Nigeria
2012 Article IV Consultation
Author:
International Monetary Fund. African Dept.
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The overarching policy challenge facing Nigeria is to reduce widespread poverty and unemployment. Macroeconomic performance was broadly positive, underpinned by buoyant international oil prices and prudent fiscal and monetary policies. The fiscal targets and the medium-term fiscal consolidation plan are consistent with supporting macroeconomic stability and creating fiscal space for much needed additional investment and social spending. Non-oil revenues need to be mobilized by moving quickly to improve tax administration in line with technical assistance (TA) recommendations. Planned structural reforms can substantially boost prospects for inclusive growth.

Abstract

The overarching policy challenge facing Nigeria is to reduce widespread poverty and unemployment. Macroeconomic performance was broadly positive, underpinned by buoyant international oil prices and prudent fiscal and monetary policies. The fiscal targets and the medium-term fiscal consolidation plan are consistent with supporting macroeconomic stability and creating fiscal space for much needed additional investment and social spending. Non-oil revenues need to be mobilized by moving quickly to improve tax administration in line with technical assistance (TA) recommendations. Planned structural reforms can substantially boost prospects for inclusive growth.

Context

1. The overarching policy challenge facing Nigeria is to make substantial inroads in reducing widespread poverty and unemployment. Strong growth, maintained even during the global financial crisis, has been one of the highest in the region over the last decade. However, with growth mainly concentrated in the large informal economy, low quality government spending, and ongoing governance challenges, over 60 percent of the population still live below the poverty line; the official unemployment rate has risen steadily from 15 percent in 2003 to 24 percent in 2011;1 and Nigeria places 157 out of 187 on the 2011 Human Development Index. (Table 1). The authorities have laid out a comprehensive plan, the Transformation Agenda, for achieving strong inclusive growth.2 These plans were supported by Directors at the time of the 2011 Article IV Consultation and, over the past year, the authorities’ policies have been generally in line with Directors’ recommendations. The 2012 consultation discussions focused on the implementation of the Transformation Agenda thus far, including areas where revisions have been or may need to be made.

Table 1.

Nigeria: Millennium Development Goals

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Source: World Bank’s World Development Indicators.

Number in the 2005 column refers to 2004.

Recent Developments and Outlook

A. Recent Economic and Policy Developments

2. In 2012, macroeconomic performance has been broadly positive, underpinned by buoyant international oil prices and prudent fiscal and monetary policies. Real GDP growth decelerated slightly to 6.3 percent, reflecting the impact of the nationwide strike in early 2012, floods in Q4 of 2012, and continued security problems in the north, which affected agriculture and commerce (Table 2). Inflation increased from 10.3 percent at end-2011 to 12.3 percent (y-o-y) in November 2012, owing mainly to the adjustment of administrative prices of fuel and electricity; large increases in import tariffs on rice and wheat; and the impact of floods in Q3 (Figure 1). The external position has strengthened and international reserves rose from $32.6 billion at end-2011 to almost $46 billion in November 2012 (5 ½ months of prospective imports), helped by sustained high oil prices, stricter administration of the gasoline subsidy regime, and strong portfolio inflows (Table 3 and Figure 2).

Table 2.

Nigeria: Selected Economic and Financial Indicators, 2009–2016

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Sources: Nigerian authorities and IMF staff estimates and projections.

Large errors and omissions in the balance of payments suggest that the current account surplus is overestimated by a significant (but unknown) amount.

The budget oil price is US$72 a barrel for 2012, and projected to be US$78 for 2013 and US$75 a barrel thereafter.

For 2012, includes one-off payment of about 1 percent of GDP to settle arrears accrued in 2011.

Figure 1.
Figure 1.

Nigeria: Comparative Inflation and Growth Performance, 2003–2012

Citation: IMF Staff Country Reports 2013, 116; 10.5089/9781484311271.002.A001

Sources: Nigerian authorities and staff estimates.
Table 3.

Nigeria: Balance of Payments, 2010–16

(Billions of U.S. dollars, unless otherwise specified)

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

Includes capital transfers.

Nominal public sector short- and long-term debt, end of period.

Figure 2.
Figure 2.

Nigeria: External and Exchange Rate Developments, 2007–2012

Citation: IMF Staff Country Reports 2013, 116; 10.5089/9781484311271.002.A001

Sources: Nigerian authorities and staff estimates.1/ Inflows are also induced by JPMorgan’s decision to include Nigeria’s local currency bonds to its EM indices since October 2012. Barclays will initiate similar action in March 2013.

3. Fiscal consolidation is taking place and fiscal buffers are being rebuilt. Expenditure restraint, including the reduction in the gasoline subsidy at the beginning of 2012, is expected to have reduced the non-oil primary fiscal deficit (NOPD) of the consolidated government from 36 percent in 2011 to 30½ percent of non-oil GDP in 2012 (Figure 3). The overall fiscal balance is also expected to have improved slightly, while the combined balances of the Excess Crude Account and Sovereign Wealth Fund reached US$9.7 billion at end-2012, up from US$4.6 billion at end-2011 (Table 4).

Figure 3.
Figure 3.

Nigeria: Fiscal Developments, 2004–2012

Citation: IMF Staff Country Reports 2013, 116; 10.5089/9781484311271.002.A001

Sources: Nigerian authorities and staff estimates.
Table 4a.

Nigeria: Federal Government Operations, 2010–16

(Billions of naira)

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

Includes earmarked spending for National Judicial Council, Universal Basic Education, Niger Delta Development Corporation, and Multi-Year Tariff Order subsidy.

Includes proceeds from privatization and sales of government properties.

For 2013–15, the budget oil prices are assumed as envisioned in the authorities’ MTEF (as of November, 2012).

Table 4b.

Nigeria: Consolidated Government, 2010–16

(Billions of naira)

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

Includes spending of customs levies and education tax; transfers to FIRS and NCS; spending from the ecology, stabilization, development of natural resources accounts; and FCT spending.

Includes projects not included in the FGN budget, even though funds are on lent by FGN.

Equal to the change in net claims on the consolidated government in the monetary survey, minus the change in state and local government deposits that are part of broad money.

Table 4c.

Nigeria. Government Operations, 2010–16

(Percent of GDP)

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Sources: Nigerian authorities; and IMF staff estimates and projections.
4d.

Nigeria: State and Local Governments, 2011–16

(Percent of GDP)

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

Expenditure is equal to the sum of revenue and financing (net claims on SLGs from monetary survey).

By construct, overall balance matches the amount of financing.

4e.

Nigeria: Extrabudgetary Funds (including ECA/SWF), 2011—15

(Percent of GDP)

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

Includes federal government extrabudgetary funds (ecology, stabilization, development of natural resources, FCT), collection costs for FIRS and NCS, custom levies, and education tax.

Federal government extrabudgetary funds are ecology, stabilization, development of natural resources, and FCT.

Collection cost for FIRS is 4% on CIT and VAT, and for NCS is 7% on excise and customs.

4. Monetary policy remained tight in 2012 and there was continued improvement in the health of the financial sector. The CBN maintained its policy interest corridor (12 percent +/- 200 basis points) but, in July, raised the cash reserve requirement for banks from 8 percent to 12 percent and also lowered banks’ allowable open foreign exchange position from 3 percent to 1 percent of capital. These actions helped keep money and credit growth under control (Figure 4) and supported a nominal and real appreciation of the naira. Financial soundness indicators have improved markedly since 2011, reflecting the successful recovery from the 2009 banking crisis (Table 6).

Figure 4.
Figure 4.

Nigeria: Monetary and Financial Developments, 2007–2012

Citation: IMF Staff Country Reports 2013, 116; 10.5089/9781484311271.002.A001

Sources: Nigerian authorities and staff estimates.
Table 5a.

Nigeria: Central Bank of Nigeria (CBN) Analytical Balance Sheet, 2010–15

(Billions of Naira)

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

Long-term liabilities are included in other items net.

The SLGs share of the ECA is included under the Net Claims on the FGN, as the FGN is the signatory of the ECA in the CBN. It is assumed that the domestic portion of sovereign wealth fund will have similar accounting treatment.

Table 5b.

Nigeria: Monetary Survey, 2010–15

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

The SLGs share of the ECA is included under the Net Claims on the FGN, as the FGN is the signatory of the ECA in the CBN. It is assumed that the domestic portion of sovereign wealth fund will have similar accounting treatment.