Journal Issue

IMF Executive Board Concludes 2007 Article IV Consultation with Nigeria

International Monetary Fund
Published Date:
February 2008
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On February 13, 2008 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nigeria.1


Nigeria’s economic performance has been strong since the last Article IV consultation. Output has grown strongly, inflation reduced to single digits, and the external and fiscal positions strengthened significantly. A burgeoning financial sector is supporting private activity. These gains reflect the implementation of an ambitious reform program that was guided by the homegrown Nigeria Economic Empowerment and Development Strategy (NEEDS) and supported by a Policy Support Instrument 2005–07, as well as a favorable external environment and debt relief.

Economic growth is buoyed by strong performance of the tertiary sector against the backdrop of solid agriculture growth. Oil sector output at currently about 2.2. million barrel per day of crude remains below potential due to the unrest in the Niger Delta. The main obstacle to non-oil growth is the infrastructure gap, especially the lack of electricity. The recent strong performance of the telecommunication and financial sectors demonstrate the growth potential once regulatory frameworks are established and macroeconomic conditions are favorable.

Poverty remains high despite several years of solid growth. Poverty is estimated at about 55 percent based on the 2004 household survey and development indicators are low. The authorities are making efforts to achieve the Millennium Development Goals and have established targeted programs financed, for example, through a virtual poverty fund with debt relief resources.

An oil-price-based fiscal rule was instrumental for realizing the benefits of the current oil boom and avoiding a repeat of past boom-bust cycles. This rule—centered on a prudent budget oil price—delinks fiscal spending from oil market developments and thereby helps manage domestic demand pressures in line with absorptive capacity. Oil revenue windfalls were directed into the “excess crude account” and used to build up savings and repay most external debt. The budget oil price is also an important parameter for macroeconomic planning in the recently signed federal Fiscal Responsibility Act.

Nigeria is increasingly integrating into global financial markets. Interest in naira assets has been spurred by improved macroeconomic conditions, reduced external vulnerabilities, and global liquidity developments. Hence, since 2005 bank capital has increased two fold, government securities trading five fold, and stock market capitalization four fold.

The financial sector is expanding rapidly, supporting private sector activity. A bank consolidation and recapitalization program—effective from 2006—has formed stronger banks. Banks are increasing their lending to the private sector including for larger projects, for example, in the oil sector. They are strengthening their treasury capacity to offer new products found in other emerging markets, and they are expanding into cross-border and cross-sector activities.

Inflation has been brought down to single digits, while the changes in macroeconomic conditions and the financial market bring new challenges for monetary management. With increasing capital flows, reduced inflation and a unified exchange rate, money demand is expanding and less stable. Hence, targeting of monetary aggregates is becoming less reliable and the central bank is planning to adopt inflation targeting.

Nigeria’s external position is favorable. International reserves exceed US$54 billion as of end-January 2008. The remaining external debt of US$3.3 billion at end-2007 is largely to multilateral creditors. Foreign exchange markets have improved. The introduction of the Wholesale Dutch Auction System (WDAS) in early 2006 replaced a retail DAS. Regulatory changes in 2006 led to a unification of foreign exchange markets. More recently, the interbank foreign exchange market has become more important owing to an increase in private foreign exchange flows.

Executive Board Assessment

Executive Directors commended the authorities for Nigeria’s strong macroeconomic performance during the last several years. Growth is high, inflation is in single digits, and external debt is low. The economic outlook is favorable, provided that appropriate policies are maintained.

Directors highlighted the essential role that prudent fiscal policies—in particular, the oil-price-based fiscal rule—have played in achieving macroeconomic stability. They encouraged the authorities to secure agreement with the states on a fiscal framework that would continue to delink spending from oil revenue flows, and thus protect macroeconomic stability and the positive outlook for faster growth, reducing poverty, and attaining the Millennium Development Goals.

Directors considered the government’s medium-term fiscal strategy a sound foundation for fiscal policies, and encouraged the authorities to adhere to the strategy’s deficit targets. Spending on priority areas has increased appropriately during the last few years within a prudent resource envelope and in line with absorptive capacity, providing scope to address pressing infrastructure needs. At the same time, Directors cautioned that if overall spending were to again increase significantly, medium-term prospects for non-oil growth would likely deteriorate, to the detriment of development and poverty alleviation efforts.

Directors encouraged the authorities to finalize and implement the debt management framework, including at the level of state and local governments. They supported the authorities’ intention to rely only on concessional external financing, to avoid the re-accumulation of unsustainable debt.

Directors recognized the challenges for monetary management arising from less predictable money demand, owing to the rapidly changing financial system and increased capital flows. They took note of the central bank’s plans to introduce inflation targeting at the appropriate juncture, while emphasizing the importance of improving the understanding of the inflation process and the monetary policy transmission mechanism. In this regard, they welcomed the authorities’ intention to move forward with an inflation targeting regime only once the institutional underpinnings for it are firmly in place.

Directors welcomed Nigeria’s increasing integration into global financial markets and the growth opportunities this creates. This is attributable in large part to the successful bank consolidation program, which has strengthened the banking sector. Directors encouraged the authorities to stay ahead of developments in the financial sector, and move forward with plans to further strengthen banking supervision.

Directors agreed that the balance of payments outlook is consistent with external stability, and that the projected modest current account surplus reflects an appropriate balance between Nigeria’s status as a low-income country and as an oil producer. Most Directors viewed favorably the increased flexibility in Nigeria’s exchange rate, which should help support the authorities’ monetary policy objectives.

Directors emphasized the need for ongoing structural reforms to maintain the growth momentum. The private sector environment has been strengthened, but more needs to be done. Directors encouraged the authorities to move forward to address the infrastructure gap and to strengthen further the public financial management system.

Directors welcomed the authorities’ intention to maintain a close ongoing dialogue with the Fund, possibly in the context of a second Policy Support Instrument.

Public Information Notices (PINs) form part of the IMF’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report(use the free Adobe Acrobat Reader to view this pdf file) for the YEAR Article IV Consultation with COUNTRY is also available.

Nigeria: Selected Economic and Financial Indicators, 2004–12
20042005 Act.20062007 Est.200820092010 Proj.20112012
National income and prices(annual percentage change, unless otherwise specified)
Real GDP (at 1990 factor cost)
Oil GDP3.30.5-4.5-
Non-oil GDP13.
Production of crude oil (million barrels per day)2.502.512.362.162.362.542.602.652.87
Nominal GDP at market prices (billions of naira)11,67414,73518,71020,84524,89327,67231,50036,19242,374
Nominal non-oil GDP at factor cost (billions of naira)7,1638,90711,58213,43815,66918,41921,59725,38029,833
Nominal GDP per capita (U.S. dollars)6568241,0491,1581,4271,5571,6661,7381,849
GDP deflator20.719.819.
Non-oil GDP deflator10.114.518.
Consumer price index (annual average)
Consumer price index (end of period)
Consolidated government operations(consists of federal, state, and local governments; percent of GDP)
Total revenues and grants35.438.
Of which: oil and gas revenue28.732.329.121.925.224.424.424.024.0
Total expenditure and net lending (commitment basis)
Overall balance (commitment basis)
Non-oil primary balance (percent of non-oil GDP)-23.9-27.2-28.3-27.1-25.0-25.0-25.0-25.0-25.0
Excess crude account (billions of U.S. dollars) 15.19.913.317.3
Money and credit(change in percent of broad money at the beginning of the period)
Broad money14.016.039.928.323.1
Net foreign assets62.361.868.627.150.1
Net domestic assets-49.9-45.8-28.71.3-27.0
Credit to consolidated government-42.1-17.4-34.5-31.2-33.2
Credit to the rest of the economy15.719.520.051.623.4
Treasury bill rate (percent; end of period)15.512.27.4
External sector(annual percentage change, unless otherwise specified)
Exports, f.o.b.
Oil export volume2.5-3.5-2.7-
Imports, f.o.b.-
Terms of trade20.538.018.211.419.6-7.1-0.4-2.4-2.0
Price of Nigerian oil (U.S. dollars per barrel)38.355.365.373.088.583.083.583.383.3
Nominal effective exchange rate (end of period)-2.810.4-6.0
Real effective exchange rate (end of period)4.019.7-0.5
External debt outstanding (billions of U.S. dollars)35.920.
Gross international reserves (billions of U.S. dollars)17.028.341.852.173.291.0111.8133.4158.0
(equivalent months of imports of goods and services)5.88.310.
Sources: Nigerian authorities and IMF staff estimates and projections.

Including the naira-denominated component.

Sources: Nigerian authorities and IMF staff estimates and projections.

Including the naira-denominated component.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.

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