimes for pan-African banks (PABs) based and operating in Nigeria.
- Protracted period of slower growth:
  - Relative likelihood: High. Expected impact: Medium.
  - Macro channel: Lower external demand, weaker capital flows, lower commodity prices reducing fiscal and external receipts.

### RAM policy recommendations (high level)
- Financial sector and capital market:
  - Revisit monetary and exchange rate policy framework, including allowing greater flexibility in the DAS rate.
  - Develop a contingency plan and monitor key indicators.
  - Continue sound policies to reduce vulnerabilities while addressing structural liquidity issues.
  - Enhance prudential supervision and strengthen supervisory and regulatory framework for cross-border banking and holding companies; address corporate governance weaknesses.
- Regulatory coordination and resolution:
  - Enhance coordination with national supervision agencies of parent/subsidiary banks to mitigate fragmentation risks and improve cross-border crisis management.
- Fiscal and growth-side policies:
  - Accelerate non-oil revenue mobilization.
  - Diversify exports by products and trading partners.
  - Continue targeted measures in agriculture, power, and small enterprises to mitigate real-economy impacts of lower oil prices.

---

### Box 1. RAM — risk definitions, spillovers, and financial vulnerabilities

### RAM methodology and likelihood definitions
- RAM: events that could materially alter the baseline path.
- Relative likelihood definitions:
  - “low” = probability below 10 percent
  - “medium” = probability between 10 percent and 30 percent
  - “high” = probability between 30 percent and 50 percent
- Non-mutually exclusive risks may interact.

### Selected identified risks, impacts, and staff policy responses
- Emerging markets slowdown / lower oil price:
  - Relative likelihood: High. Expected impact: Medium.
  - Impact: Negatively affect trade balance through both lower oil price and lower demand; affect external and fiscal buffers.
  - Policy response: Improve business environment; address infrastructure gap (Significant investments needed to expand capacity and achieve the 2020 targets).
- Regional geopolitical risks (e.g., Russia Ukraine):
  - Relative likelihood: Medium. Expected impact: Medium.
  - Policy response: Enhance competitiveness.
- Nigeria-specific risks:
  - Deterioration of security in the North:
    - Relative likelihood: High. Expected impact: Medium.
    - Policy response: Ensure service delivery; improve coordination across government levels; review fiscal federalism long term.
  - Political risk (election-related uncertainty):
    - Relative likelihood: Medium. Expected impact: Medium.
    - Policy response: Improve coordination and monitoring of State and Local Government budgets; capacity enhancement.
  - Oil theft / vandalism:
    - Relative likelihood: Medium. Expected impact: Small to Medium.
    - Policy response: Improve oil sector oversight (e.g., passing a sound PIB); strengthen regulatory framework and security arrangements.
- Trade and financial spillovers:
  - Exports shifting toward Asia (China and India); exports to ECOWAS increased from $1 billion in 1990 to about $6 billion in 2013.
  - Cross-border activity of Nigerian banks expands spillover scope; nine banks significant presence in Benin, the Gambia, Ghana, Liberia, and Sierra Leone.

### Financial sector vulnerabilities and recommendations
- Loan concentration and currency exposure:
  - Oil sector accounted for 24 percent of total loans as of 2014 Q2.
  - Loans denominated in foreign currency: 21 percent as of 2013 Q4.
  - Foreign currency deposits: about 20 percent of total deposits.
- Observations and policy recommendations:
  - Exchange rate movements can impact credit quality; medium and smaller banks more vulnerable to NPL increases.
  - Continue stress testing of individual banks’ balance sheets.
  - Enhance supervisory oversight of weaker banks.
  - Consider a reserve requirement on foreign currency deposits.
  - Enforce provisions controlling SLG access to credit.

### Monetary and exchange rate policy guidance
- Key points:
  - Monetary policy driven by CBN’s commitment to maintain a stable official exchange rate; increased use of administrative measures and liquidity injections have added volatility.
  - Staff view: Allow greater flexibility in the exchange rate to facilitate adjustment to external shocks; a further tightening may be needed to avoid a disorderly adjustment.
- Reserve adequacy:
  - Reserves are six months of prospective imports, but slightly below the lower-end of the 100-150 percent emerging market reserve adequacy metric.
- Staff recommendations:
  - Further liberalize the foreign exchange market to minimize wedges across segments.
  - Develop market-based hedging instruments.
  - Staff encourages authorities to accept obligations under Article VIII (currently avails transitional arrangements of Article XIV).

---

### Fiscal position, scenarios, and medium‑term priorities

### Near-term fiscal impacts and contingency needs
- Staff projects oil revenue will drop by 2.4 percentage points of GDP (relative to 2014).
- MTEF envisages gradual increase in non-oil revenues: 0.1 percent of GDP in 2015.
- MTEF envisages a reduction in expenditure of 1.7 percent of GDP composed of:
  - 1 percent from lower fuel subsidies
  - 0.2 percent from lower capital spending
  - 0.5 percent from adjustment by SLGs
- Projected overall impact: an increase of 0.3 percentage points of GDP in the consolidated government deficit.
- FG capital spending envisaged at 0.4 percent of GDP; limited ability to delay capital spending as an informal buffer.
- Staff projects that the ECA could be depleted by end-2015 absent additional fiscal adjustments.
- Authorities’ objective: preserve the ECA at least at $1 billion in 2015.

### State and Local Governments (SLGs)
- SLG revenues fall by about a quarter billion dollars for each $1 drop in oil prices.
- Revised MTEF implies an adjustment in SLG expenditure of about 15 percent in real terms relative to 2014.
- SLG capital projects account for 45 percent of SLG expenditures.
- Policy recommendations: improve public financial management across all levels; improve coordination and capacity-building; consider long-term review of fiscal federalism arrangements.

### Refinancing and market conditions
- Significant refinancing needs in the first four months of 2015, including a benchmark bond (about N500 billion) falling due in April.
- Spread between the Nigeria 2023 Eurobond and the reference U.S. Treasury was 442 basis points at end-December, over 220 basis points wider than the low for 2014.
- Policy recommendations: active engagement with investors and preserving cash buffers to mitigate refinancing risk.
- Authorities’ position: project financing costs to increase in 2015 but expect domestic investor demand (especially pension funds) to ensure sufficient demand.

### Fiscal scenario table (selected baseline and adjustment scenario figures)
- Baseline (percent of GDP; selected series):
  - Revenue: 9.9  7.7  8.4  8.7
  - of which: non-oil revenue: 4.1  4.3  4.3  4.4
  - Expenditure: 12.3  10.6  11.2  11.2
  - Overall balance: -2.5  -2.8  -2.8  -2.5
  - Non-oil primary balance (percent of non-oil GDP): -8.1  -5.5  -6.2  -6.3
- Adjustment scenario (percent of GDP; selected series):
  - Revenue: 9.9  8.2  9.7  10.2
  - of which: non-oil revenue: 4.1  4.8  5.6  5.9
  - Expenditure: 12.3  11.0  11.2  11.2
  - Overall balance: -2.5  -2.8  -1.5  -1.0
  - Sustainable non-oil primary balance (percent of non-oil GDP): -4.9  -4.7  -4.8  -4.6
- Note: The sustainable non-oil primary balance is based on the permanent income hypothesis.

### Medium- to long-term fiscal priorities and revenue mobilization
- Non-oil revenue mobilization is a key priority.
  - Current non-oil revenue is just 4½ percent of non-oil GDP (versus 10-15 percent for other oil producers).
  - Feasible target: raise non-oil revenue by 1½ percentage points of GDP by 2017 to achieve a sustainable non-oil primary balance.
- Administration improvements:
  - CIT collections improved by 0.2 percent of non-oil GDP in 2014 after stagnation in 2010-13.
  - Authorities expect additional $0.5-1.0 billion in 2015 from tax administration reforms.
- Policy adjustments:
  - VAT: existing 5 percent rate is among the lowest in the world; reforms should aim to maintain a single rate, keep exemptions minimal, and could allow input credits.
  - CIT: limit renewal of exemptions, in particular those derived from pioneer status, to broaden the tax base.
- Public spending efficiency:
  - Consolidated government expenditure was 12 percent of GDP in 2014.
  - Key actions: prioritize limited capital expenditure; control recurrent expenditure via PFM reforms (expand TSA, IPPIS, GIFMIS); conduct selective review of expenditure.
- Contingent liabilities and quasi-fiscal activities:
  - Encourage full disclosure of current and future budgetary costs and fiscal risks related to PPPs.

---

### Sectoral policies, financial stability, and structural reforms

### Infrastructure investment financing
- NIIP identified new investment needs of about $30-50 billion a year.
- Domestic savings sufficient to finance about a third of the NIIP, risking crowding out private sector investment.
- External financing may be needed to fill the gap.
- Staff recommendation: Minimize risks to debt sustainability by carefully prioritizing NIIP implementation and adjusting program objectives as needed given deteriorating financing conditions.
- Authorities’ view: NIIP implementation must be scaled to resource availability and prioritized; new external borrowing will be focused on available concessional sources.

### Fuel subsidies and oil-price developments
- Recent drop in crude oil prices could facilitate completion of subsidy reform started in 2012.
- Staff recommendation:
  - Introduce an independent price-setting mechanism to smoothly pass through international price changes to domestic prices and gradually eliminate fuel subsidies.
  - Expected fiscal savings of about 0.5 percent of GDP per year in the medium term.
  - Review mitigating measures to protect the most vulnerable, including boosting targeted cash transfers through SURE-P.
- Authorities’ view: Committed to subsidy reform; considering options in light of price decline.

### Banking supervision, regulation, and financial stability
- Progress since 2012 FSAP: implementation of IFRS and Pillars I and II of Basel II/III; framework for enhanced supervision of DSIBs.
- Cross-border supervision: ongoing work and deeper collaboration with host regulators.
- Staff encouragement:
  - Sustain focus on oversight of holding companies, complete recovery and resolution planning, address corporate governance weaknesses, and strengthen cross-border and consolidated supervision.
- Authorities’ view: Reiterated commitment to stability and integrity of the financial system.

### Financial inclusion
- Only a third of the adult population has a deposit at a financial institution.
- Initiatives leverage mobile payments and agent networks; some mobile payment services considering quasi-deposit-taking services.
- Staff emphasis: ensure stability and integrity to build confidence; review protection of quasi-deposits in e-wallets; subject mobile payment systems to AML/CFT requirements.
- Authorities’ view: Regulatory framework must evolve; supported by CBN in-house expertise and National Payment Systems Board engagement.

### Private sector competitiveness and trade facilitation
- Key constraints: high cost of electricity and business environment frictions.
- Staff recommendations:
  - Accelerate power and oil sector reforms, including passage of a sound Petroleum Industry Bill.
  - Coordinate tax enforcement across federal, state, and local governments.
  - Review tariff policy to maximize benefits of ECOWAS CET and pursue trade-facilitating agreements.
- Authorities’ view: Power is a priority; need a unified gas market; continue to enhance business climate and coordinate with state tax authorities.

### Job creation, inclusiveness, and social programs
- Skills mismatch and gap between formal sector job creation and youth entering labor market drive youth unemployment risk.
- Ongoing initiatives: expanded vocational training; grants; YouWin; Graduate Transient Job Creation (SURE-P).
- Staff recommendations: protect funding for these programs; standardize application processes; conduct post-program evaluations; define clear exit strategies.
- Authorities’ view: Emphasize MDGs and social programs; plan conditional cash transfer scheme with World Bank assistance.

### Quasi-fiscal activities and subsidized credit (Box 2)
- Implicit subsidies associated with subsidized lending/on-lending through the CBN estimated at about N140 billion in 2014, about 17 percent of FG capital expenditure.
- Key schemes: CACS; ACSS; RRF; PAIF.
- Interest subsidy table (Billion naira) sums to Total 140.8 (series shown in source).

### Oil sector transparency and theft
- Oil production losses fell to about 150 thousand bpd in 2014 due to fewer pipeline shutdowns, but theft and vandalism continue.
- Staff supports strategic analyses within AML/CFT framework and automation of oil-related data collection by NEITI; urges publication of the PriceWaterhouseCoopers audit report of NNPC.

### Data improvements and gaps
- Notable improvements: rebasing of national accounts, new General Household Survey, regular FSIs.
- Continued needs:
  - BOP—large errors and omissions, large other investment flows.
  - Refining CPI and PPI.
  - Completing censuses and Household Living Conditions Survey for next rebasing (2015).
- External sector data: Current account discrepancies narrowed; capturing capital outflows remains challenging; errors and omissions remain very large.

---

### Staff appraisal — key messages and priorities
- Nigeria has had several years of strong growth driven by the non-oil sector, but poverty remains and income inequality has widened.
- Adjustment to lower oil prices will slow growth and require difficult policy choices; initial responses (fiscal tightening, gradual exchange rate depreciation, some reserve use) were appropriate, but further adjustment needed in 2015.
- Fiscal consolidation in 2015 requires improving spending efficiency and prioritization; scrutiny of capital budget implementation is needed; support to state and local governments will be critical.
- Mobilizing additional non-oil revenues is critical for medium-term fiscal space; strengthen tax administration, rein in exemptions, and keep tax rates under review.
- Improve oil revenue management and scale back fuel subsidies to free fiscal space for social/development spending.
- Monetary and exchange rate framework effectiveness can be improved by allowing greater flexibility in the rDAS exchange rate; CBN should maintain focus on inflation while removing the wedge between rDAS and IFEM exchange rates, preferably by unifying the market.
- Vulnerabilities remain high: lowered fiscal and external buffers, uncertainty about oil prices and domestic developments could hurt investor sentiment; monitor concentration risks and foreign currency exposures in financial sector; continue strengthening supervision and developing financial markets including hedging instruments.
- Data broadly adequate for surveillance, but improvements needed on BOP capital outflows.
- Longer-term challenge: reduce oil-dependency and develop a diversified, competitive non-oil sector through prioritization of reforms, core infrastructure, reducing business costs, encouraging high value-chain sectors, improving access to finance, promoting youth/female employment, and advancing human capital development.

*Source: Excerpt from IMF staff report material in content unit _cr1584.*

### 1. Risk Assessment Matrix (RAM) _________________________________________________________________  11

### 1. Risk Assessment Matrix (RAM)

### Context and recent macro-financial developments
- Economic performance and vulnerabilities
  - Real GDP grew by 6.1 percent in Q3 2014 (y-o-y); non-oil sector up 7.3 percent; oil sector declined by 3.6 percent.
  - Inflation declined to 8 percent at end-2014 (CBN target range 6-9 percent).
  - Credit to the private sector grew 28½ percent in 2014 (24 percent in 2013).
  - Trade surplus for 2013 was $43.8 billion (8.4 percent of GDP); 2014 Q1–Q3 surplus about 23 percent lower.
  - Gross international reserves (GIRs) stood at $34.25 billion at end-2014, a decline of $8.5 billion from end-2013.
  - Total public debt is 12.4 percent of GDP; external debt is 1.7 percent of GDP.
  - About 30-40 percent of Federal Government domestic debt was held by non-residents at end-2013.
  - Federal Government (FG) debt service on total public debt is nearly 9 percent of general government revenue (compared with an average of 5.5 percent in developing and emerging economies).
- Recent policy actions
  - Fiscal: Revised 2015 MTEF benchmark oil price of $65 per barrel (pb) in December (original MTEF used $78 pb in October).
  - Monetary/exchange: rDAS midpoint adjusted from N155 to N168 per U.S. dollar (8 percent adjustment) and band widened from ± 3 to ± 5 percent; MPR raised from 12 percent to 13 percent; cash reserve requirement on private sector deposits raised from 15 percent to 20 percent.
- External shock and near-term outlook drivers
  - Oil exports projected at $52 billion in 2015 (down from $88 billion in 2014), a reduction of 6 percentage points of GDP.
  - Fiscal oil revenues projected at 3.4 percent of GDP (down from 5.8 percent in 2014).
  - Staff projects aggregate demand shocks could lower growth by about 1½ percentage point from 2014 to 4¾ percent in 2015.
  - Excess Crude Account (ECA) reached $2.0 billion by end-2014—well below the $6.3 billion required to cover a one-half standard deviation shock to oil receipts.
- FX market characteristics and pressures
  - Foreign exchange market segmented: IFEM and BDC rates trade at premia over rDAS.
  - Spread between period average IFEM and rDAS rates reached 12 percent in January.
  - Net open foreign exchange position remains small (about 6 percent of total capital) in the banking sector.

### Outlook, scenario implications, and vulnerabilities
- Baseline outlook
  - Growth moderates as economy adjusts to permanently lower oil prices; non-oil growth affected via cuts in public investment and reduction in real purchasing power of oil receipts.
  - Exchange rate depreciation will add to inflation (pass-through), partially offset by lower food prices from increased local production of staple food crops.
  - Low fiscal and external buffers reduce capacity to absorb shocks relative to the 2008-09 financial crisis.
- Authorities’ view
  - Authorities see the oil price shock as significant and at least in part permanent but expect a smaller effect on activity than staff due to targeted measures (agriculture, power, small enterprises) and remittances; rising food self-sufficiency expected to limit pass-through to inflation.

### Key risks (RAM highlights) — direction and channels
- Overall assessment: Risks are on the downside.
- External risks
  - Investor sentiment could deteriorate with further oil price declines or adverse global/regional developments, triggering capital outflows and pressure on exchange rate and GIRs.
- Domestic risks
  - Security risks related to election-related violence or intensification of insurgency could disrupt reforms and investor sentiment.
- Financial-sector and market risks (Box 1, Section I)
  - Sources:
    - Side-effects from global financial conditions: a surge in financial volatility; financial imbalances from protracted low interest rates; persistent dollar strength.
    - Bond market stress from reassessment in sovereign risk (Japan; Euro area/USA).
  - Relative likelihood: High for side-effects from global financial conditions; Medium for bond market stress.
  - Expected impact: Medium to High.
  - Specific exposures and facts:
    - Nigeria's relatively open capital account and issuance in international markets: $1.5 billion (sovereign) and $4.95 billion (private sector) since 2007.
    - Total capital importation since 2012 is over $50 billion.
  - Channels of impact:
    - Capital flow reversals, sovereign bond market repricing, stress in domestic financial institutions with foreign currency exposures.
- Inconsistent and partial implementation of financial regulatory reforms (Box 1, Section II)
  - Source: National approaches introduced in absence of international standard leading to increased fragmentation (short-term).
  - Relative likelihood: Medium.
  - Expected impact: Low.
  - Specific concern:
    - Lack of international consensus on cross-border resolution regimes could impede effective regimes for pan-African banks (PABs) based and operating in Nigeria, raising resolution costs.
- Protracted period of slower growth (Box 1, Section III)
  - Source: Advanced economies slowing (noted importance of Europe: 35 percent of Nigeria's export destinations).
  - Relative likelihood: High.
  - Expected impact: Medium.
  - Macro channel: Lower external demand, weaker capital flows, lower commodity prices reducing fiscal and external receipts.

### Policy responses and recommendations (as identified in RAM)
- Financial sector and capital market policies
  - Revisit monetary and exchange rate policy framework, including allowing greater flexibility in the DAS rate.
  - Develop a contingency plan and monitor key indicators to be prepared to act.
  - Continue sound policies to reduce vulnerabilities while implementing measures to address structural liquidity issues.
  - Enhance prudential supervision.
  - Strengthen the supervisory and regulatory framework, especially for cross-border banking activity and oversight of holding companies, and address weaknesses in corporate governance.
- Regulatory coordination and resolution
  - Enhance coordination with national supervision agencies of parent/subsidiary banks to mitigate fragmentation risks and improve cross-border crisis management.
- Fiscal and growth-side policies
  - Accelerate non-oil revenue mobilization as a key fiscal priority.
  - Diversify exports in terms of export products and trading partners.
  - Continue measures targeted at sectors critical for growth (agriculture, power, small enterprises) to mitigate the real-economy impact of lower oil prices.

*Source: Excerpt from “1. Risk Assessment Matrix (RAM)” in the IMF staff report for Nigeria.*

### Box 1. Risk Assessment Matrix (RAM)

### Box 1. Risk Assessment Matrix (RAM)

### Risk matrix overview
- The RAM shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- Relative likelihood definitions (staff’s subjective assessment):
  - “low” = probability below 10 percent
  - “medium” = probability between 10 percent and 30 percent
  - “high” = probability between 30 percent and 50 percent
- Non-mutually exclusive risks may interact and materialize jointly.
- Identified sources of risk (selected highlights from the RAM):
  - Emerging markets slowdown / lower oil price
    - Relative likelihood: High
    - Expected impact: Medium
    - Source of impact: Negatively affect trade balance through both lower oil price and lower demand; affect external and fiscal buffers.
    - Policy response: Improve business environment to boost productivity and competitiveness (e.g., streamlining business regulations, contract enforcement, affirmation of investors’ rights, improving trade facilitation); address infrastructure gap (Significant investments needed to expand capacity and achieve the 2020 targets).
  - Regional geopolitical risks (e.g., Russia Ukraine)
    - Relative likelihood: Medium
    - Expected impact: Medium
    - Source of impact: Tensions leading to a slowdown in growth would adversely impact Nigeria's exports.
    - Policy response: Enhance competitiveness (see above).
  - Nigeria-specific risks
    - Deterioration of security in the North of Nigeria
      - Relative likelihood: High
      - Expected impact: Medium
      - Source of impact: Worsening security adversely affects agriculture and commerce in the North.
      - Policy response: Ensure service delivery in key areas (e.g., education, health); improve coordination across government levels; review fiscal federalism system in the long term.
    - Political risk (election-related uncertainty)
      - Relative likelihood: Medium
      - Expected impact: Medium
      - Source of impact: Disputed election results could cause prolonged uncertainty, disrupting reform efforts.
      - Policy response: Improve coordination and monitoring of State and Local Government budgets; capacity enhancement.
    - Oil theft / vandalism
      - Relative likelihood: Medium
      - Expected impact: Small to Medium
      - Source of impact: Oil production losses affect exports and fiscal position.
      - Policy response: Improve oil sector oversight (e.g., passing a sound PIB), strengthen regulatory framework and security arrangements, engage in multi-country partner strategy, use AML framework.
    - Development in the region (e.g., Ghana)
      - Relative likelihood: Low
      - Expected impact: Small
      - Source of impact: Could affect investor sentiment and cross-border dynamics.
      - Policy response: Continue reforms in agriculture; improve monitoring and coordination.

### Inward and outward spillovers (trade and financial channels)
- Trade spillovers:
  - The source of inward trade spillovers is shifting from EU and USA to Asian countries, in particular China and India.
  - Nigeria’s exports to ECOWAS increased from $1 billion in 1990 to about $6 billion in 2013.
  - Implementation in January 2015 of the Common External Tariffs (CET) for ECOWAS is expected to reduce incentives for informal trade and simplify customs procedures, potentially increasing recorded trade volumes.
  - Slowdown in Nigeria will adversely affect informal exports to Nigeria; goods subject to import restrictions in Nigeria (e.g., rice) have become key export goods for neighboring countries.
- Financial spillovers:
  - Growing cross-border activity of Nigerian-based banks increases scope for spillovers and regulatory/supervisory challenges.
  - Nine banks have a significant presence in Benin, the Gambia, Ghana, Liberia, and Sierra Leone.
  - Examples:
    - United Bank of Africa: assets between 3 percent and 7 percent of GDP in Liberia, Benin, and Burkina Faso.
    - Guaranty Trust Bank: systemically important (assets greater than 7 percent of GDP) for the Gambia.
  - Cross-border supervisory cooperation has been effective (example: regulatory action in May against two subsidiaries in the Gambia with minimal spillovers).

### Financial sector vulnerabilities and recommendations
- Loan concentration and currency exposure:
  - Oil sector accounted for 24 percent of total loans as of 2014 Q2.
  - A significant proportion of total loans are denominated in foreign currency: 21 percent as of 2013 Q4.
  - Foreign currency deposits represent about 20 percent of total deposits.
- Observations:
  - Movements in the exchange rate can impact credit quality; medium and smaller banks may be more vulnerable to an increase in NPLs.
  - Large banks have strengthened capital, providing greater capacity to absorb losses.
- Policy recommendations:
  - Continue vigilance through stress testing of individual banks’ balance sheets.
  - Enhance supervisory oversight of relatively weaker banks.
  - Consider a reserve requirement on foreign currency deposits to mitigate potential foreign currency liquidity risks.
  - Enforce compliance with existing provisions controlling SLG access to credit.

### Monetary and exchange rate policies
- Key points:
  - Monetary policy driven by CBN’s commitment to maintain a stable official exchange rate; international reserves adjust to balance supply and demand.
  - Increased use of administrative measures and liquidity injections can send mixed signals; structural liquidity cycles have added volatility and sharp spikes in overnight rates.
  - Staff view: Allow greater flexibility in the exchange rate to facilitate adjustment to external shocks; a further tightening may be needed to avoid a disorderly adjustment.
- Authorities’ views:
  - Exchange rate stability is viewed as key to macroeconomic stability; stable naira seen as compatible with managing inflation via open market operations.
  - Authorities consider current level of official exchange rate close to equilibrium value and expect continued capital inflows.
- Reserve adequacy and alignment:
  - Reserves are six months of prospective imports, but slightly below the lower-end of the 100-150 percent of the emerging market reserve adequacy metric.
  - The 2014 period average exchange rate was moderately overvalued (Annex 4, Text Table 1).
- Policy recommendations:
  - Further liberalization of the foreign exchange market to minimize wedges across segments rather than through administrative measures.
  - Develop market-based hedging instruments.
  - Staff encourages authorities to accept obligations under Article VIII (Nigeria currently avails itself of transitional arrangements of Article XIV).

### Fiscal position, near-term vulnerabilities, and contingency needs
- Near-term fiscal impacts and budget adjustments:
  - Staff projects that oil revenue will drop by 2.4 percentage points of GDP (relative to 2014).
  - MTEF envisages a gradual increase in non-oil revenues: 0.1 percent of GDP in 2015.
  - MTEF envisages a reduction in expenditure of 1.7 percent of GDP composed of:
    - 1 percent from lower fuel subsidies
    - 0.2 percent from lower capital spending
    - 0.5 percent from adjustment by SLGs
  - Projected overall impact: an increase of 0.3 percentage points of GDP in the consolidated government deficit.
  - FG capital spending envisaged at 0.4 percent of GDP; ability to delay capital spending as an informal buffer is limited.
  - Staff projects that the ECA could be depleted by end-2015 absent additional fiscal adjustments.
  - Authorities’ objective: preserve the ECA at least at $1billion in 2015.
- State and Local Governments (SLGs):
  - SLG revenues fall by about a quarter billion dollars for each $1 drop in oil prices.
  - Revised MTEF implies an adjustment in SLG expenditure of about 15 percent in real terms relative to 2014.
  - SLG capital projects account for 45 percent of SLG expenditures.
  - Policy recommendations: improve public financial management across all levels of government; improve coordination and capacity-building; consider long-term review of fiscal federalism arrangements.
- Refinancing and market conditions:
  - Significant refinancing needs in the first four months of 2015, including a benchmark bond (about N500 billion) falling due in April.
  - Spread between the Nigeria 2023 Eurobond and the reference U.S. Treasury was 442 basis points at end-December, over 220 basis points wider than the low for 2014.
  - Policy recommendations: active engagement with investors and preserving cash buffers to mitigate refinancing risk.
  - Authorities’ position: project financing costs to increase in 2015 but expect domestic investor demand (especially pension funds) to ensure sufficient demand.

### Fiscal scenarios and medium-term priorities
- Text Table: Nigeria: Fiscal Scenario (selected baseline and adjustment scenario figures)
  - Baseline
    - Revenue: 9.9  7.7  8.4  8.7
    - of which: non-oil revenue: 4.1  4.3  4.3  4.4
    - Expenditure: 12.3  10.6  11.2  11.2
    - Overall balance: -2.5  -2.8  -2.8  -2.5
    - Non-oil revenue (percent of non-oil GDP): 4.6  4.6  4.7  4.7
    - Non-oil primary balance (percent of non-oil GDP): -8.1  -5.5  -6.2  -6.3
  - Adjustment scenario
    - Revenue: 9.9  8.2  9.7  10.2
    - of which: non-oil revenue: 4.1  4.8  5.6  5.9
    - Expenditure: 12.3  11.0  11.2  11.2
    - Overall balance: -2.5  -2.8  -1.5  -1.0
    - Non-oil revenue (percent of non-oil GDP): 4.6  5.1  6.0  6.4
    - Non-oil primary balance (percent of non-oil GDP): -8.1  -5.5  -4.8  -4.6
    - Sustainable non-oil primary balance (percent of non-oil GDP): -4.9  -4.7  -4.8  -4.6
  - Note: The sustainable non-oil primary balance is based on the permanent income hypothesis.
- Medium- to long-term fiscal priorities:
  - Non-oil revenue mobilization identified as a key fiscal priority.
    - Current non-oil revenue is just 4½ percent of non-oil GDP (versus 10-15 percent for other oil producers).
    - Feasible target: raise non-oil revenue by 1½ percentage points of GDP by 2017 to achieve a sustainable non-oil primary balance.
  - Administration improvements:
    - CIT collections improved by 0.2 percent of non-oil GDP in 2014 after stagnation in 2010-13.
    - Establish qualitative benchmarks for tax administration (e.g., average length of audit cycle, share of tax filings submitted before due date, amounts recovered out of tax debt outstanding).
    - Authorities expect additional $0.5-1.0 billion in 2015 from tax administration reforms.
  - Policy adjustments:
    - VAT: existing 5 percent rate is among the lowest in the world; reforms should aim to maintain a single rate, keep exemptions minimal, and could allow input credits for capital goods and services.
    - CIT: limit renewal of exemptions, in particular those derived from pioneer status, to broaden the tax base.
- Public spending efficiency:
  - Consolidated government expenditure was 12 percent of GDP in 2014 (compared with averages: 20 percent for low income, 31 for emerging, 41 for advanced economies).
  - Key actions: prioritize limited capital expenditure, control recurrent expenditure via PFM reforms (expand TSA, IPPIS, GIFMIS), conduct selective review of expenditure to identify durable efficiency-enhancing reforms.
  - Disclosure and management of contingent liabilities: encourage full and transparent disclosure of all current and future budgetary costs and fiscal risks related to PPPs.

*Source: _cr1584 - Box 1. Risk Assessment Matrix (RAM)*

### 23.      Financing the infrastructure investment plan will be a challenge. The National

### _cr1584 - 23.      Financing the infrastructure investment plan will be a challenge. The National

### Infrastructure investment financing
- NIIP identified new investment needs of about $30-50 billion a year.
- Domestic savings sufficient to finance about a third of the NIIP, risking crowding out private sector investment (SIP: Promoting Economic Transformation), especially if foreign portfolio inflows fall.
- External financing may be needed to fill the gap. (Annex 5).
- Staff recommendation:
  - Minimize risks to debt sustainability by carefully prioritizing NIIP implementation and adjusting program objectives as needed given deteriorating financing conditions.
- Authorities’ view:
  - Agreed NIIP implementation must be scaled to resource availability and prioritized.
  - Expect the new manual on project selection to be effective.
  - Do not see external market borrowing as a solution; new external borrowing will be focused on available concessional sources.

### Fuel subsidies and oil-price developments
- Recent drop in crude oil prices (and lower petrol and kerosene prices) could facilitate completion of subsidy reform started in 2012.
- Staff recommendation:
  - Introduce an independent price-setting mechanism to smoothly pass through international price changes to domestic prices and gradually eliminate fuel subsidies.
  - Expected fiscal savings of about 0.5 percent of GDP per year in the medium term.
  - Review mitigating measures to protect the most vulnerable, including boosting targeted cash transfers through the Subsidy Reinvestment and Empowerment Program (SURE-P).
  - Transparently communicate the government’s strategy.
- Authorities’ view:
  - Committed to subsidy reform; considering options, timing, and modalities in light of the decline in oil prices.

### Budget preparation, oil revenue forecasting, and reporting
- Oil revenue projections have been inaccurate, assuming higher revenue-to-market value of oil production than realized.
- Realized oil revenue is only slightly higher than projected in the budget even when market oil prices are substantially higher than the budget oil price.
- Reporting of implicit oil subsidies could be enhanced.
- Staff recommendation:
  - Review oil revenue forecasting.
  - Expand fiscal reports from the Office of the Accountant General of the Federation (OAGF) to show gross and net oil revenues and implicit subsidies.
- Authorities’ view:
  - Agreed improved revenue forecasting and subsidy information would be helpful, but cautioned about potential reporting delays given preliminary source data subject to revisions.

### Banking supervision, regulation, and financial stability
- Significant progress since the 2012 FSAP: implementation of IFRS and Pillars I and II of Basel II/III; framework for enhanced supervision of systemically important banks (DSIBs).
- Ongoing work on cross-border supervision and deeper collaboration with host regulators (Annex 3).
- Domestic supervisory counterparts (Securities and Exchange Commission, National Insurance Commission) showing similar trends; FSRCC enhancing supervisory collaboration, oversight of holding companies, consolidated supervision framework, and preliminary systemic risk monitoring work.
- Staff encouragement:
  - Sustain focus on these issues.
  - Implement new framework for oversight of holding companies.
  - Complete work on recovery and resolution planning.
  - Address weaknesses in banking sector corporate governance.
  - Strengthen cross-border and consolidated supervision.
- Authorities’ view:
  - Reiterated commitment to stability and integrity of the financial system.

### Financial inclusion
- Only a third of the adult population has a deposit at a financial institution.
- Initiatives underway in banking, pension fund, and insurance sectors, leveraging mobile payments platforms and agent networks (SIP: Promoting Economic Transformation).
- Some mobile payment services considering quasi-deposit-taking services to complement informal group savings clubs.
- Staff emphasis:
  - Ensure stability and integrity of the financial system to build confidence and enable meaningful financial inclusion.
  - Watch for regulatory gaps given multiplicity of delivery parties (agents, payment systems, financial institutions).
  - Review protection of quasi-deposits held in e-wallets.
  - Subject mobile payment systems to AML/CFT requirements in line with international best practices.
- Authorities’ view:
  - Acknowledge regulatory framework must evolve; effectiveness supported by in-house CBN staff expertise and engagement via the National Payment Systems Board.

### Private sector-led growth, competitiveness, and trade facilitation
- Key constraints: high cost of electricity and business environment frictions.
- Staff recommendations:
  - Accelerate power and oil sector reforms, including passage of a sound Petroleum Industry Bill, to reduce electricity costs.
  - Coordinate tax enforcement across federal, state, and local governments to relieve business costs.
  - Review tariff policy (remove import bans and levies) to maximize benefits of ECOWAS Common External Tariff and pursue trade-facilitating agreements.
- Authorities’ view:
  - View power as priority; CBN funding addressed legacy debt of newly privatized generation companies via the Power and Aviation Intervention Fund.
  - Need a unified gas market to complement transmission and distribution reforms.
  - Continue to enhance business climate and coordinate with state tax authorities to address tax duplication.
  - Terms of the Economic Partnership Agreement (EPA) with the EU remain under discussion, including market access for Nigerian exports (SIP: Promoting Economic Transformation).

### Job creation, inclusiveness, and social programs
- Skills mismatch and gap between formal sector job creation and youth entering the labor market drive youth unemployment and underemployment; risk of worsening as economy slows.
- Ongoing initiatives: expanded vocational training, grants for entrepreneurial talent, YouWin, Graduate Transient Job Creation program funded by SURE-P.
- Staff recommendations:
  - Protect funding for these programs and for programs improving maternal health, keeping children in school, and promoting female participation and gender equality.
  - Standardize application processes, conduct post-program evaluations (e.g., SURE-P), and define clear exit strategies to ensure cost effectiveness.
- Authorities’ view:
  - Emphasize achieving MDGs and protecting associated social programs (polio vaccinations, Malaria and HIV programs, education, security, core infrastructure).
  - With World Bank assistance, plan to continue building social safety net and develop a conditional cash transfer scheme to promote education and maternal/child care.

### Special financing schemes and quasi-fiscal activities
- Special financing schemes constitute quasi-fiscal activities and imply spending of public resources.
- Evidence of positive impacts on capacity and employment exists, but effectiveness and costs of schemes have not been fully assessed; implicit subsidies can distort resource allocation.
- Staff recommendation:
  - Carefully target interventions with clear exit strategies and assess how program results contribute to sustainability of funding.
  - Prioritize improving enabling environment for business via infrastructure investment and administrative efficiency.
- Authorities’ view:
  - Committed to well-targeted, transparent interventions; view schemes as appropriate policy focus consistent with unconventional monetary actions elsewhere.

Box 2. Quasi-Fiscal Activities—Subsidized Credit from Public Financial Institutions
- CBN and other PFIs act as agents of fiscal policy; these activities affect public sector balance without affecting the FGN budget deficit.
- Implicit subsidies associated with subsidized lending/on-lending through the CBN estimated at about N140 billion in 2014, about 17 percent of FG capital expenditure.
- Key schemes: commercial agriculture credit scheme (CACS); agricultural credit support scheme (ACSS); refinancing and rediscounting scheme (RRF) operated by the Bank of Industry (BOI); power and aviation intervention fund (PAIF) operated by the BOI.
- Implicit Interest Subsidies (Billion naira)
  - Max lend. rate
  - Subsidized rate
  - Amount outstanding
  - Interest subsidies
  - CACS25.89.0239.040.0
  - ACSS25.86.00.90.2
  - RRF25.810.0360.756.8
  - PAIF25.87.0233.643.8
  - Total140.8
- Sources: CBN and Staff estimates.

### Oil sector transparency and theft
- Oil production losses fell to about 150 thousand bpd in 2014 due to fewer pipeline shutdowns, but theft and vandalism continue.
- Staff welcomes strategic analysis of financing of terrorism within AML/CFT framework; supports plan to undertake and publish in 2015 a similar analysis of oil theft.
- Staff supports requiring financial and non-financial supervisors to use risk-based approaches to control oil theft/money-laundering and to report suspicious activities.
- Supports automation of oil-related data collection by NEITI to improve timeliness of data reconciliation and urges publication of the PriceWaterhouseCoopers audit report of NNPC.

### Data improvements and remaining gaps
- Notable improvements: rebasing of national accounts, new General Household Survey, regular publication of FSIs.
- Continued efforts needed in:
  - BOP—large errors and omissions, large other investment flows, greater use of survey data.
  - Refining the CPI and PPI.
  - Completing censuses of business and agriculture, and the Household Living Conditions Survey for better macroeconomic compilation and the next rebasing (2015) of national accounts (Box 3, Annex 5, SIP: Promoting Economic Transformation).
- External sector data:
  - Current account discrepancies narrowed and are now in line with peers.
  - Improvements in capturing inflows (CCI data) but challenges remain capturing capital outflows, especially in other investment outflows and inter-company transfers of IOCs.
  - Errors and omissions remain very large.

### Staff appraisal — key messages
- Nigeria has had several years of strong growth, driven by non-oil sector and private consumption, but poverty remains and income inequality has widened; infrastructure gaps and weak institutions constrain prospects.
- Adjustment to lower oil prices will slow growth and require difficult policy choices; the initial response (fiscal tightening, gradual exchange rate depreciation, some reserve use) was appropriate, but further adjustment needed in 2015.
- Fiscal consolidation in 2015 requires improving spending efficiency and prioritization; scrutiny of capital budget implementation is needed; support to state and local governments will be critical.
- Mobilizing additional non-oil revenues is critical for medium-term fiscal space; strengthen tax administration, rein in exemptions, and keep tax rates under review.
- Improve oil revenue management and scale back fuel subsidies to free fiscal space for social/development spending; consider reviewing revenue sharing arrangements over the long term.
- Monetary and exchange rate framework effectiveness can be improved by allowing greater flexibility in the rDAS exchange rate; CBN should maintain focus on inflation while removing the wedge between rDAS and IFEM exchange rates, preferably by unifying the market.
- Vulnerabilities remain high: lowered fiscal and external buffers, uncertainty about oil prices and domestic developments could hurt investor sentiment; monitor concentration risks and foreign currency exposures in financial sector; continue strengthening supervision and developing financial markets including hedging instruments; communication is critical to sustain foreign investor confidence.
- Data broadly adequate for surveillance, but improvements needed on BOP capital outflows.
- Longer-term challenge: reduce oil-dependency and develop a diversified, competitive non-oil sector through prioritization of reforms, core infrastructure, reducing business costs, encouraging high value-chain sectors, improving access to finance, promoting youth/female employment, and advancing human capital development.

*From: _cr1584 - 23.      Financing the infrastructure investment plan will be a challenge.*

### 40.      It is proposed that the next Article IV consultation be held on the standard 12-month

### _cr1584 - 40.      It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

### Proposed timing
- It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

### Millennium Development Goals (Table 1: Nigeria, 1990–2012) — selected indicators and values
- Employment to population ratio, 15+, total (%) 53 53 52 51 51 52
- Employment to population ratio, ages 15–24, total (%) 29 30 31 32 32 32
- Income share held by lowest 20% 45 .. 54 ....
- Poverty gap at $1.25 a day (PPP) (%) 31 32 .. 29 34 ....
- Poverty headcount ratio (adult equivalent) ......48.446..33
- Literacy rate, youth female (% of females ages 15-24) 62 .... 61 58 ....
- Literacy rate, youth male (% of males ages 15-24) 81 .... 78 76 ....
- Persistence to last grade of primary, total (% of cohort) ....73 78 79 ....
- School enrollment, primary (% net) ....65 67 64 ....
- Proportion of seats held by women in national parliaments (%) ....36 77 7
- Ratio of female to male primary enrollment (%) 79 83 82 85 92 ....
- Ratio of female to male secondary enrollment (%) 78 .. 85 84 89 ....
- Ratio of female to male tertiary enrollment (%) 33 .. 79 71 ......
- Share of women employed in the nonagricultural sector (% of total nonagricultural employment) ....18.6 21.1 ......
- Immunization, measles (% of children ages 12–23 months) 54 44 33 41 56 57 42
- Mortality rate, infant (per 1,000 live births) 127 125 113 96 83 80 78
- Mortality rate, under-5 (per 1,000 live births) 214 211 188 156 132 128 124
- Births attended by skilled health staff (% of total) 31 .. 42 35 .. 49 ..
- Maternal mortality ratio (modeled estimate, per 100,000 live births) 1100 1000 970 820 610 610 ..
- Pregnant women receiving prenatal care (%) 57 .. 64 58 .. 66 ..
- Children with fever receiving antimalarial drugs (% of children under age 5 with fever) ......34 49 45 ..
- Condom use, population ages 15–24, female (% of females ages 15–24) ....78 12 ....
- Condom use, population ages 15–24, male (% of males ages 15–24) ....32 38 40 ....
- Incidence of tuberculosis (per 100,000 people) 128 139 172 175 133 118 108
- Prevalence of HIV, total (% of population ages 15-49) 1.34 3.93 3.73 33
- Tuberculosis case detection rate (%, all forms) 169 122 64 045 51
- Forest area (% of land area) 18.9 .. 14.4 12.2 109 ..
- Improved sanitation facilities (% of population with access) 37 36 34 32 29 28 28
- Improved water source (% of population with access) 47 50 53 57 63 63 64
- Internet users (per 100 people) 0 0 0.1 3.5 24.0 28.4 32.8
- Mobile cellular subscriptions (per 100 people) 0 0 0 135 4.7 58.0 66.8
- GNI per capita, Atlas method (current US dollar) 260 210 270 630 1,460 17,102 490
- Life expectancy at birth, total (years) 46 45 46 49 51 52 52
- Source: World Bank's World Development Indicators.

### Selected Economic and Financial Indicators (Table 2: 2013–19) — key projections and historical values
- Real GDP (at 2010 market prices) 4.3 5.4 6.1 4.8 5.0 5.3 5.5 5.8
- Oil and Gas GDP -4.9 -13.1 -2.5 -1.6 -1.4 0.1 0.8 0.7
- Non-oil GDP 5.9 8.3 7.2 5.5 5.6 5.8 6.0 6.2
- Production of crude oil (million barrels per day) 2.34 2.19 2.20 2.28 2.33 2.41 2.44 2.45
- Nominal GDP at market prices (trillions of naira) 72.6 81.0 90.2 95.4 111.1 128.5 147.2 165.8
- Nominal non-oil GDP (trillions of naira) 61.3 70.7 80.6 89.2 102.8 118.3 135.7 153.1
- Nominal GDP per capita (US$) 2,835 3,082 3,302 2,894 2,880 3,008 3,154 3,272
- GDP deflator 9.3 5.9 4.9 0.9 11.0 9.8 8.6 6.5
- Consumer price index (annual average) 12.2 8.5 8.1 9.5 10.2 8.5 7.7 7.2
- Consumer price index (end of period) 12.0 7.9 7.9 11.5 9.0 8.0 7.5 7.0
- FGN gross debt (percent of GDP) 10.4 10.5 10.5 11.9 11.8 11.4 11.2 11.0
- Gross national savings 19.3 18.6 17.4 16.0 17.0 17.4 17.3 17.3
- Investment 14.6 14.5 14.9 15.5 15.9 16.2 16.3 16.6
- Current account balance 4.4 3.9 2.2 0.2 0.8 0.9 0.7 0.4
- Total revenues and grants (percent of GDP) 14.3 11.0 9.9 7.7 8.4 8.7 8.8 8.8
- Of which: oil and gas revenue (percent of GDP) 10.4 7.1 5.8 3.4 4.1 4.4 4.4 4.3
- Total expenditure and net lending (percent of GDP) 14.7 13.4 12.3 10.6 11.2 11.2 11.0 10.7
- Overall balance (percent of GDP) -0.3 -2.4 -2.5 -2.8 -2.8 -2.5 -2.2 -2.0
- Non-oil primary balance (percent of non-oil GDP) -11.6 -9.7 -8.1 -5.5 -6.2 -6.3 -6.0 -5.7
- ECA (US$ billions) 10.0 2.8 2.1 0.0 0.0 0.0 0.0 0.0
- SWF (US$ billion) 1.0 1.0 1.5 1.5 1.5 1.5 1.5 1.5
- Broad money (percent change; end of period) 29.1 0.9 7.3 10.8 15.3 15.2 14.7 12.9
- Net foreign assets 15.9 -3.4 -7.4 -0.1 -0.2 2.8 2.3 2.1
- Net domestic assets 2.3 4.3 14.6 10.9 15.5 12.5 12.5 10.8
- Claims on the rest of the economy 8.1 8.5 10.3 10.2 8.0 5.4 6.6 5.4
- Velocity of broad money (ratio; end of period) 3.9 4.5 4.8 4.8 4.8 4.8 4.8 4.8
- Price of Nigerian oil (US dollar per barrel) 110.0 109.0 100.6 52.8 61.6 66.9 70.2 72.3
- Gross international reserves (US$ billions) 43.8 42.8 34.3 28.4 26.5 27.8 29.1 30.5
- (equivalent months of imports of G&Ss) 7.1 6.3 6.1 4.7 4.1 4.0 3.9 3.9
- Note: The budget oil price is US$72 a barrel for 2012, US$79 for 2013, $77.5 for 2014, and $65 for 2015 and thereafter.
- For 2012, includes one-off payment of about 1 percent of GDP to settle arrears accrued in 2011.

### Balance of Payments (Table 3: 2012–17) — key items (Billions of U.S. dollars)
- Current account balance 20.4 20.1 12.5 1.3 4.2 5.1
- Trade balance 42.5 43.8 34.7 10.0 15.7 18.5
- Exports 96.0 95.1 90.5 56.3 65.0 72.0
- Oil/gas exports 93.0 90.6 86.7 52.2 60.3 66.7
- Other exports 3.0 4.5 3.8 4.2 4.7 5.3
- Imports -53.6 -51.4 -55.8 -46.3 -49.4 -53.5
- Services (net) -21.7 -20.1 -23.2 -19.6 -21.1 -22.2
- Income (net) -22.3 -25.7 -21.9 -12.9 -15.0 -16.9
- Transfers (net) 22.0 22.2 22.9 23.8 24.7 25.6
- Capital and Financial account balance -1.3 6.8 -7.6 -1.1 0.0 2.8
- Direct Investment (net) 5.6 4.4 2.2 2.0 2.7 3.6
- Portfolio Investment (net) 15.1 10.4 3.0 3.5 3.6 3.8
- Other Investment (net) -22.0 -8.0 -12.9 -6.7 -6.3 -4.7
- Errors and omissions -8.0 -27.9 -12.1 -6.0 -6.1 -6.6
- Overall balance 11.2 -1.0 -7.2 -5.8 -1.9 1.3
- Net international reserves (increase -) -11.2 1.0 7.2 5.8 1.9 -1.3
- Memorandum: Gross official reserves, end-of-period 43.8 42.8 34.3 28.4 26.5 27.8
- Current account (percent of GDP) 4.4 3.9 2.2 0.2 0.8 0.9
- Exports of goods and services (percent of GDP) 21.1 18.7 16.1 11.2 12.7 13.1
- Imports of goods and services (percent of GDP) 16.6 14.2 14.1 13.1 13.7 13.7
- External debt (US$ billions) 6.5 8.8 9.9 10.4 10.8 11.1
- External debt (percent of GDP) 1.4 1.7 1.7 2.0 2.0 2.0
- GDP (at market prices) 467 522 574 517 529 568

### Federal Government and Consolidated Government Operations (Tables 4a–4c: 2012–17) — selected fiscal figures (Billions of Naira; percent of GDP)
- Federal Government (Table 4a) — Total revenue 2,763 3,000 3,114 2,848 3,654 4,287
  - Oil revenue 1,851 1,977 1,819 1,403 1,960 2,311
  - Non-oil revenue 912 1,023 1,295 1,446 1,694 1,976
  - Total expenditure 4,153 4,438 4,220 4,447 5,060 5,547
  - Recurrent expenditure 3,409 3,597 3,713 4,066 4,310 4,447
  - Capital expenditure 744 842 507 381 750 1,100
  - Overall balance -1,391 -1,438 -1,107 -1,599 -1,406 -1,260
  - Overall balance (incl. ECA financing) -1,002 -735 -1,107 -1,535 -1,406 -1,260
  - Financing 1,282 1,259 767 1,599 1,406 1,260
  - FGN Total Debt 7,552 8,489 9,460 11,372 13,162 14,695
  - Budget oil price 72 79 78 65 65 65
  - Oil revenue (in the budget) 1,899 2,301 2,066 1,907 1,922 1,982
  - FGN overall balance (percent of GDP) -1.9 -1.8 -1.2 -1.7 -1.3 -1.0
- Consolidated Government (Table 4b) — Total revenue 10,416 8,949 8,886 7,389 9,379 11,225
  - Oil revenue 7,583 5,774 5,209 3,270 4,567 5,627
  - Non-oil revenue 2,833 3,176 3,677 4,118 4,812 5,598
  - Total expenditure 10,637 10,876 11,109 10,084 12,436 14,400
  - Overall balance -221 -1,927 -2,223 -2,696 -3,057 -3,175
  - Financing 295 2,136 1,883 2,696 3,057 3,175
  - Overall balance (% of GDP) -0.3 -2.4 -2.5 -2.8 -2.8 -2.5
- Consolidated Government (percent of GDP, Table 4c) — Total revenue 14.3 11.0 9.9 7.7 8.4 8.7; Total expenditure 14.7 13.4 12.3 10.6 11.2 11.2; Overall balance -0.3 -2.4 -2.5 -2.8 -2.8 -2.5
- State and Local Governments (Table 4d) — Revenue 5.4 5.2 4.6 4.0 4.3 4.4; Expenditure 6.2 5.9 5.2 4.6 5.0 5.1; Overall Balance -0.8 -0.8 -0.7 -0.6 -0.6 -0.7

### Extrabudgetary Funds (Table 4e) — percent of GDP
- Revenue 5.1 2.2 1.8 0.8 0.8 1.0
- Extrabudgetary funds 1.0 0.9 0.8 0.8 0.8 0.8
- Contributions to the ECA/SWF 3.2 1.2 1.0 0.0 0.0 0.2
- Expenditure 2.5 1.7 2.0 1.0 1.3 1.5
- Spending from Sure-P and others 0.6 0.7 1.2 0.2 0.5 0.7
- Explicit fuel subsidy and social spending 0.4 0.5 0.7 0.0 0.3 0.5
- Financing -2.6 -0.5 0.2 0.2 0.5 0.5
- Memo item: Net change in ECA/SWF ("-" accumulation) -1.5 1.4 0.2 0.4 0.5 0.5

### Central Bank and Monetary Aggregates (Tables 5a–5b, Monetary Survey — Billions of Naira)
- CBN Net foreign assets (selected): 7,394 (Dec. 2014); 7,992; 7,414; 7,178; 6,899; 5,950; 6,200; 6,293; 6,389; 5,716; 5,808; 6,491 (projections/quarterly entries)
- Reserve money 4,751 4,526 3,716 4,974 5,956 5,625 5,012 5,184 6,197 6,392 7,368 8,490
  - Currency in circulation 1,632 1,509 1,426 1,474 1,777 1,574 1,497 1,548 1,798 1,908 2,750 3,306
  - Banks reserves with the CBN 2,073 2,403 1,811 3,176 3,782 3,462 3,226 3,334 4,167 4,484 4,617 5,184
- Monetary Survey net foreign assets 9,042 9,684 9,014 8,921 8,511 7,605 7,683 7,613 7,361 7,341 7,298 7,888
- Broad money 15,480 15,662 15,584 14,340 15,612 15,612 15,867 16,498 16,748 18,555 21,386 24,643
  - Currency outside banks 1,302 1,243 1,129 1,169 1,448 1,228 1,164 1,244 1,368 1,516 1,747 2,013
  - Demand deposits 5,070 5,076 5,326 4,793 5,161 5,059 5,125 5,055 4,658 5,345 6,200 7,153
  - Time and savings deposits 8,062 8,728 8,649 8,054 8,607 8,736 9,289 9,898 10,490 11,694 13,440 15,477
- Broad money (y-o-y, %) 29.1 18.0 15.6 2.0 0.9 0.4 2.9 13.0 7.3 10.8 15.3 15.2
- Credit to the private sector (y-o-y, %) 15.3 18.1 11.7 17.5 24.1 29.9 28.1 27.9 28.5 13.9 10.6 7.4
- Gross international reserves (billions of US dollar) 43.8 47.9 45.0 44.1 42.8 37.4 37.3 38.3 34.3 28.4 26.5 27.8

### Financial Soundness Indicators (Table 6: 2009 Q4–2014 Q2) — selected ratios
- Regulatory Capital to Risk-Weighted Assets (percent) 4.1 1.8 17.9 18.3 19.6 18.9 18.0 17.1 17.1 16.4
- Regulatory Tier 1 Capital to Risk-Weighted Assets (percent) 4.9 2.2 18.1 18.0 19.3 18.5 17.6 17.1 17.1 16.1
- Non-performing Loans Net of Provisions to Capital 106.8 192.7 10.1 6.1 3.4 5.9 5.5 5.8 5.1 5.6
- Non-performing Loans to Total Gross Loans 27.6 15.7 5.3 3.5 4.0 3.9 3.6 3.4 3.8 3.7
- Sectoral Distribution of Total Loans: Residents — Nonfinancial Corporations 90.5 89.9 89.8 88.7 91.5 92.0 91.9 92.1 92.6 93.0
- Return on Assets -8.8 3.9 0.2 2.3 2.8 2.9 2.6 2.3 2.5 2.5
- Return on Equity -222.8 266.0 2.2 21.1 23.1 23.7 21.1 18.9 21.0 20.7
- Interest Margin to Gross Income 59.1 53.6 31.0 62.0 62.6 65.2 65.8 63.9 63.9 62.7
- Non-interest Expenses to Gross Income 137.4 50.2 24.4 64.8 63.4 62.7 69.7 68.1 65.2 65.5
- Liquid Assets to Total Assets (Liquid Asset Ratio) 10.5 12.0 25.4 24.6 20.5 13.7 11.5 16.8 13.5 11.7
- Liquid Assets to Short Term Liabilities 13.6 13.3 30.1 28.4 28.1 19.0 16.1 23.1 19.0 16.6

*Source: IMF staff compilation of the Nigeria country report tables and World Bank's World Development Indicators as presented in the source content.*

### Annex 1. Benchmarking: Moving Forward but with Challenges

### Annex 1. Benchmarking: Moving Forward but with Challenges

### Economic performance and structure
- Nigerian economy is doing well and the country has become an important player in the global context.
- Nigeria’s economy is growing faster than its peers, driven by the non-oil sector.
- Sectoral contributions to real GDP growth include services, manufacturing, mining, and agriculture (figures shown in source charts).

### Inequality and social indicators
- Inequality has deepened: Lorenz curve data show Gini = 40 in 2004 and Gini = 43 in 2010.
- Health and education gaps noted:
  - Life expectancy at birth, 2012: charted relative to peers.
  - Infant Mortality, 2012 (per 1,000 live births): charted relative to peers.
  - Primary Education, Net Enrollment Rate, 2011 (Percent of primary school age children): charted relative to peers.
  - Literacy rate, adult total, 2011 (Percent of people ages 15 and above): charted relative to peers.

### Infrastructure and productive capacity gaps
- Significant gaps exist in infrastructure and key indicators:
  - Electricity production and price, 2011: kWh produced per capita and Price US Cents/kWh are presented in source charts.
  - Paved roads, 2011 (Percent of total roads): charted relative to peers.
  - Credit to private sector, 2013 (Percent of GDP): charted relative to peers.
  - Government revenue, 2013 (Percent of GDP): charted relative to peers.
  - Product diversification, 2010 (Extensive Margin and Intensive Margin, Units): charted; higher index values indicate less diversification.
  - Export Quality Index, 2010 (Units - Higher values indicate higher quality levels): charted.

### Business environment and governance
- Business environment and governance indicators are still lagging peers:
  - Doing Business Indicators, 2014 (Normalized ranking, 1 = Best, 0 = Worst): multiple sub-indicators presented (Ease of Doing Business Rank; Starting a Business; Dealing with Construction Permits; Getting Electricity; Registering Property; Protecting Investors; Paying Taxes; Trading Across Borders; Enforcing Contracts; Resolving Insolvency).
  - Governance Indicators, 2012 (Percentile Rank 100 = Best, 0 = Worst): Voice and Accountability; Political Stability; Government Effectiveness; Regulatory Quality; Rule of Law.

### IMF surveillance follow-up: policy recommendations and authorities’ feedback
- 2013 Article IV Staff Report policy focus areas:
  - Boosting external and rebuilding fiscal buffers.
  - Avoiding spending pressures from the political cycle.
  - Improving oil-revenue management.
  - Undertaking structural reforms to boost growth and job creation.
  - Strengthening governance frameworks.

- Authorities’ macro-financial developments and feedback:
  - Reserves declined by $8.5 billion in 2014, bringing them to the bottom of the Fund’s reserve adequacy range; reserves could fall below the range starting in 2015.
  - Authorities acknowledged need to enhance business climate and coordination with tax authorities at state level to address tax duplication.
  - Initiatives to boost growth and job creation include SIP: Promoting Economic Transformation on Current Initiatives.

- Fiscal policy actions noted by authorities:
  - Adoption of a conservative oil benchmark price and oil production level in the 2014 Budget.
  - Freezing allocations for salaries.
  - Focusing on completing existing capital projects in the 2014 budget.
  - PFM reforms—extension of the TSA and information systems in key federal institutions.
  - Improving oil revenue management; including kerosene subsidies explicitly in the 2015 budget and considering a rule-based budget oil price.
  - Programs to fight poverty and alleviate inequalities; intention to implement strong monitoring and evaluation frameworks.
  - PFM progress: TSA covering 551 out of 821 FG entities and accounting for 75 percent of the FG budget.

- Monetary and exchange rate policy advice and response:
  - Staff encouraged greater reliance on open market operations (OMOs) to guide short-term interest rates.
  - In the event of persistent pressures, greater flexibility in the exchange rate may be needed to respond to shocks.
  - Authorities confirmed active use of OMOs to guide short-term interest rates.
  - The official exchange rate was devalued by 8 percent and the band around it was increased to +/-5 percent from +/-3 percent. Authorities intend to move gradually toward greater flexibility.

- Financial sector recommendations and actions:
  - Implementation of key recommendations of the 2012 FSAP Update was encouraged, including enhanced onsite inspections of Nigerian banks operating abroad.
  - Draft updates to the BOFI and NDIC Acts remain outstanding; draft Bills are with the National Assembly and may be passed in 2015.
  - Authorities have undertaken 15 onsite inspections of Nigerian bank subsidiaries in the past two years and have participated in College of Supervisors' meetings.

- Structural reform recommendations and authorities’ feedback:
  - Recommended priorities: increase delivery of power; broaden the agricultural base; increase access to finance for SMEs; avoid long-term protectionist tariffs in agriculture; regularly review specialized credit and guarantee schemes.
  - Authorities view the power sector as key to growth; noted resolution of debt issues of newly privatized power generation companies and that investment plans for building capacity are on track.
  - Agriculture transformation agenda: Growth Enhancement Support (GES) program using E-wallet to provide targeted support for seeds and fertilizers generated higher incomes for farmers and contributed to the creation 2.7 million jobs over the last two years.
  - Authorities reaffirmed commitments to ensure interventions are targeted and transparent.

### Update on Financial Sector Assessment Program (FSAP)
- 2012 FSAP update summarized developments since the 2009 banking crisis and key risks.
- Banking sector resilience improved significantly since the crisis, with some small deterioration in the first half of 2014:
  - Industry-wide capital adequacy ratio (CAR) declined by 0.8 percentage points to 16.4 percent.
  - Liquidity ratio declined marginally by 1.1 percentage points.
  - Non-performing loans increased marginally by 0.3 percentage points to 3.5 percent.
  - Deterioration in CAR concentrated in small- and medium-sized banks (down by 3.6 and 2.3 percentage points, respectively, as reported).

*Source: Annex 1. Benchmarking: Moving Forward but with Challenges (IMF staff report content).*

### 14.4 percent and 16 percent respectively). In particular, the CAR of two banks temporarily fell below

### _cr1584 - 14.4 percent and 16 percent respectively). In particular, the CAR of two banks temporarily fell below

### Banking sector capital and liquidity: recent developments and vulnerabilities
- Capital Adequacy Ratio (CAR) trends:
  - Reported CARs include levels of "14.4 percent and 16 percent respectively)." 
  - The statutory minimum CAR is 10 percent; "the CAR of two banks temporarily fell below the statutory minimum of 10 percent requiring an increase of capital."
  - Staff estimates suggest any required recapitalization of these banks to the minimum 10 percent CAR could cost about N200 billion (¼ percent of GDP).
- Liquidity and resilience:
  - The system is reported as remaining "resilient to significant shocks to credit, interest and exchange rates."
  - A CBN stress scenario: "a 200 percent increase in NPLs, which would be equivalent to a complete loss on 7 percent of all loans, would result in eight small banks becoming insolvent."
- Capital-raising constraints:
  - Banks’ ability to raise fresh capital "will be constrained by the negative developments in sovereign spreads and general decline in the stock market."

### Foreign-currency exposures, dollarization, and related prudential measures
- Foreign-currency exposure increases:
  - Deposit dollarization rose "from 15 percent of deposits in 2011 to 23 percent by end-2014."
  - Banks issued "$3.7 billion of debt since 2011," and "about 20 percent of total liabilities are now denominated in foreign currency."
  - Foreign currency loans were "21 percent of total loans as of end-2013."
- Risks from exchange rate depreciation:
  - "The relative importance of these liabilities will automatically increase with the depreciation of the exchange rate."
  - Need to monitor "credit quality of foreign currency assets (which may be linked to exchange rate developments), and potential liquidity mismatches."
- CBN prudential actions to contain FX exposures:
  - "Reduced the upper limit on foreign currency borrowing from 200 percent to 75 percent of shareholders’ funds."
  - Required banks to (i) "maintain a stock of high-quality liquid foreign-currency assets"; and (ii) "establish foreign currency contingency funding arrangements with other financial institutions."
  - Banks "have been reminded to minimize currency and maturity mismatch with respect to foreign currency borrowing and lending." (CBN circular BSD/DIR/GEN/LAB/07/037, October 24, 2014.)

### Credit concentration and sectoral exposures
- Concentration by sector (share of loan book):
  - Oil and gas: 24 percent
  - Power and energy: 4 percent
  - State governments: 7 percent
- Prudential responses to concentration risk:
  - CBN "increased the capital risk weighting on any industry exposure representing more than 20 percent of total credit from 100 percent to 150 percent."
  - Proposed "a risk weighting of 125 percent if total lending to the oil and gas sector exceed 20 percent."
  - Required banks "to undertake a stress test to evaluate the impact of oil prices (including on public sector credit) on banks’ balance sheets."
  - Emphasized "the importance of strong credit assessment and risk management of these exposures."

### Supervisory findings, governance, and capacity-building
- Governance and compliance weaknesses:
  - Supervisory examinations "point to some continuing weaknesses in governance."
  - "Compliance with regulations on foreign exchange transactions is weak, potentially constraining the effectiveness of both monetary and prudential policies."
- Bank director competency:
  - Baseline assessment against the Competency Framework showed "only 35 percent of directors were considered to have met the minimum requirements, largely due to a lack of professional qualifications."
  - "Banks have been required to submit remedial plans which will be monitored by the authorities."
- Risk management deficiencies and remediation:
  - "Deficiencies in risk management have also been revealed by these examinations."
  - CBN "has held some workshops for banks’ risk management officers."
- Capacity-building measures:
  - CBN and NDIC deepening supervisory capacity through training "in particular in the areas of IFRS and its interaction with prudential guidelines, and on key aspects of Basel II/III."
  - FSRCC facilitates joint initiatives, including on IFRS and consolidated risk-based supervision.

### AMCON operations, recapitalizations, and contingent liabilities
- AMCON recapitalizations and recoveries:
  - AMCON recapitalized three bridge banks "at a cost of N737 billion with a 25 percent target recovery rate (or N184 billion)."
  - Sales completed in October 2014:
    - Enterprise: acquired by HBC Investment Services; recovery on sale "42 percent of the initial investment."
    - Mainstreet: acquired by Skye Bank; recovery on sale "32 percent of the initial investment."
  - Keystone sale "slated for 2015"; Keystone divested businesses in Sierra Leone and Liberia and advised to enter Gambia subsidiary into voluntary liquidation.
- AMCON bond redemptions and financing:
  - As of October 31, 2014, "all remaining AMCON bonds held by the private sector (N867 billion) have been redeemed."
  - Earlier redemption of bonds maturing in December 2013: "N734 billion in private sector hands."
  - Bonds held by the CBN (N3.5 trillion) were restructured into a 10 year bond (N 3.8 trillion) carrying a 6 percent coupon.
  - Proceeds of asset sales included "N165 billion in recoveries on non-performing loans."
  - Authorities expect remaining liabilities (all held by the CBN) to be met from asset recoveries and anticipated contributions "including an annual N50 billion from the CBN) to the Banking Sector Resolution Cost Fund."
  - "All banks have paid their 2013 contributions of 0.5 percent of total assets."
- Additional AMCON actions:
  - In September 2013, AMCON "assumed ownership of and recapitalized, an insolvent discount house at a cost of about N100 billion."
  - Plans "are underway to transform the entity into a merchant bank and sell it in 2015."
  - Authorities indicate intention that "AMCON should no longer purchase distressed assets remains in force."

### Regulatory and supervisory reforms and initiatives
- Oversight of Domestic Systemically Important Banks (DSIBs):
  - Eight DSIBs initially identified (May 2013); "as of December 2014, only seven still qualified."
  - Enhanced framework introduced in Sept 2014, to come into effect in March 2015, requiring:
    - "minimum CAR of 15 percent;"
    - "Tier 1 capital should constitute at least 75 percent of the bank’s qualifying capital;"
    - an additional "higher loss absorbing (HLA) capital surcharge of 1 percent to be met with Common Equity Tier 1 capital."
    - Quarterly solvency and liquidity stress tests (under standardized parameters advised by the CBN).
    - Expanded reporting, more intensive supervisory effort, and annual recovery plan updates ("by January 1 of each year").
- Implementation of Basel II/III and IFRS:
  - "Full implementation of Pillar I commenced on October 1, 2014" after a parallel run Jan–Sept 2014.
  - All banks and discount houses submitted their Internal Capital Adequacy Assessment Process in compliance with Pillar II.
  - Implementation of Pillar III (disclosure requirements) "has also begun."
  - "IFRS has been adopted by the banking sector, with two rounds of annual financial statements now produced under IFRS."
  - IFRS rollout to non-bank financial institutions: discount houses, credit bureaux, and some other financial institutions issued IFRS-compliant statements for year ending December 2013.
- Cross-border supervision and crisis management:
  - As of end-2013, 14 MOUs executed with host countries; one MOU "is about to be signed (with Mauritius)."
  - On-site examinations of 13 foreign subsidiaries in 2013 (eight joint with host supervisor); two more in 2014.
  - A college of supervisors for the United Bank of Africa (UBA) "was inaugurated in 2014."
  - Work on a crisis management framework for cross-border institutions "is ongoing."
  - MOUs "have proved effective"—the CBN "was fully informed of the circumstances surrounding the intervention of the two subsidiaries in the Gambia."
- Consolidated supervision and holding companies:
  - FSRCC developed a "Framework for Consolidated Supervision of Financial Institutions (August 2013)," implemented since January 2014.
  - CBN issued guidelines in 2014 to facilitate regulation, supervision and operation of financial holding companies.
- Macroprudential oversight and financial stability monitoring:
  - FSRCC taking steps to transform into a more comprehensive Financial System Stability Committee.
  - Financial Sector Soundness Sub-Committee tasked with developing a "financial stability dashboard," with initial version discussed in November 2014, to monitor evolving risks across key financial sectors.
- AML/CFT enhancements:
  - Introduction of tiered-Know Your Customer requirements to facilitate account opening with basic identification (e.g., a telephone number).
  - Multiple CBN circulars on aspects of AML/CFT; the Financial Intelligence Unit (FIU) issued "a strategic analysis on terrorism financing."
  - Nigeria removed from the Financial Action Task Force (FATF) list of jurisdictions with significant deficiencies.
  - Nigeria due to undergo a FATF mutual evaluation in 2016; Presidential Committee on Financial Action Task Force overseeing a national risk assessment "anticipated to be completed in 2015."
  - FIU planning additional strategic analyses covering fraud and oil & gas theft within the next year.

*Source: Excerpt from the IMF staff report content provided.*

### Annex 4. External Sector Assessment

### Annex 4. External Sector Assessment

### Current and financial accounts and exchange rate

- Nigeria’s current account balance has been falling despite high oil prices.
- Oil and natural gas exports comprise over 90 percent of total exports of goods and services, but have stagnated, declining from over 25 percent of GDP before 2009 to about 15 percent of GDP in 2014.
- Non-oil exports remain below 1.5 percent of GDP.
- The current account deficit excluding petroleum products has fluctuated between 9 percent and 13 percent of GDP.
- Errors and omissions outflows in the balance of payments since 2005 have been nearly as large as the sum of current account surpluses, suggesting imprecision in existing estimates of the current account balance and/or the net foreign asset position; these unrecorded outflows are large and persistent and are factored into the assessment.
- Large shifts in fundamentals—namely, the oil price—occurred at the end of 2014, and the economy is in the midst of adjusting.

### Exchange rate developments and valuation

- The real effective exchange rate (REER) has appreciated by a cumulative 29 percent since 2011.
- The nominal effective exchange rate appreciated by 6 percent since 2011 due to the stronger dollar.
- The appreciation has been largely the result of faster inflation than among trading partners while the central bank kept its official naira rate in a narrow range against the U.S. dollar.
- Caution in interpreting the naira valuation is warranted because:
  - As an oil producer, Nigeria faces a tradeoff between accumulating financial assets via current account surpluses to preserve oil wealth versus using oil proceeds for infrastructure investment.
  - Data gaps and large errors and omissions add uncertainty to external position estimates.
  - Recent large shifts in fundamentals (oil price) are affecting equilibrium assessments.

- Multiple approaches indicate a moderate overvaluation of the naira:
  - External Balance Assessment (EBA) methodology:
    - Current account is modeled as a function of fundamentals including fiscal balance, private credit, change in reserves, net foreign assets, oil and gas trade balance, relative income, relative GDP growth, demographics, institutional environment, terms of trade gap, and output gap.
    - The norm is raised by the amount of errors and omissions outflows, as maintaining external sustainability would require running a higher current account balance to compensate.
    - Current account norm is estimated to be a surplus of 3.8 percent of GDP.
    - The current account balance is forecast at a surplus of 2.2 percent of GDP for 2014, implying a gap of 1.7 percent of GDP and an overvaluation of 14 percent.
    - Policies reduced the gap by 0.3 percent of GDP.
  - External sustainability approach:
    - The current account norm including errors and omissions is set at the level that would stabilize net foreign assets-to-GDP at the end-2014 level, emphasizing the liquid component of net foreign assets.
    - Net foreign direct investment position (minus 13 percent of GDP at end-2014) was excluded; other net foreign assets are estimated at about 7 percent of GDP at end-2014.
    - The estimated norm is 2.0 percent of GDP, compared to a medium-term forecast for the current account balance of 0.2 percent of GDP.
    - A depreciation of 15 percent would be sufficient to reach the norm.
  - Price-based approach (equilibrium real exchange rate regression):
    - Models ERER as a function of terms of trade, relative income, government consumption, net foreign assets, and remittances within a panel.
    - Finds the naira is overvalued by about 12 percent.
    - Given historical volatility of Nigeria’s REER and the model fit, this moderate overvaluation should be viewed with caution.
- Table A4.1 summary (IMF staff estimates):
  - Current account reference: 2.2 (Regression), 0.2 (External Sustainability), -- (ERER regression)
  - Current account norm: 3.8 (Regression), 2.0 (External Sustainability), --
  - Current account gap: -1.7 (Regression), -1.8 (External Sustainability), --
  - Real exchange rate gap: 13.7 (Regression), 14.9 (External Sustainability), 12.5 (ERER regression)
  - Elasticity of current account to real exchange rate gap is 0.12.
- Other indicators:
  - Margin between interbank and official exchange rates remained at 8-10 percent in late 2014 despite the devaluation of the official rate, suggesting demand at the official rate continues to outstrip supply.

### Reserve adequacy

- Gross international reserves:
  - $34.3 billion at end-December 2014, down from $42.8 billion at end-2013.
  - Sufficient to cover 6 months of the next year’s projected imports.
  - Import cover ranged from 8-12 months through 2008.
- Capital flows and reserve dynamics:
  - Financial integration is rising; capital flows are increasingly important to the reserves position.
  - Inflows to domestic government debt securities have been particularly strong since 2011, amounting to over $18 billion or more than 3 percent of GDP.
- Reserve adequacy metric applied:
  - Given developments, reserve adequacy is assessed against the emerging market reserve adequacy metric rather than the metric for low-income countries.
  - The emerging market metric assesses reserves against: exports, broad money, short-term external liabilities, and medium- and long-term external liabilities (including all portfolio investment and other investment liabilities to non-residents, irrespective of place of issuance).
  - Coefficients are applied to each quantity based on behavior during previous balance of payments pressure episodes; coefficients vary by exchange rate regime.
  - Given the stability of the naira against the dollar since 2011 (predominantly reflecting central bank intervention), the regime is classified as a managed arrangement.
  - The approach recommends reserves amounting to 100-150 percent of the estimated metric—reserves beyond this range were not found to have additional impact on crisis frequency or severity.
- By this metric:
  - The level of reserves ($34.3 billion) at end-December 2014 is below the low end of the 100-150 percent ($35-$52 billion) range.
  - Reserves had been above the upper bound of the adequate range through 2009 and in the upper half of the range through 2013.
  - The reduction relative to the metric owes to the decline in reserves in 2014 and increase in liabilities to non-residents in recent years.
- Components contributing to reserve adequacy metric (2009–2014(f)):
  - Exports, broad money, short-term debt, other liabilities, and gross reserves are tracked; liabilities to non-residents increased, reducing adequacy.

*Source: IMF staff estimates based on Nigerian Authorities data (Annex 4. External Sector Assessment).*

### 2.      The assumptions used in the baseline scenario for 2014–34 are:

### 2.      The assumptions used in the baseline scenario for 2014–34 are:

### Baseline macro and oil assumptions
- GDP grows as in the staff report baseline through 2020 before accelerating in the medium term as structural reforms take hold, averaging 6.1 percent in 2014–34 (below the average of 6.8 percent assumed for the 2013–33 analysis, and below the 6.8 percent historical average).
- The analysis assumes a Nigerian oil price of $100 per barrel in 2014, falling to $52.8 per barrel in 2015, recovering moderately by 2020 to $73.7 dollars per barrel, remaining constant in real terms thereafter.
- The Nigerian oil price is projected by holding constant the margin between the prices for Bonny Light oil and Brent oil.

### Fiscal baseline assumptions and non-oil primary balance
- The non-oil primary deficit (NOPD) of the general government is expected to decline from 8.1 percent of non-oil GDP in 2014 to about 4.7 percent of non-oil GDP in 2020.
- Implementation in the baseline is modeled as keeping primary expenditure-to-GDP relatively flat at its planned 2015 level and increasing non-oil revenue.
- The consolidation plans embedded in the 2015–17 Medium-Term Expenditure Framework—including policies to raise non-oil revenue and control operating expenses—are taken into account.
- On that basis, the Excess Crude Account accumulates gradually, reaching about 1 percent of GDP by 2020.
- With the importance of oil revenue to the economy and fiscal accounts expected to decline over time, the NOPD would continue to adjust, arriving at a deficit of about 2.5 percent of GDP in 2034.
- N400 billion of contingent liabilities from the Asset Management Company of Nigeria (AMCON) bonds are assumed to materialize as ultimate fiscal cost for the federal government in 2023 (equivalent to 0.16 percent of GDP in 2023).
- The Sinking Fund is estimated to be worth N6.1 trillion at the end of 2023 based on annual contributions of 0.5 percent of total assets by Deposit Money Banks (DMBs) (about N24 trillion at end-2013) and N50 billion annual contributions by the CBN, all accruing a 10 percent nominal return. The fund will be used to pay net interest expenses on its bonds and to fill the gap in AMCON’s balance sheet (assets and liabilities were about N2.5 trillion and N6.0 trillion, respectively, as of end-2013).

### External sustainability (baseline and stress tests)
- In the baseline scenario, the nominal gross external debt burden is projected to gradually increase.
- The external debt-to-GDP ratio would rise from 1.7 percent in 2013 to 5.5 percent in 2034.
- The debt service-to-exports and the debt service-to-revenue ratios also rise gradually during the projection period.
- All debt and debt service indicators remain well below their respective threshold levels throughout the projection period.
- Standardized stress tests were carried out. The scenario shocking export values was run for 2016-17, since the baseline for 2015 already incorporates a large decline due to the fall in oil prices.
- Under all scenarios: (i) the PV of debt is not likely to exceed 10 percent of GDP throughout the projection period; and (ii) the PV of debt-to-exports ratio is far below its indicative debt burden threshold of 150 percent.

### External sector and current account projections
- Given the expected behavior of oil prices and production volumes that are projected to be flat, exports are assumed to grow less rapidly than the rest of the economy notwithstanding the projected continuation of the recent rapid growth in non-oil exports.
- Oil exports account for over 90 percent of exports and through 2013 about 70 percent of government revenue.
- Imports are projected to grow in line with the non-oil economy.
- Consequently, the current account surplus declines to 0.2 percent of GDP by 2020, and turns into a deficit of ½ percent of GDP by 2034.

### Fiscal sustainability (baseline and projections)
- Gross debt of the federal and state governments is estimated at 13.4 percent of GDP at end-2014, up from less than 10 percent of GDP through 2010, and is projected to rise modestly during the forecast horizon.
- Debt service and debt-to-revenue ratios are also projected to increase relative to recent history and previous forecasts, as a result of the rising level of debt and the recent decline in oil prices and oil price futures.
- The current structure of domestic debt is favorable, with all debt carrying a fixed interest rate and the average maturity at 4.5 years.
- External debt is largely on concessional terms other than the Eurobonds, and is contracted at long maturities.
- The forecast assumes an increase in the share of external debt contracted at commercial terms, with the grant element of external disbursements falling to less than 10 percent during the projection period.
- Oil and gas revenue is projected to decline as a share of GDP due to the recent drop in prices and flat production volumes going forward.
- It is assumed that the authorities will reduce expenditure or raise non-oil revenue in the medium term to offset this decline.
- These findings are highly sensitive to the resolute implementation of fiscal consolidation.

### Alternative scenarios and stress tests — fiscal risks and outcomes
- If the primary balance is kept unchanged at its 2014 level, the present value of debt in 2034 would increase to 40 percent of GDP.
- Public debt dynamics could become adverse if growth is permanently lower than in the baseline, with gross public debt rising to 33 percent of GDP in 2034.
- In such adverse scenarios, the debt service-to-revenue ratio would increase substantially from current levels and fiscal policy would need to adjust accordingly.
- Temporary shocks would be unlikely to significantly alter the conclusion that the risk of debt distress is low, as the other macroeconomic shocks considered do not bring about significant changes in the projected debt ratio.
- In the presence of shocks to either the primary balance or to other debt-creating flows (contingent liabilities), debt service-to-revenue ratios would increase, illustrating the importance of rebuilding fiscal buffers over the medium term.
- To the extent that the staff’s fiscal policy assumptions under the baseline scenario (including gradual improvements in the primary deficit over the medium term) do not materialize, risks to debt sustainability would be higher.
- The shock to the primary balance is performed for 2016-2017, with half the shock coming from lower revenues. This scenario illustrates the impact from oil prices remaining at about current levels over that period.

*International Monetary Fund — Nigeria: selected baseline assumptions, external and fiscal sustainability analysis (excerpts).*

### 7.      The authorities concurred that both external and overall public debt risks were low

### _cr1584 - 7.      The authorities concurred that both external and overall public debt risks were low

### Summary finding on debt risk
- The authorities concurred that both external and overall public debt risks were low provided that their fiscal consolidation plans are implemented as intended.
- They agreed that timely policy responses would be necessary in the event of a prolonged economic growth shock or further substantial decline in oil prices.

### Debt sustainability analysis and stress tests
- Figure 1 and accompanying text present "Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2014-34."
- The most extreme stress test definition: "The most extreme stress test is the test that yields the highest ratio on or before 2024."
  - In figure b it corresponds to a one-time depreciation shock.
  - In figure c to a lending terms shock.
  - In figure d to a one-time depreciation shock.
  - In figure e to an exports shock.
  - In figure f to an exports shock.

- Table 1: "Nigeria: External Debt Sustainability Framework, Baseline Scenario, 2011-34" (tables and figures reported; baseline projections span 2014-34).

- Table 2: "Nigeria: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014-34" reports outcome series (selected excerpts as printed):
  - Baseline series (presented in table rows) include sequences such as: 2 2 2 3 3 3 3 5 (for 2014–34 baseline in one panel).
  - Alternative scenarios A1 and A2 and Bound Tests B1–B6 are reported with multi-year numeric sequences (see Table 2 panels).
  - Specific shock example: B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 is included as a bound test.
  - Footnote on A2: "Assumes that the interest rate on new borrowing is 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline."
  - Footnote on exports shock: "Incorporates the 2015 oil price shock plus additional shocks in 2016-2017. Export values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels)."
  - Footnote on net non-debt creating flows: "Includes official and private transfers and FDI."
  - Footnote on depreciation definition: "Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent."
  - Memorandum item: "Grant element assumed on residual financing (i.e., financing required above baseline) 6/00000000"
  - Sources: "Country authorities; and staff estimates and projections."

- Figure 2 and Table 3/Table 4 present additional indicators for public debt under alternative scenarios and sensitivity analysis for public sector debt, 2014-34.

### Policy implication and recommendation
- Implement fiscal consolidation plans as intended to maintain low external and overall public debt risks.
- Prepare and be ready to deploy timely policy responses in case of:
  - A prolonged economic growth shock.
  - A further substantial decline in oil prices.
- In stress scenarios, attention is drawn to vulnerability channels including depreciation shocks, less favorable new borrowing terms, and export value shocks.

### Data sources, coverage, and quality (statistical issues)
- General: "Macroeconomic data are broadly adequate for surveillance; however data deficiencies—in particular, inadequate information on subnational public finances and large errors and omissions in the balance of payments—remain."
- National accounts:
  - NBS adopted SNA 2008 and ISIC revision 4 in 2014.
  - Rebasing: "The rebased GDP (base year=2010) and supply and use table reflected the significant change that has taken place in the structure of the economy since the previous rebasing in 1990."
  - Additional data collection in 2014: "census of businesses, a census of agriculture, and a household living conditions survey."
- Prices statistics:
  - CPI re-referenced to "November 2009=100" using the 2003/04 National Consumer Expenditure Survey.
- Government finance statistics:
  - Main shortcoming: inadequate data coverage of subnational governments that "comprise almost one half of total government expenditure."
  - Plans: nationwide adoption of IPSAS on a cash basis at Federal and State levels by end-2015.
- Monetary and financial statistics:
  - Improvements noted; need for more granular measures of commercial banks’ foreign assets and liabilities; extend ODCs definition beyond commercial banks.
- Financial soundness indicators:
  - CBN compiles a broad range of FSIs; STA support to improve methodology and consolidation basis for cross-border activities.
- Balance of payments:
  - Efforts to improve BOP and produce an IIP; large errors and omissions persist.
  - DFID/GDDS Phase III Module launched in 2010 helps improve recording of cross-border private capital flows and stocks.
  - "The authorities have not yet initiated compilation of international reserves data in line with the Data Template on International Reserves and Foreign Currency Liquidity."
- External debt:
  - "Public external debt data are of good quality and available on a timely basis."
  - Debt Management Office (DMO) collaborating with CBN to extend coverage to include private sector liabilities and foreign investment in domestically issued debt securities.

### Key institutional and program data (selected exact figures from the source)
- Membership Status: "Joined: March 30, 1961; Article XIV"
- Quota: "Quota 1,753.20 100.00"
- Fund holdings of currency (Exchange Rate): "1,753.11 100.00"
- Reserve Tranche Position: "0.14 0.01"
- SDR Department net cumulative allocation: "1,675.38 100.00"
- SDR Department holdings: "1,675.15 99.99"
- Outstanding Purchases and Loans: "None"
- Latest Stand-By arrangement: "Stand-By Aug 04, 2000 Oct 31, 2001 788.94 0.00"
- Projected Payments to Fund (Charges/Interest): "0.01 0.01 0.01 0.01 0.01" (displayed across forthcoming years)
- Exchange rate arrangement (de jure): "other managed arrangement"
  - CBN maintained an exchange rate band; band increased from "±3% to ±5% in 2014"; last midpoint adjustment in "November 2014".
  - Nigeria is signatory to W-ERM II of WAMZ requiring spot rate be maintained within "±15% around the central rate"; CBN uses a narrower band.
- Article IV consultation cycle: "standard 12-month"; previous consultation concluded on "February 21, 2014."
- Resident Representative: "Mr. Gene Leon is the IMF’s Senior Resident Representative in Abuja since September 2013."

### Technical assistance and joint work program (selected items)
- Technical Assistance since January 2013: Numerous missions across departments (MCM, LEG, STA, FAD) with specific dates (e.g., "Bank Restructuring January 21 - February 8, 2013"; "TSA and cash management January 1 -14, 2014"; "Program Budgeting, TSA and Cash Management Performance January 22 – February 4, 2015"; "Balance of Payments Statistics March 16 - 27, 2015").
- Joint World Bank-IMF Work Program, 2014–15: joint products include "Joint Bank-Fund Debt Sustainability Analysis" (December 2014 Board: February 2015).
- IMF work program next 12 months highlights: "Article IV Consultation December , 2014 Board: February 27, 2015"; technical assistance in fiscal and statistical areas (e.g., TSA and cash management, program budgeting and IFMIS in "January - February 2015").

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

### 1.      Political and Economic Developments.

### 1.      Political and Economic Developments.

### Political developments and electoral delay
- On Saturday, February 7, the Independent National Electoral Commission announced that it was postponing general elections by six weeks—Presidential and parliamentary elections are now scheduled for March 28, and state elections for April 11.
- The postponement was based on the advice of the security forces that they could not guarantee the peaceful conduct of elections given the launch of a major offensive against Boko Haram.

### Financial market reaction and external reserves
- In the week following the postponement of the elections:
  - The Nigeria Stock Exchange lost 6 percent.
  - Bond yields widened 100 basis points.
  - Sovereign spreads widened by almost 40 basis points.
  - In the interbank foreign exchange market (IFEM), the naira depreciated by 4½ percent with the spread between the rates in the IFEM and the retail Dutch Auction System (rDAS) window exceeding 20 percent.
- Gross international reserves (30-day moving average):
  - Ended 2014 at $34.5 billion.
  - Declined to $32.3 billion as of February 19.

### Policy developments
- On February 18, the Central Bank of Nigeria (CBN) closed the rDAS window at which it had been providing foreign exchange for a specific list of activities at a rate of N168 per U.S. dollar with a band of ±5 percent.
- All foreign exchange demand is now to be met in the IFEM, with the CBN committing to intervene in the IFEM to meet legitimate demands for foreign exchange.
- The Naira has been trading in the IFEM at about N198 per U.S. dollar, so that the move implies an 18 percent devaluation in the official exchange rate.
- The Medium Term Expenditure Framework, which sets the 2015 budget, passed the second reading in the National Assembly and was sent to the Joint Committee on Finance for deliberation whilst the National Assembly went on recess ahead of the February 14 scheduled election. The authorities are continuing discussions and anticipate submitting soon a revised set of budget assumptions to the National Assembly.

### Implications of rDAS closure and exchange rate policy
- The closure of the rDAS window:
  - Is in line with staff advice and removes a major economic distortion.
  - Requires the CBN, as the largest single supplier of foreign exchange, to intermediate supply in a transparent and efficient manner while facilitating price discovery.
- Macroeconomic effects:
  - The impact on growth, inflation, and the balance of payments is likely to be modest as the bulk of transactions were already at the IFEM rate.
  - Market reaction has been broadly positive and rates have stabilized; however, liquidity in the market is reportedly thin.
- Oil price and fiscal outlook:
  - The Brent futures average price for 2015 recovered from $53/barrel on January 20 to $61/barrel on February 20.
  - The recent recovery in oil prices, together with a possible revision to the 2015 budget, suggest that the fiscal position might improve relative to what is projected in the Staff Report.
- Recommended amendment to the Informational Annex description of the “Exchange Rate Arrangement”:
  - De jure exchange rate arrangement: other managed arrangement.
  - CBN aims to maintain an exchange rate fundamentally driven by market forces, intervening to reduce volatility and counteract speculative attacks.
  - CBN maintained an exchange rate band vis-à-vis the U.S. dollar (band increased from ±3 percent to ±5 percent in November, 2014) and allowed adjustment of the band’s midpoint (last adjustment in November 2014).
  - On February 18, 2015, CBN announced closure of the Dutch Auction System (DAS) window and requested all foreign exchange transactions to be effected through the interbank market.
  - De facto exchange rate arrangement remains other managed arrangement.
  - Nominal effective exchange rate has fluctuated considerably in recent years.
  - Nigeria is a signatory to the W-ERM II of the WAMZ, which requires the spot exchange rate between the naira and the U.S. dollar be maintained within ±15 percent around the central rate.
  - The foreign exchange market comprises the interbank and bureau de change segments.

### IMF Article IV consultation — key findings and projections (Press Release No. 15/91, March 4, 2015)
- Executive Board conclusion: On February 27, 2015, the Executive Board of the IMF concluded the Article IV consultation with Nigeria.
- Recent macro facts and vulnerabilities:
  - Nigeria has averaged 6.8 percent growth a year over a decade and accounts for 35 percent of Sub-Saharan Africa’s GDP.
  - Inflation has remained in single digits for two years.
  - Banking sector has a strong capital base and is expanding credit.
  - Trade surplus has been declining since Q2 2013 on lower oil exports and continued strong import growth.
  - Gross international reserves have been falling.
  - General government fiscal deficit and public debt have been kept low.
  - The oil sector accounted for 13 percent of GDP in 2013 but remains a critical source for revenue and foreign exchange.
  - Fiscal and external buffers at end-2014: $2 billion in the excess crude account and $34.25 billion in gross international reserves.
- Authorities’ responses:
  - On February 18, 2015, CBN closed the rDAS window, unifying the rDAS rate with the interbank rate.
  - On February 25, 2015, the Senate approved the third revision to the 2015 budget, lowering the budget benchmark oil price to $52/barrel.
- 2015 projections:
  - Oil exports are projected to decline by 6 percent of GDP from the 2014 level.
  - Oil revenue projected to decline by 2 percent.
  - A sharp contraction of public investment and domestic demand is projected to reduce growth to 4.75 percent in 2015 from 6.3 percent in 2014.
  - Inflation is projected to rise to 11.5 percent by the end of 2015 from 8 percent at end 2014, reflecting pass through from exchange rate depreciation.
- Risks: Outlook subject to downside risks—external (oil market developments and investor sentiment) and domestic (uncertainty over the election outcome and the security situation).

### Executive Board Assessment — policy guidance and priorities
- Commendations and concerns:
  - Directors commended progress in economic diversification and macro response to collapsing export prices.
  - Vulnerabilities remain high given uncertainties about oil price, security, and political situation.
- Policy guidance:
  - Tighten fiscal policy and allow the exchange rate to depreciate while using some reserve buffer — appropriate responses to the fall in oil prices.
  - Achieving fiscal targets requires careful prioritization of public spending and cautious implementation of capital projects.
  - Importance of improved budgeting at state and local government levels.
  - Mobilize additional non-oil revenues to open fiscal space and improve public service delivery:
    - Strengthen tax administration.
    - Rein in exemptions.
    - Keep tax rates under review.
    - Persevere with subsidy reform.
    - Improve management of oil revenue.
  - Consider reviewing current revenue sharing arrangements to address regional disparities over the longer term.
  - Welcome unification of foreign exchange rates and encourage CBN to intermediate supply in a transparent, efficient, and fair manner.
  - Financial oversight:
    - Financial soundness indicators remain above prudential norms, but credit concentration and foreign currency exposures require continued close oversight.
    - Continue strengthening supervision and regulation, including cross-border activities.
    - Foster financial market development, including hedging instruments, and improve financial inclusion.
  - Structural reforms:
    - Lower oil dependency and strengthen private sector participation.
    - Improve business environment, promote youth and female employment, and advance human capital development.
  - Data: Economic data broadly adequate for surveillance; further improvements encouraged, particularly for balance of payments.

### Selected economic and financial indicators (highlights from Nigeria: Selected Economic and Financial Indicators, 2012–2015)
- Nominal GDP (2013, billion U.S. dollars): 521.8
- Quota (million SDR): 1,753.2
- GNI per capita, Atlas method (2013, US$): 2,710
- Population (2012, million): 168.8
- Poverty headcount ratio (adult equivalent, 2009-10): 46.0
- GINI index (2010): 48.8
- Life expectancy at birth (2011, years): 52

Key annual indicators (2012 Prel.; 2013; 2014 Proj.; 2015 Proj. where provided)
- Real GDP (at 2010 Basic Prices): 4.3 5.4 6.3 4.8
- Oil and Gas GDP: -4.9 -13.1 -1.3 -1.6
- Non-oil GDP: 5.9 8.3 7.3 5.5
- Production of crude oil (million barrels per day): 2.3 2.2 2.2 2.3
- Consumer price index (end of period): 12.0 7.9 7.9 11.5

Consolidated government operations (Percent of GDP)
- Total revenues and grants: 14.3 11.0 9.9 7.7
- Of which: oil and gas revenue: 10.4 7.1 5.8 3.4
- Total expenditure and net lending: 14.7 13.4 12.3 10.6
- Overall balance: -0.3 -2.4 -2.5 -2.8
- Non-oil primary balance (percent of non-oil GDP): -11.6 -9.7 -8.1 -5.5
- Excess Crude Account / SWF (billions of US$): 11.0 3.8 3.6 1.5

Money and credit
- Broad money (percentage change; end of period): 29.1 0.9 7.3 10.8
- Net foreign assets: 15.9 -3.4 -7.4 -0.1
- Net domestic assets: 2.3 4.3 14.6 10.9
- Treasury bill rate (percent; end of period): 13.3 11.5 13.0 ...

External sector
- Exports of goods and services (annual percentage change): 1.8 -0.9 -5.1 -37.4
- Imports of goods and services: -10.6 -4.9 9.7 -16.6
- Current account balance (percent of GDP): 4.4 3.9 2.2 0.2
- Terms of trade: 1.0 0.4 -2.6 -25.6
- Price of Nigerian oil (US$ per barrel): 110.0 109.0 100.6 52.8
- Nominal effective exchange rate (end of period): 95.9 96.7 99.0 ...
- Real effective exchange rate (end of period): 111.3 118.8 128.4 ...
- Gross international reserves (US$ billions): 43.8 42.8 34.3 28.4
  - (Equivalent months of next year’s imports): 7.1 6.3 6.1 4.7

### Authorities’ perspective (Statement by Ms. Kapwepwe and Mr. Uwatt, February 27, 2015)
- Macroeconomic performance and outlook:
  - 2014 real GDP growth estimated at about 6.23 percent compared to 5.49 percent in 2013 and 5.94 in Q4 2014.
  - Growth driven by the non-oil sector.
  - Headline inflation moderated to 8.0 percent y-o-y in December 2014, within the CBN target band of 6-9 percent.
  - Fiscal deficit projected to remain within the target one percent of GDP.
  - Overall public debt, particularly public external debt, is at low risk of distress.
  - Exchange rate broadly stable until recent speculative attack; international reserves adequate to cover at least six months of imports (at that time).
  - Downside risks: oil price movements, global growth, domestic political and security environments.
- Fiscal policy priorities:
  - Address emerging fiscal risk from oil revenue shortfall; focus on non-oil revenue mobilization and tax reforms (VAT and CIT).
  - Ensure excess funds are deposited into the Government Consolidated Revenue Fund.
  - Public spending oriented toward social and productive sectors, aligning expenditures to expected revenues, prioritizing projects, and increasing private investor involvement.
  - Do not intend to close National Infrastructure Investment Plan financing gap through external borrowing.
  - Continue improving public financial management (biometrics, digitizing payments) and consider extending to subnational level.
  - Oil subsidy reform remains a key priority; timing to be appropriate given sensitivity.
- Monetary and exchange rate policy:
  - Monetary policy to continue supporting low and stable inflation, exchange rate stability, and financial access.
  - Exchange rate: intend to allow market forces to drive movement with flexibility as first line of defense; intervention limited to smoothing volatility and liquidity management.
  - Closure of Dutch Auction System noted as move toward unified foreign exchange market.
- Financial sector policy and inclusion:
  - Financial system described as stable, adequately capitalized, profitable, and liquid; resilient to significant shocks.
  - Continue strengthening regulation, supervision, corporate governance, recovery/resolution frameworks, oversight of holding companies, and consolidated/cross-border supervision.
  - Financial inclusion target: reduce percentage of Nigerian adults excluded from financial services from 46.3 percent in 2010 to 20 percent in 2020. As at 2014, exclusion rate reduced to 39.5 percent.
- Structural reforms:
  - Implement measures to raise potential growth, diversify the economy, and improve competitiveness and business climate.
  - Priority sectors: power, roads, agriculture, manufacturing, oil and gas, creative industries, housing, ICT.
  - Targeted financing schemes for SMEs; job creation initiatives for youths and women; collaboration with World Bank on social safety nets.

### Conclusion (authorities’ view)
- 2014 was difficult due to revenue shortfall from the oil price shock.
- Medium-term fiscal outlook challenging unless a significant rebound in oil price occurs.
- Authorities emphasize the need for a resilient, diversified, and more inclusive non-oil economy and are focused on implementing reform measures expected to accelerate poverty reduction and reduce income inequality and regional disparity in the medium-to-long term.

*Source: _cr1584 - 1.      Political and Economic Developments.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr1584.pdf_