Abstract
IMF Country Report No. 23/93
Copyright Page
IMF Country Report No. 23/93
February 2023
NIGERIA
2022 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; STAFF STATEMENT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR NIGERIA
In the context of the article IV consultation, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its February 6, 2023, consideration of the staff report on issues related to the Article IV Consultation and the IMF arrangement.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 6, 2023, following discussions that ended on November 18, 2022, 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 January 12, 2023.
An Informational Annex prepared by the IMF staff.
A Staff Statement for Nigeria.
A Statement by the Executive Director for Nigeria.
The documents listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623–7430 • Fax: (202) 623–7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2023 International Monetary Fund
Press Release
PR23/34
IMF Executive Board Concludes 2022 Article IV Consultation with Nigeria
FOR IMMEDIATE RELEASE
Washington, DC – February 8, 2023: On February 6, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Nigeria.
Nigeria’s economy has recouped the output losses sustained during the COVID-19 pandemic supported by favorable oil prices and buoyant consumption activities. Gross domestic product (GDP) adjusted for inflation has already reached its pre-crisis level and the third quarter of 2022 marked the eighth consecutive quarter of positive growth—despite continued challenges in the oil sector. Growth is estimated at 3 percent for 2022.
Headline inflation declined in December 2022 for the first time in 11 months, but at 21.3 percent remains high—driven by elevated international food prices, large parallel market premiums and monetary policy accommodation. While the Central Bank of Nigeria raised the Monetary Policy rate (MPR) by a cumulative 500 basis points in 2022 and another 100 bps in January 2023, inflation remains above the MPR.
Despite rising oil prices, the general government fiscal deficit is estimated to have widened further in 2022, mainly due to high fuel subsidy costs. While the current account is estimated to have improved in 2022, foreign currency reserves declined amidst capital outflow pressures.
Notwithstanding the authorities’ success in containing and managing the COVID-19 infections, socio-economic conditions remain difficult. The spillover effects of the war in Ukraine, which have been transmitted mainly through higher domestic food prices, worsened the scarring effects of the pandemic, particularly on the most vulnerable—with Nigeria being among the countries with the lowest food security.
The near-term outlook faces downside risks, while there are upside risks in the medium term. Higher international food and fertilizer prices and continued widening of the parallel market premium could culminate in the de-anchoring of inflation expectations. The oil sector faces downside risks from possible production and price volatility, while climate-related natural disasters (e.g., floods) pose the same risks to agricultural production. Further widening in sovereign premia could increase debt servicing costs. In the medium term, there are upside risks from a potential stronger reform momentum and a larger-than-expected rebound in oil and gas production.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. Directors welcomed the broadening of Nigeria’s economic recovery but noted that the opportunity to reap the benefits from higher global oil prices was missed. They underscored near-term downside risks arising from elevated inflation, high debt-servicing costs, external sector pressures, and oil sector volatility. Looking ahead, Directors recommended decisive fiscal and monetary tightening to secure macroeconomic stability, combined with structural reforms to improve governance, strengthen the agricultural sector, and boost inclusive, sustainable growth.
Directors highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities. They urged the authorities to deliver on their commitment to remove fuel subsidies by mid-2023, and to increase well-targeted social spending. Strengthening revenue mobilization, including through tax administration reforms, expanding the tax automation system and strengthening taxpayer segmentation, and improving tax compliance is also a priority. In the medium term, Directors recommended modernizing customs administration, rationalizing tax incentives, and raising tax rates to the levels of the Economic Community of West African States (ECOWAS).
Directors urged decisive and effective monetary policy tightening to avoid a de-anchoring of inflation expectations. Noting recent increases in the policy rate, they encouraged the Central Bank of Nigeria (CBN) to stand ready to further increase the policy rate if needed, and to implement additional actions, including fully sterilizing central bank financing of fiscal deficits and phasing out credit intervention programs. Strengthening the CBN’s independence and establishing price stability as its primary objective is critical. Directors also urged the authorities to finalize securitization of the CBN’s existing stock of overdrafts and emphasized that the CBN’s budget financing should strictly adhere to the statutory limits.
Directors encouraged a continued move toward a unified and market-clearing exchange rate by dismantling various exchange rate windows at the CBN. Providing clarity on exchange rate policy would help boost investor confidence, quell capital outflow pressures, and rebuild buffers. They welcomed Nigeria’s intention to participate in the African Continental Free Trade Agreement.
Directors welcomed the resilience of the banking sector and encouraged increased vigilance given potential risks associated with dynamic retail credit growth. They also emphasized the need to enhance the effectiveness of the AML/CFT framework and to avoid public listing by the FATF. Directors welcomed ongoing efforts to foster financial inclusion, including through the use of mobile money with appropriate regulation and supervision.
Directors highlighted the importance of improving the performance of the agricultural sector for job creation and food security. They urged the authorities to implement governance reforms, including delivering on commitments from the 2020 Rapid Financing Instrument. Improving transparency and accountability in the oil sector is also key to strengthening governance.
It is expected that the next Article IV consultation with Nigeria will be held on the standard 12-month cycle.
Nigeria: Selected Economic and Financial Indicators, 2020–23 1
Historical data up to date as of January 15, 2023.
Gross debt figures for the Federal Government and the public sector include overdrafts from the Central Bank of Nigeria (CBN). External debt figures are based on country of issuance.
Includes both public and private sector.
Nigeria: Selected Economic and Financial Indicators, 2020–23 1
| 2020 | 2021 | 2022 | 2023 | |||
|---|---|---|---|---|---|---|
| Projections | ||||||
| National income and prices | (Annual percentage change, unless otherwise specified) | |||||
| Real GDP (at 2010 market prices) | -1.8 | 3.6 | 3.0 | 3.2 | ||
| Oil and Gas GDP | -8.9 | -8.3 | -8.2 | 5.6 | ||
| Non-oil GDP | -1.1 | 4.7 | 3.8 | 3.0 | ||
| Non-oil non-agriculture GDP | -2.4 | 5.7 | 4.5 | 3.7 | ||
| Production of crude oil (million barrels per day) | 1.77 | 1.62 | 1.42 | 1.51 | ||
| Nominal GDP at market prices (trillions of naira) | 154.3 | 176.1 | 206.6 | 235.8 | ||
| Nominal non-oil GDP (trillions of naira) | 144.1 | 166.4 | 193.7 | 223.8 | ||
| Nominal GDP per capita (US$) | … | … | … | … | ||
| GDP deflator | 7.8 | 10.1 | 14.0 | 10.6 | ||
| Consumer price index (annual average) | 13.2 | 17.0 | 18.8 | 17.4 | ||
| Consumer price index (end of period) | 15.8 | 15.6 | 21.3 | 15.1 | ||
| Investment and savings | Percent of GDP | |||||
| Gross national savings | 23.0 | 25.2 | 23.4 | 21.3 | ||
| Public | -2.1 | -2.4 | -2.7 | -1.7 | ||
| Private | 25.2 | 27.6 | 26.1 | 23.0 | ||
| Investment | 26.7 | 25.6 | 23.3 | 21.6 | ||
| Public | 2.5 | 3.2 | 3.0 | 3.4 | ||
| Private | 24.3 | 22.4 | 20.2 | 18.2 | ||
| Current account balance | -3.7 | -0.4 | 0.1 | -0.3 | ||
| Consolidated government operations | Percent of GDP | |||||
| Total revenues and grants | 6.5 | 7.3 | 8.4 | 8.9 | ||
| Of which: oil and gas revenue | 2.4 | 2.8 | 3.6 | 4.0 | ||
| Total expenditure and net lending | 12.1 | 13.3 | 14.6 | 14.5 | ||
| Of which: fuel subsidies | 0.1 | 1.1 | 2.2 | 1.3 | ||
| Overall balance | -5.6 | -6.1 | -6.2 | -5.6 | ||
| Non-oil primary balance | -5.9 | -6.4 | -7.5 | -7.2 | ||
| Non-oil revenue | 4.1 | 4.5 | 4.8 | 4.9 | ||
| Public gross debt2 | 34.5 | 36.5 | 37.3 | 38.2 | ||
| Of which: FGN debt | 31.0 | 32.5 | 32.9 | 33.6 | ||
| Of which: External debt | 8.2 | 9.0 | 8.7 | 8.2 | ||
| FGN interest payments (percent of FGN revenue) | 86.1 | 87.8 | 96.3 | 82.0 | ||
| Interest payments (percent of consolidated revenue) | 32.5 | 32.7 | 28.2 | 27.4 | ||
| Money and credit | (Change in percent of broad money at the beginning of the period, unless otherwise specified) | |||||
| Broad money (percent change; end of period) | 11.6 | 14.2 | 20.3 | 20.5 | ||
| Net foreign assets | 8.7 | 0.9 | -4.0 | 1.0 | ||
| Net domestic assets | 3.0 | 13.3 | 24.4 | 19.5 | ||
| o/w Claims on consolidated government | 4.6 | 7.1 | 16.8 | 14.9 | ||
| Credit to the private sector (y-o-y,%) | 15.8 | 25.9 | 25.0 | 13.8 | ||
| Velocity of broad money (ratio; end of period) | 3.7 | 3.7 | 3.6 | 3.4 | ||
| External sector | (Annual percentage change unless otherwise specified) | |||||
| Exports of goods and services | -42.9 | 27.1 | 39.5 | -9.6 | ||
| Imports of goods and services | -28.4 | -8.4 | 21.0 | -3.3 | ||
| Terms of trade | -19.6 | 22.6 | 13.9 | -7.1 | ||
| Price of Nigerian oil (US dollar per barrel) | 43.3 | 70.8 | 100.5 | 88.6 | ||
| External debt outstanding (US$ billions) 3 | 105.0 | 111.9 | 115.8 | 121.6 | ||
| Gross international reserves (US$ billions) | 36.5 | 40.2 | 36.9 | 37.5 | ||
| (equivalent months of imports of G&Ss) | 6.6 | 6.0 | 5.7 | 6.2 | ||
Historical data up to date as of January 15, 2023.
Gross debt figures for the Federal Government and the public sector include overdrafts from the Central Bank of Nigeria (CBN). External debt figures are based on country of issuance.
Includes both public and private sector.
Nigeria: Selected Economic and Financial Indicators, 2020–23 1
| 2020 | 2021 | 2022 | 2023 | |||
|---|---|---|---|---|---|---|
| Projections | ||||||
| National income and prices | (Annual percentage change, unless otherwise specified) | |||||
| Real GDP (at 2010 market prices) | -1.8 | 3.6 | 3.0 | 3.2 | ||
| Oil and Gas GDP | -8.9 | -8.3 | -8.2 | 5.6 | ||
| Non-oil GDP | -1.1 | 4.7 | 3.8 | 3.0 | ||
| Non-oil non-agriculture GDP | -2.4 | 5.7 | 4.5 | 3.7 | ||
| Production of crude oil (million barrels per day) | 1.77 | 1.62 | 1.42 | 1.51 | ||
| Nominal GDP at market prices (trillions of naira) | 154.3 | 176.1 | 206.6 | 235.8 | ||
| Nominal non-oil GDP (trillions of naira) | 144.1 | 166.4 | 193.7 | 223.8 | ||
| Nominal GDP per capita (US$) | … | … | … | … | ||
| GDP deflator | 7.8 | 10.1 | 14.0 | 10.6 | ||
| Consumer price index (annual average) | 13.2 | 17.0 | 18.8 | 17.4 | ||
| Consumer price index (end of period) | 15.8 | 15.6 | 21.3 | 15.1 | ||
| Investment and savings | Percent of GDP | |||||
| Gross national savings | 23.0 | 25.2 | 23.4 | 21.3 | ||
| Public | -2.1 | -2.4 | -2.7 | -1.7 | ||
| Private | 25.2 | 27.6 | 26.1 | 23.0 | ||
| Investment | 26.7 | 25.6 | 23.3 | 21.6 | ||
| Public | 2.5 | 3.2 | 3.0 | 3.4 | ||
| Private | 24.3 | 22.4 | 20.2 | 18.2 | ||
| Current account balance | -3.7 | -0.4 | 0.1 | -0.3 | ||
| Consolidated government operations | Percent of GDP | |||||
| Total revenues and grants | 6.5 | 7.3 | 8.4 | 8.9 | ||
| Of which: oil and gas revenue | 2.4 | 2.8 | 3.6 | 4.0 | ||
| Total expenditure and net lending | 12.1 | 13.3 | 14.6 | 14.5 | ||
| Of which: fuel subsidies | 0.1 | 1.1 | 2.2 | 1.3 | ||
| Overall balance | -5.6 | -6.1 | -6.2 | -5.6 | ||
| Non-oil primary balance | -5.9 | -6.4 | -7.5 | -7.2 | ||
| Non-oil revenue | 4.1 | 4.5 | 4.8 | 4.9 | ||
| Public gross debt2 | 34.5 | 36.5 | 37.3 | 38.2 | ||
| Of which: FGN debt | 31.0 | 32.5 | 32.9 | 33.6 | ||
| Of which: External debt | 8.2 | 9.0 | 8.7 | 8.2 | ||
| FGN interest payments (percent of FGN revenue) | 86.1 | 87.8 | 96.3 | 82.0 | ||
| Interest payments (percent of consolidated revenue) | 32.5 | 32.7 | 28.2 | 27.4 | ||
| Money and credit | (Change in percent of broad money at the beginning of the period, unless otherwise specified) | |||||
| Broad money (percent change; end of period) | 11.6 | 14.2 | 20.3 | 20.5 | ||
| Net foreign assets | 8.7 | 0.9 | -4.0 | 1.0 | ||
| Net domestic assets | 3.0 | 13.3 | 24.4 | 19.5 | ||
| o/w Claims on consolidated government | 4.6 | 7.1 | 16.8 | 14.9 | ||
| Credit to the private sector (y-o-y,%) | 15.8 | 25.9 | 25.0 | 13.8 | ||
| Velocity of broad money (ratio; end of period) | 3.7 | 3.7 | 3.6 | 3.4 | ||
| External sector | (Annual percentage change unless otherwise specified) | |||||
| Exports of goods and services | -42.9 | 27.1 | 39.5 | -9.6 | ||
| Imports of goods and services | -28.4 | -8.4 | 21.0 | -3.3 | ||
| Terms of trade | -19.6 | 22.6 | 13.9 | -7.1 | ||
| Price of Nigerian oil (US dollar per barrel) | 43.3 | 70.8 | 100.5 | 88.6 | ||
| External debt outstanding (US$ billions) 3 | 105.0 | 111.9 | 115.8 | 121.6 | ||
| Gross international reserves (US$ billions) | 36.5 | 40.2 | 36.9 | 37.5 | ||
| (equivalent months of imports of G&Ss) | 6.6 | 6.0 | 5.7 | 6.2 | ||
Historical data up to date as of January 15, 2023.
Gross debt figures for the Federal Government and the public sector include overdrafts from the Central Bank of Nigeria (CBN). External debt figures are based on country of issuance.
Includes both public and private sector.
Title page
NIGERIA
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
January 12, 2023
KEY ISSUES
Context. Economic recovery continued to broaden in 2022. Higher oil prices are yet to deliver tangible benefits amid contraction of oil production and costly fuel subsidies. Elevated inflation and lingering external sector pressures, if left unaddressed, may exacerbate macroeconomic instability. This could impact growth, food security and ultimately social cohesion given extreme inequality and high poverty. The upcoming elections provide an opportunity for the new administration to advance structural reforms and offer a more prosperous future.
Key Policy Recommendations
Fiscal Policies. Bold reforms are needed to reduce fiscal vulnerabilities and create space for the financing of Sustainable Development Goals. Policy priorities include permanent removal of fuel subsidies by mid-2023 as planned, stoppage of oil theft, improved tax compliance through automation, taxpayer segmentation, customs modernization and rationalization of tax incentives, and adoption of excise and VAT rates similar to those prevailing in peer countries in West Africa.
Monetary and Exchange Rate Policies. Monetary policy should continue its tightening bend to prevent risks of de-anchoring of inflation expectations. Moving towards a unified and market-clearing exchange rate has become more urgent than ever to restore confidence, build up buffers, address persistent FX shortages, and bring down high parallel market premiums, which are contributing to elevated inflation.
Financial Sector Policies. The banking sector remains profitable, liquid, and well-capitalized. Certain macro-financial linkages warrant close monitoring as the authorities move forward with implementing Basel III regulation. The public asset management company should be wound down by end-2023 as planned. The renewed policy efforts to increase financial inclusion is welcome and should be complemented by higher number of banking agents in underserved regions.
Structural Policies. Strengthening agricultural sector is key to job creation and food security, and would require increased input usage through affordable fertilizers, higher quality seeds, better storage facilities and more coordinated support across agencies. Recent steps to curb corruption, including the passage of the Proceeds of Crimes Bill and higher rates of asset declaration by public employees, are welcome and should be complemented by measures to improve conviction and prosecution rates.
Approved By
Costas Christou (AFR) and Maria Gonzalez (SPR)
Discussions took place during November 7–18, 2022, in Abuja. The team comprised Ms. Rahman (Mission chief), Mr. Aisen (Resident Representative), Messrs. Ree, Thomas (all AFR), Mr. Jung (FAD), Mr. Wezel (MCM), and Ms. Turk (SPR). Ms. Mangga and Ms. Bonet (Resident Representative office) assisted the mission. Mr. Ekeocha (OED) and Mr. Saldarriaga (The World Bank) participated in most meetings. The mission held discussions with President Buhari’s Chief of Staff Professor Gambari, Finance, Budget and Planning Minister Ahmed, Agriculture Minister Mahmood, Environment Minister Abdullahi, Petroleum Minister Sylva, Central Bank of Nigeria Governor Emefiele, and other senior government officials. The mission also met representatives of financial institutions, private sector, development partners, political parties and civil society. Ms. Delcambre and Mr. Bhutia provided excellent assistance for the preparation of this report.
Contents
BACKGROUND
RECENT MACROECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policy: Rejuvenate Critical Fiscal Reforms
B. Monetary and Exchange Rate Policies: Fend off Inflationary Risks and Address External Sector Pressu res
C. Banking Sector: Prudently Navigate the Credit Cycle
D. Structural Policies: Strengthen Agriculture and Address Corruption
STAFF APPRAISAL
BOXES
1. Successful Domestic Revenue Mobilization Episodes in SSA
2. Central Bank Digital Currency: One Year After
3. Food Insecurity in Nigeria: Stylized Facts
FIGURES
1. Navigating the Pandemic and the War in Ukraine
2. Limited Benefits from Rising Oil Prices
3. Growth and Inflation
4. General Government Fiscal Developments
5. External Sector Developments
6. Key Interest Rates, Liquidity and Credit Growth
7. Outlook and Risks
8. Fiscal Risks and Investment Needs
9. Fiscal Recommendations
10. Exchange Rate and Reserves Assessment
11. Banking Sector Developments
12. Financial Inclusion Status
13. Agriculture in Perspective
14. Governance Indicators
TABLES
1. Selected Economic and Financial Indicators, 2018–27
2. Balance of Payments, 2018–27
3. Federal Government Operations, 2018–27
4. Consolidated Government, 2018–27
5. Government Operations, 2018–27
6. State and Local Governments, 2018–27
7. Central Bank of Nigeria (CBN) Analytical Balance Sheet, 2018–27
8. Monetary Survey, 2018–27
9. Financial Soundness Indicators 2018–2021Q3
ANNEXES
I. Risk Assessment Matrix
II. Sovereign Risk and Debt Sustainability Analysis
III. External Sector Assessment
IV. Capacity Development Strategy FY 2023
APPENDIX
I. Draft Press Release
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
