Statement by Mr. Kingsley Obiora, Alternate Executive Director for Nigeria, and Mr. Osana Jackson Odonye, Senior Advisor to the Executive Director March 27, 2019

2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nigeria


2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nigeria

On behalf of the Nigerian authorities, we appreciate the continued engagement with the Fund and the constructive discussions with staff during the 2019 Article IV Consultation. The authorities welcome staff’s analysis, assessment and advice but wish that some of the economic outcomes reported therein were better attributed to the policies of the government.

With the 2019 General Elections over, and the incumbent President re-elected, the authorities are now prioritizing the accelerated implementation of the country’s Economic Recovery and Growth Plan (ERGP), which underpinned the response to the 2016 recession, and engendered a relatively-quick recovery. Under the ERGP, reform priorities include intensifying non-oil revenue mobilization, completing power sector reforms, accelerating anti-corruption efforts, improving the business environment, and fast-tracking job-creation efforts to boost inclusive growth. The authorities are convinced that these reforms would provide the impetus needed to improve economic growth in the near- to medium-term.

Economic Developments and Prospects

Economic activity expanded by 1.9 percent in 2018 compared with 0.8 percent in 2017, mainly driven by improvements in manufacturing and services as well as sustained production of crude oil. In 2019, the government’s scheduled investments in the oil sector are expected to further boost oil production. At the same time, agricultural production will pick up significantly in light of diminishing clashes between farmers and herders. The authorities are also implementing various schemes and policies to diversify the sources of growth to include sectors such as manufacturing, solid minerals, construction, and real estate. With respect to solid minerals, for example, the government has been integrating artisanal miners into the formal sector, clarifying the tax and regulatory frameworks for mining activities, improving the archiving of geo-data, harmonizing their format, and promoting their dissemination. These developments are expected to make for much brighter economic prospects for the country.

Reflecting sustained tight monetary policy, declining food prices, and stability in the exchange rate, inflationary pressures continued decelerating from its peak of 18.5 percent at end-2016. As at December 2018, the country’s inflation rate stood at 11.4 percent, down from 15.1 percent in January 2018. More recent performance indicates headline inflation has further declined to 11.3 percent in February 2019, while core inflation is in single digit levels at 9.8 percent.

Foreign exchange (FX) reserves closed the year at about $42.5 billion, exceeding 7 months of imports. The latest data from the Central Bank of Nigeria (CBN) indicate that the reserves have grown further to $44.92 billion as at March 20, 2019. The improvement in external reserves largely benefitted from recovery in oil prices, increased local sourcing of raw materials and intermediate inputs by manufacturers, as well as sustained inflows of foreign exchange at the Investor and Exporter (I&E) window.

Fiscal Policy

The authorities remain committed to a prudent fiscal policy, which creates room for priority expenditures, improves non-oil revenue, and manages public debt in a sustainable manner. In 2018, the estimated Federal Government (FG) deficit improved slightly to 4 percent of GDP from 4.1 percent the previous year. With the expected improvement in fiscal outturns, the authorities have projected a decline in the deficit to 2.3 percent of GDP in 2019, having accounted for the recently-approved increase in the minimum wage. In line with government’s Medium-Term Expenditure Framework (MTEF), revenue is expected to increase to 4.8 percent of GDP in 2019, mainly attributable to higher oil receipts and gains from divestment of oil assets.

For non-oil revenue, the authorities have launched the Strategic Revenue Growth Initiative (SRGI), a comprehensive plan for tax reforms. The SRGI will be overseen by a high- powered steering committee under the office of the Minister of Finance, to guide reforms and monitor progress. The authorities have also embraced a number of policy initiatives, including introducing a VAT with full crediting of input tax, increased compliance monitoring of tax incentives, and broad-based use of excises. On tax administration, notable accomplishments include creating taxpayers’ awareness, increased use of Integrated Tax Administration IT System (ITAS), increased frequency of tax audits, and greater use of technology in the collection process. These measures are part of the efforts to address the weaknesses identified in the recent Tax Administration Diagnostic Assessment Tools (TADAT). In the near term, they plan to improve the taxpayer register, develop a filing and arrears management system, and establish an automated interface between the Federal Inland Revenue Service (FIRS) and the Treasury Single Account (TSA).

The authorities concur with staff on the importance of stronger coordination amongst relevant government agencies for more effective cash management. In this respect, they are already revamping the existing coordination structure, which includes the Office of the Accountant General of the Federation, the Debt Management Office and the Central Bank of Nigeria (CBN). In their continued quest to increase the net benefits of public debt, the authorities adopted the strategy of retiring maturing T-Bills with Eurobond proceeds.

Furthermore, they are prioritizing concessional loans over bonds to reduce rising interest payments.

Monetary Policy

Monetary policy is delivering as envisaged in the areas of exchange rate, the FX market, inflation, and portfolio flows. The Bank’s tight monetary policy stance is taming inflation as stated earlier. Since the end of the general elections just about 4 weeks ago, portfolio investments into the country have risen by $6 billion, a further testament to continuing investors’ confidence in the economy. Factoring this confidence, as well as the existence of ample reserves, staff’s concern about capital flow reversals may not be appropriate.

In a boost to Monetary Policy formulation and communication, the government acted promptly to replace retiring members of the Monetary Policy Committee (MPC) with eminent Economists, drawn from both the public and private sectors, a move that has led to more expansive consideration of policy options by the Committee and better communication of monetary policy decisions.

With respect to the Foreign Exchange market, the CBN remains committed to the unification of exchange rates in the medium-term. There has already been considerable convergence of rates in the market, mostly reflecting strong oversight on the market, adequate liquidity levels, and market signaling from the I&E window. In a significant additional step towards unification, the CBN recently reduced the $500,000 daily sales to banks to $100,000 at the N305/US$1 rate. While agreeing that strengthening external buffers is essential for the CBN, the authorities differ with staff’s advice to discontinue limits on the use of naira-denominated debit or credit cards overseas. Buttressing their position, the authorities argue that since the local currency is neither convertible nor tradable, an unrestricted use of these local-currency cards abroad would exert undue pressure on FX reserves, and on the exchange rate.

Financial Sector

The banking sector has significantly increased its resilience in recent years, with much stronger levels of capitalization. In addition, NPLs have fallen from 16.2 percent in February 2018 to 11.7 percent at end-2018. This outcome was partly driven by pick-up in economic growth and sale of NPLs to private asset management companies (AMCs), as well as higher oil prices, which enabled affected debtors to service their loans. Solvency ratios improved markedly by 5 percentage points to 15.3 percent at end-2018, with the introduction of three- year transitional arrangements for IFRS9. Bank profitability has remained relatively unchanged with fees moderating the declining net interest margins. Staff’s stress tests confirmed that large banks’ resilience to credit and concentration risks have improved.

On sustaining financial stability, the CBN is intensifying several initiatives such as the completion of IFRS 9 implementation and a move by most banks to reflect an exchange rate closer to the market in their books. It has also taken initiatives to strengthen risk-based supervision through onsite reviews and the initiation of Basel’s Internal Capital Adequacy Assessment Program (ICAAP), providing a comprehensive assessment of banks’ capital needs and risk profiles. Going forward, it will assess banks on requirements of Basel III, including on liquidity and leverage ratios from the second half of 2019.

Structural Reforms

The authorities have continued to make progress on implementing structural reforms in line with the ERGP goals. Notable achievements include improved monitoring of State-Owned Enterprises (SOEs) to curtail fiscal risks, and initiation of new funding requirements for joint ventures in the oil sector. These have enhanced timely payments for cost recovery and avoided new government arrears. The government is also prioritizing the completion of the new petroleum legislation and passage of legislative reforms aimed at strengthening the SOE framework. For the non-oil SOEs, the governance reforms include closer monitoring of revenue earnings, improved efficiency of collections, and better tracking of remittance of operational surpluses to the government.

Owing to the establishment of Credit Reference Bureaus and a modern Online Collateral Registry, the business environment has improved significantly, especially for small- and medium-scale enterprises. Building on this success, the government plans to legislate and enforce deadlines for the issuance of government licenses and permits, as well as simplify customs, immigration, investment, and trade procedures. A major structural reform is also underway with the implementation of the Power Sector Recovery Program (PSRP). Given that Nigeria’s Power Sector is largely owned by private companies, the authorities have been implementing measures to improve the financial viability of operators, strengthen contract enforcement and sector governance, and de-risk the sector for further investments. Partly due to these efforts, Power Generation reached a milestone of 7,000 Megawatts as of December 2018.

Human Capital Development

In the area of human capital development, the government has prioritized financing for high impact human capital interventions to address the low ranking of Nigeria on the recently published World Bank Human Capital Index. They have also taken active steps to institutionalize human capital development through high level advocacy and engagement. To underscore the importance of this to the government, these efforts are being led by a high- level Working Group, chaired by the Vice President.


There is ample resolve and commitment to accelerate implementation of Nigeria’s Economic Recovery and Growth Plan (ERGP), aimed at ensuring sustainable, inclusive growth. The authorities are determined to pursue policies that would focus on growth-friendly fiscal measures, market-sensitive monetary actions, and investment-boosting structural reforms.

Attention will also be maintained on reducing inflation, containing vulnerabilities in the banking sector, and sustaining key structural reforms. The authorities value Fund advice in guiding economic policies and technical assistance in improving economic outcomes. They look forward to continuing these engagements, which have borne favorable outcomes for the country.