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IMF Country Report No. 15/84
NIGERIA
2014 ARTICLE IV CONSULTATION—STAFF REPORT; PRESS RELEASE; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR NIGERIA
March 2015
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2014 Article IV consultation with Nigeria, the following documents have been released and are included in this package:
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 27, 2015, following discussions that ended on December 15, 2014, with the officials of Nigeria on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 17, 2015.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
An Informational Annex prepared by the IMF.
A Supplement of February 24, 2015 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during its February 27, 2015 consideration of the staff report that concluded the Article IV consultation with Nigeria.
A Statement by the Executive Director for Nigeria.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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© 2015 International Monetary Fund
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NIGERIA
STAFF REPORT FOR THE 2014 ARTICLE IV CONSULTATION
February 17, 2015
Key Issues
Context. Nigeria has a large and diverse economy that has achieved a decade of strong growth, averaging 6.8 percent a year. However, Nigeria still lags peers in critical infrastructure and has high rates of poverty and income inequality. The sharp decline in oil prices in the second half of 2014 underscores the challenging but compelling need to address remaining development challenges.
Outlook and Risks. In 2015, oil exports are projected to decline by 6 percentage points (ppts) of GDP and oil revenue by 2.4 ppts of GDP from 2014 levels, with a reduction in the current account balance and loss in international reserves. A sharp contraction in public investment and domestic demand is projected to reduce growth to 4¾ percent, with inflation increasing to 11½ percent from the effects of exchange rate depreciation. These developments also increase risks to the banking sector, given its significant exposure to the oil industry and the potential for capital outflows. The outlook is subject to significant risks, both external (changes in oil market developments and investor sentiment) and domestic (uncertainty from the election outcome and security situation).
Managing adjustment. The authorities adopted bold policy actions in November 2014—an adjustment in the official foreign exchange rate and band, tightening of monetary policy rates, and spending cuts totaling 1.7 ppts of GDP in the proposed 2015 budget. As the oil price fall appears more permanent than temporary, additional policies will be needed, including greater flexibility in the exchange rate and further fiscal adjustment, particularly in state and local governments. It will be essential to ensure that fiscal adjustment is achieved without endangering the delivery of critical public services.
Boosting inclusive growth. The authorities have a comprehensive economic transformation agenda, designed to boost growth, create new job opportunities, and reduce poverty. With recent oil market developments, however, non-oil revenue mobilization (including an increase in VAT rate) is more urgent than ever and is critical for creating the fiscal space necessary to implement the transformation agenda. Further, the national infrastructure investment plan needs careful prioritization, as financing the entire plan would be a challenge, even with more supportive financial conditions and good progress in financial inclusion.
Approved By
David Robinson and Ranil Salgado
Discussions took place in Abuja and Lagos, December 1–15, 2014. The staff comprised Mr. Leon (head), Mr. El Said, Ms. Saito (all AFR), Ms. Holland (MCM), Mr. Soto (FAD), Mr. Swiston (SPR), and Mr. Ogiji (RR Office). Mr. Uwatt (OED) also participated in the discussions.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
OUTLOOK, RISKS, AND SPILLOVERS
POLICIES
A. Addressing Near-Term Vulnerabilities
B. Medium- to Long-Term Growth Agenda
STAFF APPRAISAL
BOXES
1. Risk Assessment Matrix (RAM)
2. Quasi-Fiscal Activities—Subsidized Credit from Public Financial Institutions
3. Improving External Sector Data
FIGURES
1. GDP by Sector, 2013
2. Consumption-led Growth, 2011-13
3. Investment to GDP Ratio, 2013
4. Public Investment Effectiveness Index
5. CPI Inflation
6. Capital Adequacy Ratio (by bank type)
7. Liquidity Ratio (by bank type)
8. Profitability of Large Nigerian Banks
9. Lending by Sector
10. Interest Rates
11. Balance of Payments
12. Capital and Financial Accounts
13. Oil Production
14. Oil Price
15. Selected Markets: MSCI Index. 2012–15
16. Contributions to Reserve Adequacy Metric
17. Exchange Rates and CBN Forex Sales 2013–15
18. IFEM Exchange Rates vis-à-vis $,Euro
19. Exports
TABLES
1. Millennium Development Goals, 1990–2012
2. Selected Economic and Financial Indicators, 2012–19
3. Balance of Payments, 2012–17
4a. Federal Government Operations, 2012–17
4b. Nigeria: Consolidated Government, 2012–17
4c. Government Operations, 2012–17
4d. State and Local Governments, 2012–17
4e. Extrabudgetary Funds (including ECA/SWF), 2012–17
5a. Central Bank of Nigeria (CBN) Analytical Balance Sheet, 2012–17
5b. Monetary Survey, 2012–17
6. Financial Soundness Indicators, 2009-14
ANNEXES
1. Benchmarking: Moving Forward but with Challenges
2. IMF Surveillance: Follow-up on Policy
3. Update on Financial Sector Assessment Program (FSAP)
4. External Sector Assessment
5. Debt Portfolio Analysis
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NIGERIA
STAFF REPORT FOR THE 2014 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
February 13, 2015
Approved By
Ranil Salgado and David Robinson (IMF) and John Panzer (IDA)
Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA)
Nigeria remains at a low risk of public external debt distress under both the baseline macroeconomic assumptions and in stress scenarios.1 This holds even with a baseline scenario incorporating the sharp decline in oil prices in late 2014. Overall public debt is at a low risk of distress under the baseline, with implementation of the authorities’ fiscal consolidation plans important for maintaining public debt sustainability. Stress scenarios suggest that a permanent shock to economic growth or a further decline in global oil prices would put pressure on the debt ratio unless offsetting measures were taken. In particular, the public debt service-to-revenue ratio is high, underlining the importance of mobilizing revenues. Data deficiencies suggest caution, especially regarding large errors and omissions in the balance of payments (possibly reflecting an underestimation of current account debit transactions)2 which lead to large observed residuals in the external DSA presentation.
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STAFF REPORT FOR THE 2014 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
NIGERIA
February 13, 2015
Prepared By
The African Department
Contents
FUND RELATIONS
JOINT WORLD BANK-IMF WORK PROGRAM, 2014–15
STATISTICAL ISSUES
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NIGERIA
STAFF REPORT FOR THE 2014 ARTICLE IV CONSULTATION—SUPPLEMENTARY INFORMATION
February 24, 2015
Prepared By
African Department
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Press Release No. 15/91
FOR IMMEDIATE RELEASE
March 4, 2015
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