Press Release No. 00/47

The Executive Board of the International Monetary Fund (IMF) today approved a 12-month Stand-By credit for Nigeria in an amount equivalent to SDR 788.94 (about US$ 1,031 million) to support the government's economic program for 2000-01. The Nigerian authorities will treat the Stand-By credit as precautionary and do not intend to make any drawings at this time.

In commenting on the Executive Board discussion, Horst Köhler, the Managing Director and Chairman said :

"The Nigerian authorities are to be commended for the progress made toward restoring macroeconomic stability during their first year in office. In the second half of 1999 the federal government budget was brought to near balance from a deficit of 8 percent of GDP in the first five months of 1999. With the aid of higher oil prices, a sizeable budget surplus was achieved in the first five months of 2000, inflation has remained well under control, and gross international reserves have recovered to US$7.1 billion.

"The focus of macroeconomic policies in the program on the maintenance of stability, including low inflation, and ensuring the prudent management of temporarily high oil revenues, is to be welcomed. It is crucial to avoid a repetition of the excessive and wasteful expansion of spending that characterized previous oil-price booms. At the same time, the program accommodates an increase in spending to address years of neglect of the social and physical infrastructure. Higher allocations for social spending need to be accompanied by an improvement in the effectiveness of this spending. The government’s Poverty Reduction Initiative is a welcome step towards strengthening transparency and accountability in the management of public resources and developing a poverty reduction strategy.

"An acceleration of the implementation of structural reforms is urgently needed, including to tackle serious deficiencies in the provision of power, telecommunications, and petroleum that are obstacles to growth. While privatization must be preceded by the establishment of regulatory structures and transparent and fair procedures for privatization, there should be no delays in this urgent task. Similarly, while progress has been made in tackling corruption, much remains to be done to establish good governance and the rule of law, particularly as regards the implementation of the new Anti-Corruption Law and the strengthening of the independent judiciary.

"In view of the challenges facing Nigeria, firm implementation of the program is needed to begin to lay the basis for sustainable growth. The program supported by the Stand-By Arrangement is also a vital first step toward establishing a framework for reforms in a medium-term program that could be supported by the Fund. Sustained implementation of the program supported by the Stand-by Arrangement will require diligence and resolute efforts by the authorities to ensure that strengthened policy coordination is able to overcome evident weaknesses in institutional capacity which are a legacy of decades of economic mismanagement," Mr. Köhler said.

ANNEX

Background

The democratically-elected government under President Obasanjo that took office at the end of May 1999 has taken decisive action to restore macroeconomic stability and tackle corruption. The annual average rate of inflation declined to 7 percent in December from 12 percent in May 1999, and to close to zero in April 2000. Despite capital flight induced by ethnic and religious tensions, the exchange rate was kept broadly stable.

However, implementation of structural reforms has proved difficult, mainly because of limited institutional capacity in all parts of the public sector, and insufficient policy coordination. Thus, while greater financial discipline has been achieved, progress in reforming the economy and addressing the deterioration of the infrastructure has yet to become tangible, or match the high expectation of the public. A recovery in investment, employment, and economy activity has not yet materialized.

Macroeconomic Policies Under the Program

The program for 2000 should be seen as an interim step toward a more comprehensive medium-term approach, with the goals of fostering rapid economic growth and enduring poverty reduction.

The program calls for an increase in real GDP growth to 3.4 percent in 2000 from 1 percent in 1999; annual average inflation of 5.1 percent; an improvement in the external current account to a surplus of 0.2 percent of GDP in 2000 from a deficit of over 11 percent of GDP in 1999; and an accumulation of foreign exchange reserves of US$2.6 billion to almost US$7.8 billion, the equivalent of 5.5 months of imports of goods and services.

Fiscal policy will focus on restraining overall expenditure to permit savings while oil prices are relatively high, and enhancing the quality of spending. In implementing the 2000 budget, the authorities are firmly committed to strict enforcement of improved procurement procedures, and strictly applying the existing regulations, including competitive tendering.

Structural reforms

The authorities are also committed to remove acute infrastructure bottlenecks, especially in the power and telecommunications sectors through the establishment of improved regulatory frameworks and privatization.

In addition, governance will be strengthened and economic security improved, so as to restore confidence and foster a more effective mobilization and use of Nigeria's abundant resources, as well as foreign direct investment. The centerpiece of government’s efforts to tackle corruption is the establishment of an Anti-Corruption Commission. Government institutions, particularly in the area of financial management will be strengthened. In addition, civil service reform will be geared to improving the quality and effectiveness of the civil service, which has been seriously weakened under military governments.

The program also supports the development of the government's poverty reduction strategy, and to meet pressing immediate needs, increase spending on social services. Through the establishment of the Poverty Reduction Initiative (PRI), the program seeks to improve the quality of spending, with better transparency, accountability and monitoring of the use of public funds.

To support policy implementation, the authorities have created an Economic Policy Coordinating Committee to coordinate policymaking within the executive branch, and to monitor the implementation of the government's economic program.

Nigeria joined the IMF on March 30, 1961 and its quota is SDR 1,753.20 million (about US$ 2,291 million). Nigeria has no outstanding use of IMF financing.

Nigeria: Selected Economic and Financial Indicators, 1996-2000             1996 1997 1998 1999 2000         Est. Program               (Annual percentage changes, unless otherwise specified) National income and prices           Real GDP (at 1990 factor costs) 4.3 2.7 1.8 1.0 3.4 Non-oil GDP (at 1990 factor cost) 2.9 3.4 3.8 3.5 1.1 Real GDP per capita 1.3 -0.2 -1.0 -1.7 0.7 GDP per capita (in U.S. dollars) 308 304 272 280 291 GDP deflator (period average) 34.0 0.7 -5.9 12.9 9.5 Non-oil GDP deflator (period average) 28.6 8.4 10.2 6.6 5.1 Consumer price index (end of period) 14.3 10.2 11.9 0.2 9.0             External sector           Exports, f.o.b. 37.3 -3.6 -34.9 17.9 56.6 Imports, f.o.b. 4.8 7.0 -3.7 18.6 13.7 Oil export volume 12.7 5.1 -2.4 -4.8 5.7 Import volume 8.1 16.1 -2.3 19.7 11.3 Terms of trade 24.6 5.6 -35.6 33.6 41.2 Nominal exchange rate 1/ -12.0 -2.6 -4.5 -14.7 ... Real exchange rate 2/ 12.7 25.1 3.4 -1.0 ...             Consolidated government operations 3/       Total revenues and grants 25.2 6.0 37.0 21.9 85.0 Petroleum revenues 30.1 6.2 94.3 13.5 102.1 Nonpetroleum revenues 19.7 5.7 -34.4 52.0 38.7 Total expenditure and net lending 15.7 33.9 112.8 2.9 35.2 Current expenditure 4/ 1.2 17.8 105.7 35.4 47.9 Capital expenditure and net lending 4/ 41.8 53.1 178.5 -20.2 19.8             Money and credit           Net domestic assets 5/ -13.8 -1.3 20.0 39.1 -22.0 Net credit to consolidated government 5/ -62.7 -22.9 17.7 43.1 -23.3 Credit to the rest of the economy 5/ 13.4 22.0 11.0 22.3 5.2 Broad money 2.6 19.7 38.5 35.0 13.6 Velocity (GDP/end of period broad money) 9.0 7.9 5.5 4.6 4.6 Savings deposit rate (percent, end of period) 10.1 6.1 6.3 5.0 ... Discount rate (percent, end of period) 13.5 13.5 13.5 18.0 ...               (In percent of GDP, unless otherwise specified) Investment and saving           Investment 14.6 17.5 29.5 25.0 23.5 Public fixed investment 5.4 7.4 26.2 18.5 15.0 Private fixed investment 9.2 10.1 3.3 6.5 8.5 Gross national savings 22.9 24.2 19.7 13.5 23.7 Public ... ... 9.4 5.0 18.9 Private ... ... 10.3 8.5 4.8             Consolidated government operations 6/       Total revenues and grants 20.3 20.8 29.7 31.8 52.0 Of which: petroleum revenue 11.2 11.5 23.4 23.3 41.5 Total expenditure and net lending 15.1 19.5 43.6 39.6 47.2 Overall balance (commitment basis) 5.2 1.2 -14.0 -7.7 4.8 Domestic primary balance 7.6 3.8 -5.8 0.8 13.6             External sector           Current account balance 8.3 6.7 -9.8 -11.4 0.2 External debt service/exports 7/ 31.0 31.5 38.6 31.7 15.6               (In millions of U.S. dollars, unless otherwise specified)           Overall balance of payments -1,900 -194 -2,997 -4,023 777 Gross international reserves (end of period) 4,161 7,222 7,107 5,441 7,802 (equivalent months of imports, c.i.f.) 3.9 6.4 6.8 4.5 5.6 Price of Nigerian oil (US$ per barrel) 20.8 19.8 12.9 16.7 24.5 Production of crude oil (million barrels per day) 2.173 2.271 2.231 2.119 2.284 Export of crude oil (million barrels per day) 1.906 2.003 1.955 1.860 1.966             Exchange rate 8/           Exchange regime 9/           Official rate (naira/US$) 9/ 21.9 21.9 21.9 ... ... Autonomous market rate (naira/US$) 9/ 82.4 82.1 86.0 ... ... Inter-bank rate (naira/US$) 9/ 80.0 75.0 86.0 98.5 ...   Sources: Nigerian authorities; and IMF staff estimates and projections. 1/ Annual average data of the representative exchange rate. 2/ Real exchange rate estimates are based on deflator of Nigeria's non-oil GDP and its import price deflator. 3/ Consists of the federal, state, and local governments, the "First Charges," the Special Funds, and the Petroleum (Special) Trust Fund (PSTF). 4/ Assumes that two-thirds of state and local government expenditure is recurrent expenditure, with the remainder being capital expenditure. 5/ In percent of broad money at the beginning of the period. 6/ The ratios of revenue and expenditure to GDP in the years before 1998 are understated because petroleum revenue and other foreign related expenditures were recorded at the appreciated official exchange rate. 7/ Debt-service payments due (after rescheduling) as a share of exports of goods and nonfactor services. 8/ The official rate was fixed to the U.S. dollar and the autonomous rate was administratively determined by the CBN using market indicators. With the abolition of the official rate and the autonomous market rate, the inter-bank rate has become the representative rate. 9/ End-of-period basis.