Nigeria: First Review Under the Policy Support Instrument

This First Review Under the Policy Support Instrument (PSI) for Nigeria reports that structural reforms are proceeding in line with the National Economic Empowerment and Development Strategy. The authorities’ commitments under the PSI primary objectives of the economic reform program include entrenching macroeconomic stability, strengthening public financial management, and reducing the costs of doing business. The Central Bank of Nigeria has developed plans to invest some of its international reserves in higher yield financial assets, and allow domestic banks to bid to be custodians for the investments.

Abstract

This First Review Under the Policy Support Instrument (PSI) for Nigeria reports that structural reforms are proceeding in line with the National Economic Empowerment and Development Strategy. The authorities’ commitments under the PSI primary objectives of the economic reform program include entrenching macroeconomic stability, strengthening public financial management, and reducing the costs of doing business. The Central Bank of Nigeria has developed plans to invest some of its international reserves in higher yield financial assets, and allow domestic banks to bid to be custodians for the investments.

I. Recent Economic Developments and Performance under the PSI

1. The authorities’ successful implementation of their homegrown economic reform agenda in 2004 and 2005 has created new opportunities for the Nigerian economy. The reforms have improved the environment for private sector growth and investment, as evidenced by the BB- rating that two major international rating agencies (Fitch and Standard & Poor’s) awarded to Nigeria in early 2006.

Nigeria: Macroeconomic Indicators 2004-05

(Annual percentage changes, unless otherwise specified)

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Sources: Nigerian authorities and IMF staff estimates.

2. Macroeconomic developments in 2005 were dominated by strong economic growth. Preliminary data suggest that GDP grew by almost 7 percent in 2005, driven by strong growth in the non-oil sector (8 percent). The agricultural sector, which accounts for more than half of non-oil GDP and is key for employment, grew by 7 percent. Double-digit growth rates were recorded in various services, including retail and wholesale trade and communications. All end-December quantitative targets under the PSI were met (Table 7).

Table 1.

Nigeria: Selected Economic and Financial Indicators, 2003–09

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Sources: Nigerian authorities; and Fund staff estimates and projections.

Consists of the federal, state, and local governments.

Assumes that two-thirds of state and local government expenditure is recurrent expenditure.

Change in percent of broad money at the beginning of the period.

Year-on-year change in percent.

Table 2a.

Nigeria: Fiscal Operations (Cash Basis), 2003–09

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Sources: Nigerian authorities; and Fund staff estimates and projections.
Table 2b.

Nigeria: Fiscal Accounts, Federal Government Budget, 2003-06

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Table 2b.

Nigeria: Fiscal Accounts, Federal Government Budget, 2003-06 (continued)

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Source: Authorities; and Fund staff estimates
Table 3a.

Nigeria: CBN Analytical Quarterly Balance Sheet, 2003-06

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Sources: Nigerian authorities and staff estimates and projections.

CBN presents long-term liabilities in other items net.

Includes the windfall oil revenue savings by subnational governments and extrabudgetary funds.

Table 3b.

Nigeria: Monetary Survey, 2003–06

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Sources: Nigerian authorities and staff estimates and projections.

Includes the windfall oil revenue savings by subnational governments and extrabudgetary funds.