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IMF Country Report No. 22/34

NIGERIA

SELECTED ISSUES PAPER

February 2022

This Selected Issues paper on Nigeria was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on December 14, 2021.

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Title page

NIGERIA

SELECTED ISSUES

December 14, 2021

Approved By

African Department

Contents

• THE IMPACT OF FUEL SUBSIDY REEMERGENCE IN NIGERIA

• A. Reemergence of Implicit Fuel Subsidy in Nigeria and Its Estimates

• B. The Impact of Fuel Subsidy Reemergence: Fiscal and Distributional Impact

• C. Nigeria’s Fuel Subsidy Reforms: Developments, Reversals, and Lessons

• D. Nigeria’s Conversion Plan to Natural Gas Vehicles as an Alternative

• E. Policy Recommendations

• References

• BOXES

• 1. Methodology to Calculate Implicit Fuel Subsidy

• 2. 2012 Fuel Subsidy Reform, SURE Program and its Reversal

• FIGURES

• 1. Decomposing Cost of One Liter of PMS

• 2. Estimates for Implicit Fuel Subsidies

• 3. Share of Petroleum Expenditure by Income Percentile

• 4. Share of Kerosene Expenditure by Income Percentile

• 5. PMS and Kerosene Prices

• 6. Distributional and Poverty Impact of a Fuel Price Increase

• TABLES

• 1. Fiscal Indicators and Medium-term Projections, 2020–2026

• 2. Petroleum Industry Act: Petroleum Pricing Principle

• 3. The Estimated/Illustrative Medium-term Costs of Nigeria’s Conversion Plan

• APPENDICES

• I. The Petroleum Industry Act 2021

• II. Cross-Country Experiences of Conversion to NGVs

• NIGERIA’S INFLATION PERSISTENCE—CAUSES AND POLICY RESPONSE

• A. Nigeria’s Inflation Persistence: A Historical Examination

• B. Recent Inflation: A Look Into the Pandemic Period

• C. Conclusion

• References

• FIGURES

• 1. Inflation, 1970–2018

• 2. CPI, 1970–2018

• 3. Broad Money, 1970–2018

• 4. NEER, 1973–2019

• 5. Inflation Targeting, 1973–2019

• 6. Exchange Rate, 1994/3/21–2020/8/21

• 7. CPI Drivers, 1971–2020

• 8. NEER Impact, 1971–2019

• 9. CPI Inflation, 1971–2020

• 10. Disinflation Drivers, 2000–2020

• 11. CPI Scenario, 1971–2019

• 12. CPI Inflation

• 13. CPI

• 14. Selected Food Price

• 15. M2 and M3

• 16. Decomposing Inflation: A Scenario Analysis

• 17. Inflation: Scenario Forecasts

• TABLES

• 1. CPI Simulation Scenarios

• 2. Data Summary

• SYNTHESIS OF NIGERIAN LABOR MARKET: PUTTING THE EMPHASIS ON AGRICULTURE

• A. Introduction

• B. Structure of the Nigerian Labor Force (A Snapshot)

• C. Welfare Differences Across Employment Categories

• D. How to Raise Incomes of Agriculture and Agro-Processing Workers

• E. Conclusion

• References

• BOX

• 1. Job Availability Among Young People

• FIGURES

• 1. Components of Labor Force (Based on ILO Definition, in Percent of Total)

• 2. Components of Labor Force (Compared to National Definition)

• 3. Employment and Output Indicators

• 4. Employment Developments

• 5. Unemployment Rate, COVID-19 Survey

• 6. Education Level by Type of Worker

• 7. Welfare Coefficients According to Worker Type

• 8. State Specific Welfare Coefficients

• 9. Agriculture Employment Shares-Poorest and Richest States

• TRADE DIVERSIFICATION IN NIGERIA: HOW TO GET THERE?

• A. Introduction

• B. Trade Composition and Partners

• C. Trade Agreements

• D. Export Diversification and Integration Over Time

• E. Restrictions to Trade in Nigeria

• F. Trade-Enabling Reforms

• References

• BOX

• 1. Country Examples of Successful Diversification

• FIGURES

• 1. Dependence of the Nigerian Economy on Oil

• 2. Oil and Non-Oil Goods Exports

• 3. Trade Composition and Partners

• 4. Trade with Sub-Saharan Africa

• 5. Depth of PTAs and Intra-Regional Trade

• 6. Export Diversification in Nigeria: 1962–2014

• 7. Nigeria and Peers: GVC Participation

• 8. Effects of Breaking into Limited Manufacturing

• 9. Tariffs on Raw Materials and Intermediate Goods, and Backward Integration

• 10. Non-Tariff Trade Measures

• 11. Trade Logistics in Nigeria

• 12. Impact of TFA Implementation on Trade Costs