1. This statement reports on developments since the staff report for the third review under the Policy Support Instrument was prepared. The thrust of the staff appraisal is not changed by these developments.
2. The monetary program remains broadly on-track. Broad money growth remained below projections, though currency issued was higher-than-expected in April and credit to the private sector rose further. Money data were provided in line with program understandings. Reconciliation of different data sources is ongoing and supported through Fund technical assistance. In May, headline inflation was 4.7 percent year-on-year and core inflation fell to 2.8 percent year-on-year.
3. The authorities undertook measures to preserve the quality of public spending through the political transition. The allocation of revenues to the states was suspended temporarily in May in advance of the handover to new state administrations. New authorizations of capital spending at the federal level were brought to a virtual standstill in April and May. Nonetheless, the staff estimates that the non-oil primary deficit of the federal government was above its April path by about 0.3 percent of non-oil GDP due to higher capital spending utilization early in the year.
4. Key economic legislation was enacted. The Fiscal Responsibility Bill was approved by both Houses and is expected to be signed into law. The Nigeria Extractive Industries Transparency Initiative (NEITI), the public procurement, the central bank, the VAT acts, among others, were signed into law.
5. Actions on taxes and fuel prices are under discussion. The outgoing administration doubled the VAT rate to 10 percent—an important step for harmonization with ECOWAS—and increased gasoline prices by 15 percent. In response to mounting pressures led by labor groups, the government decided to partially roll back these increases. The price of kerosene is to be reduced to its original levels, while the recent increase in gasoline prices is to be halved. The increase in VAT rates is to be rolled back.
6. Progress was made on structural reforms. The sale of 51 percent of the government’s stakes in the Port Harcourt and Kaduna oil refineries (a June-2006 benchmark) was completed. As regards assessment criteria for the third review, a draft framework for consolidated supervision (December-2006 assessment criterion) was produced and is awaiting the consideration and approval of the Executive Committee on Supervision. The selection for the management contract for the Transmission Company of Nigeria has been made and the contract can be awarded once a “no objection” statement is received from the World Bank. Bids for conducting the 2006 audit of the oil and gas sector (March-2007 assessment criterion) have been received and are being reviewed.
7. A draft National Economic Empowerment and Development Strategy for the period 2008-2011 (NEEDS 2) was completed. The draft of this key medium-term policy document (Nigeria’s PRSP) involved a broad process of consultation, and should provide useful input into designing the new government’s medium-term policies.