03.31.2005

In a statement by the IMF Staff Mission at the Conclusion of 2005 Article IV Consultation discussions with Nigeria, "the mission encourages the authorities to regularize relations with external creditors."
According to the IMF Staff Mission to Nigeria, "The debt sustainability analysis prepared by the mission suggests that Nigeria's external debt is sustainable at current high oil prices. However, sensitivity analysis shows that the debt situation becomes unsustainable at historical oil prices (US$21 per barrel on average in 2006-25 as compared with *S$37 in the baseline)."
The IMF team led by Mr. Menachem Katz, visited Nigeria between March 8-25, 2005 to conduct the 2005 Article IV Consultation discussions, to review the performance of the Federal government's economic programme, National Economic Empowerment Development Strategies (NEEDS) and to discuss the outlook for it in 2005.
While Nigeria does not have any outstanding obligations with the IMF programme, it has an arrangement with the institution where IMF monitors its economic programmes.
In meetings with members of the Paris Club, Minister of Finance, Dr. Nogzi Okonjo-Iweala and other senior government officials have argued that servicing Nigeria's debt with an estimated $3 billion would affect the country’s development and growth.
The mission noted that the outlook for 2005 remains positive, with real GDP projected to grow by seven percent on the basis of higher crude oil and gas production and non-oil GDP by five percent.
It emphasized the need for the authorities to build on the macroeconomic achievements of 2004 to lay the foundation for fatter growth and poverty reduction and to help achieve the Millennium Development goals.
The IMF mission observed that the administration recognises that the 2005 appropriation bill passed by the National Assembly is highly expansionary and has resolved to ensure that fiscal policy is consistent with the objective of maintaining macro-economic stability in 2005.
"The spending increase, which is explained by Nigeria's enormous development needs, will require careful macroeconomic management if it is to be absorbed effectively.
"In particular, monetary policy will need to continue to be tight, targeting a 15 percent increase in broad money in 2005.
"In light of the envisaged increase in fiscal spending, more of the burden of consolidating macro-economic policies are consistent with the objectives of maintaining inflation below 10 percent and continued build up of international reserves," the statement reads."
The Mission said "overall, policy performance in 2004 was commendable. The authorities' macroeconomic policy framework in 2005, which builds on the unprecedented achievements of 2004, is consistent with continued macro-economic stability. It also pointed out that "in 2004, policy implementation under NEEDS signaled a clear break from past imprudent practices, noting that the key objectives of the 2004 programme were achieved, namely to restore macro-economic stability, enhance predictability and transparency of policies, and reduce the economy's vulnerability to oil price shocks.
"As a result, foreign direct investment expanded in 2004 and real GDP is estimated by the Federal Office of Statistics to have increased by six percent and non-oil GDP by 7.4 percent. Prudent fiscal management and savings by all ties of government of the significant oil revenue windfall, along with tight monetary policy, contributed to lower inflation, a more stable exchange rate, and a significant build-up of international reserves.
"Several important reforms have also been initiated to enhance the transparency and accountability of public sector policies and institutions and to address Nigeria's deep-rooted macro-economic and structural challenge; these reforms include implementation of the Extractive Industries Transparency initiative (EITI) in Nigeria, the publication of monthly oil revenue distributed to the three tiers of government, a crackdown on corruption, civil service reform, and the passage of the power Bill and the Public-private Partnerships Bill.
"On the structural front, the mission agrees with he authorities' focus on improving governance and transparency, enhancing the efficiency of the public sector, strengthening the financial sector and improving the business environment, including plans to institutionalize reforms with several important bills such as the Fiscal Responsibility Bill, the CBN bill, Banking and Other Financial Institutions, procurement, EITI, and tax reform bills.
"The mission also supports the common external customs tariff scheduled to go into effect on July 1, 2005 in the context of the Economic community for West African States (ECOWAS), as well as plans to phase out import bans by January 2007 and to reenergize the privatization process," it stated.