Nigeria: Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix analyzes the key challenges facing Nigeria. The paper discusses issues and prospects in the oil and gas sector, provides basic information on the sector, and highlights the importance of strengthened governance. It describes the fiscal policy rules, which presents options for Nigeria based on the experience of other countries. The paper highlights that implementing a fiscal policy rule is identified as one possible way for Nigeria to stabilize public expenditures in the face of volatile oil prices.

Abstract

This Selected Issues paper and Statistical Appendix analyzes the key challenges facing Nigeria. The paper discusses issues and prospects in the oil and gas sector, provides basic information on the sector, and highlights the importance of strengthened governance. It describes the fiscal policy rules, which presents options for Nigeria based on the experience of other countries. The paper highlights that implementing a fiscal policy rule is identified as one possible way for Nigeria to stabilize public expenditures in the face of volatile oil prices.

I. Introduction

1. This selected issues paper and statistical appendix provide background information to the staff report on the 2002 Article IV consultation discussions with Nigeria (SM/02/361/11/25/02).

2. The staff report discusses several medium-term challenges facing Nigeria. Critical among these are the need to restore macroeconomic stability through prudent fiscal, monetary and external policies, the development of a fiscal framework that allows for predictable and stable fiscal policies, and overall strengthening of the budget formulation process, accountability and transparency. Addressing these challenges will provide a basis for Nigeria to reduce its dependency on the oil sector and engender growth in the non-oil economy.

3. The topics in this paper were selected to focus on those key challenges facing Nigeria. Given the dependence of Nigeria on the oil and gas sector, the first section discusses issues and prospects in the oil and gas sector. It provides basic information on the sector and highlights the importance of strengthened governance. This section is followed by a discussion on fiscal policy rules, which presents options for Nigeria based on the experience of other countries. Implementing a fiscal policy rule is identified as one possible way for Nigeria to stabilize public expenditures in the face of volatile oil prices. Given the complications that a federal system can create for overall macroeconomic management, this section is complemented by another, which discusses issues in intergovernmental finance in Nigeria.

4. Notwithstanding the central challenge of designing appropriate fiscal policies in Nigeria, the effective implementation of complementary monetary policies is crucial both for short-run and medium-term stability. The section on monetary policy discusses some of the main challenges in carrying out monetary operations, including developing indirect instruments and strengthening the overall intermediation process of the banking system.

5. The final sections review developments in Nigeria’s trade policy regime and presents a debt sustainability analyses. Trade policy reform provides an important vehicle for export growth in Nigeria, and when carefully implemented can contribute to the growth in the non-oil economy. Finally, one of the legacies of the past in Nigeria is a significant external debt burden. The section on debt sustainability analysis discusses some rescheduling scenarios, which would place external debt and debt service on a manageable and sustainable path.