Press Release No. 09/274

Press Release No. 09/274
July 30, 2009

The following statement was issued today in Abuja after the conclusion of an International Monetary Fund (IMF) staff mission to Nigeria for the 2009 Article IV Consultation:

“An IMF mission led by Mr. David Nellor visited Abuja and Lagos during July 16-29, 2009 to conduct the 2009 Article IV Consultation, which involves analysis and discussion of economic policies that the IMF regularly conducts with each member country. The mission met with Dr. Mansur Muhtar, Minister of Finance; Dr. Shamsudeen Usman, Minister of National Planning; Mr. Sanusi Lamido Sanusi, Governor of the Central Bank of Nigeria (CBN); other members of the Economic Management Team; and senior officials and representatives of the private sector. Discussions focused on recent developments in the Nigerian economy, the outlook for 2009 and 2010, and the macroeconomic policy frameworks needed to support the authorities’ long-term goals of enhancing development, promoting economic diversification, and reducing poverty.

“Nigeria entered the global financial crisis from a position of strength. The reforms of recent years have paid off handsomely with oil savings, high international reserves, and a well-capitalized banking system, preventing the type of economic crisis that Nigeria has witnessed too often at the end of earlier oil price cycles. Nonetheless, the impact of the crisis has been significant. Lower oil revenues have driven the fiscal accounts and balance of payments into deficit. Oil and gas production remains constrained by security-related disruptions and activity in the non-oil sector also appears to be slowing. Nigeria’s capital markets have also been affected, but limited integration with the global financial sector has contained the impact.

“Looking forward, the IMF team emphasized the importance of developing a clear, consistent, and credible macroeconomic policy framework to help anchor expectations and reduce uncertainty, not only in this turbulent time, but also for the future. This framework would contribute significantly to providing a stronger enabling environment for private sector activity, which has a pivotal role to play in securing sustainable growth.

“For fiscal policy, the budget oil price rule continues to be the best way to anchor the fiscal stance and provide adequate space for private sector led growth while meeting public spending priorities. We see the case for an accommodative fiscal stance in 2010 because growth this year and next is expected to fall below the impressive rates of recent years. The feasibility of delivering budget support for economic activity depends critically, however, on financing and administrative capacity, with caution warranted by the exceptionally uncertain outlook for the oil market. For 2010, we expect a pickup in oil revenues that should enable some scaling back of domestic borrowing from this year’s peak levels; this is needed to allow room for a recovery in borrowing by the private sector.

“In the team’s view, and in line with our understanding of the central bank’s intentions, it is important to articulate a monetary policy framework with a well defined nominal anchor. Effective communication of the framework, and its implementation, is critical in anchoring market expectations. Recent measures to ease domestic monetary conditions are appropriate and should help to bring down interbank interest rates and raise the growth of monetary aggregates. We expect inflation to decelerate to single digit levels later this year reflecting the slowdown and credit conditions. Over time, it will be important to tackle the structural impediments that account for much of the high level of retail interest rates. Providing an enabling environment for development of a corporate bond market would also be a positive step.

“Financial stability has been sustained in the face of severe pressures related to global and domestic developments. This success reflects the well capitalized banking system and crisis related actions of the central bank. We welcome the assessment of bank balance sheets now underway, as well as the authorities’ renewed emphasis on developing a financial stability framework.

“We support the goals of Vision 2020, namely enhancing development and reducing poverty, and understand that government’s emphasis on the need to develop a sound, stable, and globally competitive economy that is much less reliant on the oil and gas sector. We look forward to the release of this report later in 2009. International experience suggests that a macroeconomic policy supportive of a competitive private sector will be critical in bringing about the desired growth and economic diversification.”