International Monetary Fund Executive Board

Statement on behalf of the Southern Cone Chair

October 2007

1. The Nigerian economy is performing well under the Policy Support Instrument arrangement (PSI). In particular, growth in the non-oil sector has been remarkable. Even though Nigeria’s oil production decreased  significantly in 2006 and 2007, the economy continued to grow by reducing oil dependence. Among other positive outcomes, in the last two years Nigeria achieved single digit inflation and took steps to recover confidence. Considerable progress in structural reform and stronger ownership enhance Nigeria’s prospects for sustained development. At the same time, some structural reforms were not completed as scheduled. We encourage the  authorities to take advantage of the current momentum to accelerate the pace of reforms, especially towards achieving Nigeria’s Millennium Development Goals (MDGs).

2. In the fiscal sector, the authorities were able to manage a surplus, although it tends to decline due mainly to a decrease in oil revenue. We would appreciate an update on prospects for the oil sector. However, the fiscal position was supported by increases in non-oil revenues, which allowed a better non-oil primary surplus despite higher expenditures. The pickup in non-oil revenues reflects a stronger and more diversified non-oil production base. We commend the authorities for their efforts to stop the practice of carryover in capital spending at the federal level and the measures taken to improve revenue collections from the non-oil sector. Their preparedness for contingencies in meeting their fiscal targets is also welcome.

3. As the staff report points out, there are considerable challenges in the fiscal sector. Especially, spending of accumulated savings from oil revenues in the states’ accounts could jeopardize macroeconomic stability. We understand the difficulties in dealing with this issue, and commend the authorities’ efforts to tackle the risk of overspending and keep the economy on track. The authorities’ intention to develop a medium-term fiscal strategy and policy package to deal with domestic spending is a move in the right direction, and we can go along with the staff’s recommendations in this regard. We note Nigeria’s increase in domestic investment, but the authorities should take additional actions to foster private investment growth.

4. Broad money growth remained within projections under the PSI. On  average, reserve money was above program expectations, reflecting the right approach adopted by the Central Bank of Nigeria. As a result, inflation was successfully reduced to a single digit in 2006 and 2007. We concur with the staff’s recommendations on remaining vigilant to avoid raising inflationary pressures. We also recommend a careful evaluation before adopting an inflation targeting framework. At the same time, we note the authorities’ willingness to subordinate the exchange rate to an inflation objective. We consider the increasing importance of the interbank foreign exchange market as a positive step. We would appreciate an update on Nigeria’s exchange rate policy and prospects.

5. According to the explanation on the discrepancy in the definition of reserve money between the staff and the authorities, using the current  indicator does not affect outcomes, so we support granting the requested waiver. We would appreciate the staff’s comments on whether this discrepancy would be ruled out in case of a successor PSI arrangement with Nigeria. Moreover, we would welcome the staff’s comments on Nigeria’s improvements regarding monetary data.

6. The decline in Nigeria’s external debt after the Paris and London Club negotiations is another remarkable achievement. The external debt-to-GDP ratio reached 2.6 percent in 2007, and the prospects for the medium and long term are favorable. We are pleased to learn that the authorities used the debt-service savings for increasing spending on poverty reduction.

7. Mr. Gakunu and Mr. Upkong mention in their useful Buff statement that Nigeria’s experience under the PSI underscores the need for flexibility. They also underscore that it would be necessary to “correct some inadequacies identified in the course of its implementation, in particular the wide disparities in the number of assessment criteria (AC) and structural benchmarks (SBs) an implementing country opts for and accepts; inflexible, stipulated review schedules; and lack of a yardstick for measuring success of the PSI program”. We would appreciate the staff’s comments in this regard, since the authorities may wish to engage in a successor PSI.

8. Finally, we support completion of the PSI review and the requested waivers, given the authorities’ commitment to putting in place the necessary corrective actions. With these remarks, we wish the authorities success in their endeavors.


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