From Mathias Okwe, Abuja

The endorsement of the nation's economic reform package came from the Executive Board of the IMF under its Article 4 review conducted on Nigeria last October, according to a statement posted on the Brettom Woods Institution's website yesterday.

Nigeria's PSI is based on the National Economic Empowerment and Development Strategy (NEEDS), which focuses poverty reduction strategy, and rapid and sustainable non-oil growth. The instrument will assist Nigeria to develop a sound policy framework, such as prudent macroeconomic policies, strengthening of institutions, and governance structure conducive for private sector.

The IMF designs PSIs for low-income countries that may not need its financial assistance, but still seek advice, monitoring and endorsement of their policies. PSIs are voluntary and demand-driven.

Basically, they support programmes based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. They are usually articulated in a Poverty Reduction Strategy Paper (PRSP).

"This is intended to ensure that PSI-supported programmes are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. Members' performance under a PSI is normally reviewed semi-annually, irrespective of the status of the programme, '' the IMF statement added.

Speaking on the IMF's board decision, Ms. Anne O. Krueger, its first deputy managing director and acting chair, said : "Over the past 18 months, Nigeria has made commendable progress in implementing its economic reform programme, aimed at accelerating economic growth, reducing poverty and meeting the Millennium Development Goals (MDGs). More recently, the authorities requested a Policy Support Instrument in support of a comprehensive reform programme based on their National Economic Empowerment and Development Strategy.''

She continued: "The authorities' programme is designed to sustain and strengthen macroeconomic performance and encourage economic growth and diversification with front-loaded structural reforms. The programme emphasises pro-growth and export-oriented reforms that - along with prudent fiscal, exchange rate, and monetary management - will boost external competitiveness over the medium term. "It is formulated with quantitative and structural assessment criteria that reflect policies meeting the IMF's standard of upper credit tranche conditionality-the same policy standard that would warrant IMF financial support beyond the first credit tranche. The continuing close relationship with the Fund envisaged under the PSI approved today (yesterday) should support Nigeria in developing a well-articulated and sound policy framework and implementing the next phase of reforms, and promote and facilitate private sector activity and debt relief.

"A key challenge going forward will be to maintain an appropriate stance and mix of fiscal and monetary policies, in view of the importance of reversing the upsurge in inflation that was associated with the expansionary monetary and fiscal policies in early 2005," Krueger said.

While the government is committed to containing spending in 2005 below budget appropriations, the projected increase in spending is still large, and the resulting fiscal expansion will place more of the burden of controlling inflation on the Central Bank.

Following the failure to sterilize the build-up of excess liquidity in the first half of the year, the CBN has recently taken measures to reduce money growth - including increased sales of foreign exchange, more aggressive open market operations, and a further increase in cash reserve requirements - which have put the year-end monetary targets within reach.

In addition, the prospective adoption of a 2006 budget that reduces the primary non-oil deficit well below the projected outturn for 2005 will further improve the policy mix. At the same time, the government aims to strengthen expenditures on poverty-related programmes, allocating an extra $1 billion to well-defined programme related to the Millennium Development Goals.

"The IMF said the Nigerian authorities have initiated a broad and ambitious structural reform programme aimed at improving public service delivery and the business environment. The programme it said, were measures to strengthen budget procedures, advance civil service reforms, restructure the banking system, unify foreign exchange markets, rationalise the external tariff system, and improve governance and transparency.

"The authorities' recent decision to allow oil marketers to increase gasoline prices by about 25 per cent will help reduce allocation distortions and implicit subsidies.

"Implementation of the agreement in principle that Nigeria has reached with Paris Club creditor countries should improve investors' confidence and free up resources for poverty reduction. Negotiations on a comprehensive debt treatment are expected to take place in the near future", the fund said.

It noted that Nigerian homegrown programme supported by the PSI would provide an opportunity for the country to consolidate the gains already achieved and address the challenges stemming from past economic mismanagement and resistance to reform from vested interests.