Prepared by Ulrich Bartsch, Thomas Baunsgaard, Jeanne Gobat, and Karen Ongley.
The program period covered July 2000 through June 2001.
Oil revenue was projected to increase by about 15 percentage points of GDP over the program period.
Federal government spending was increased by about 20 percent.
Directors stressed that this was a “second-best” solution (BUFF/00/133, 8/11/00).
In 1999, the authorities abolished the preferential official rate and the CBN moved to daily sales to the interbank foreign exchange market (IFEM). However, these transactions remained subject to significant constraints. Among others, banks acted solely as agents for their retail customers. Banks were allowed to deal in foreign exchange amongst themselves, but could not use foreign exchange obtained for their customers from the CBN.
Prior to the approval of the SBA-supported program, the government had already taken several measures to improve governance practices—namely the adoption of an anticorruption bill and a comprehensive progress report on the government’s anticorruption campaign (including investigations of past abuses).
The budget implied an average tariff of 12 percent in 2000 (compared to 24 percent in 1999), although effective protection on some goods may have increased.
NEMCO was to be chaired by the president, with the vice president serving as alternate, and members included the Minister of Finance, the Minister of National Planning, the Special Advisor to the President on Petroleum, the Governor of CBN, the Secretary to the Government, and other key economic policy makers.
The Supreme Court ruled that the federal government could not retain revenue destined for the subnational governments.
The CBN was concerned about the impact of high interest rates on the real economy and the already weak banking system.
With excessive fiscal spending spilling over to the foreign exchange market, the CBN reverted to the system of selling foreign exchange in the IFEM at a predetermined rate. The IFEM and the “open” interbank market (in which banks trade freely amongst themselves) segmented, giving rise to a multiple currency practice. The two markets were merged in December 2000, but transferability of IFEM funds was prohibited again in February 2001.
This was neither a staff-monitored program nor formal Fund arrangement, but a more loosely defined framework for monitoring economic performance.
As a means to tighten control over capital spending, the authorities lowered the threshold for payments requiring certification by the Budget Monitoring and Price Intelligence Unit (BMPIU) to N100 million at end-2001, and then to N1 million in January 2002. Payments to contractors would also be contingent on both the BMPIU and the spending ministry certifying the satisfactory completion of the work. The government also committed to publish in full value-for-money audits of expenditures incurred in the second half of 2000.
In particular, the government’s attempts to increase the retail price for fuel were successfully thwarted by strikes coordinated by labor unions.
General weaknesses in public expenditure management and control at the subnational level was compounded by pent-up spending needs following decades of underfunding.
The statutory limit on the government’s overdraft facility with the CBN is set at 12½ percent of current-year expected revenue. Typically the government clears the year-end balance through issuing 91-day treasury bills in the primary market, with the majority purchased by the CBN.
Arguably, the structural conditions went beyond what might be considered ideal under the subsequently introduced guidelines for streamlining structural conditionality (subject to the extent of the World Bank’s involvement and conditions in areas of overlap).