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Nigeria: Staff Concluding Statement of the 2022 Article IV Mission



A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

Notwithstanding higher oil prices, the economy is expanding at slightly above the population growth rate. The double-digit increases in Nigeria’s terms of trade and significant improvement in the trade balance created an opportunity to build fiscal space and foreign exchange (FX) reserves, but that opportunity was not harnessed. Inflation is elevated and fuel subsidies remain a formidable drain on fiscal revenues. Ensuring macroeconomic stability requires tightening across all policy levers, and stronger revenue mobilization and exchange rate reforms. In addition to consistent macroeconomic policies, a more robust growth trajectory would require measures to decisively tackle governance weaknesses and implement trade and agricultural reforms.

1. Economic recovery continues on the back of agriculture and services sectors. Output growth at 3.4 percent (y/y) in 2022Q2 marked the seventh consecutive quarter of growth driven by various services sectors, especially information technology, trade, and finance. Oil production has been on the decline since mid-2020, reflecting low investment and significant leakages associated with poor maintenance and theft. Despite Nigeria’s limited direct exposures, the war in Ukraine has permeated through higher domestic food prices with headline inflation reaching its 17-year high in October 2022 of 21.1 percent (y/y). High food insecurity is compounding the pandemic’s scarring effects on the vulnerable.

2. Output growth is expected to moderate in 2022 to 3 percent and improve slightly next year. The slowdown in growth reflects year-to-date weaknesses in oil production and the adverse effects of recent flooding. Supported by the authorities’ measures to curb ongoing oil theft and considering new production coming on stream, a protracted recovery in the oil sector is projected beginning late this year. Headline inflation is expected to moderate at end-2022 as the start of the harvest season more than counters the projected increase in
rice prices caused by recent flooding.

3. The near-term outlook faces downside risks, with some upside risks over the medium term. The effects of recent flooding and high fertilizer prices could become more entrenched impacting negatively both agricultural production and food prices in 2023.

Similarly, further volatility in the parallel market exchange rate and continued dependence on central bank financing of the budget deficit could exacerbate price pressures. In the medium term, there are downside risks to the oil sector from possible price and production volatility, while climate-related natural disasters pose downside risks to agriculture. There are also upside risks from a stronger rebound in oil production, investment in the gas sector and Dangote refinery coming on stream with a large production capacity.

Fiscal policy: Undertake Bolder Fiscal Reforms to Create Policy Space

4. Public finance is under stress with elevated fiscal deficits, high debt servicing costs and public debt projected to increase over the medium term. Despite higher non-oil revenues relative to 2021, the general government (GG) fiscal deficit is projected to widen to 6.2 percent of GDP in 2022, mainly due to fuel subsidy costs. Without bolder revenue mobilization efforts, costly fuel subsidies and rising debt servicing costs will keep overall fiscal deficits above 6 percent of GDP in the medium term raising public debt to about 43 percent of GDP by 2027.

While still deemed sustainable, such a level of debt is projected to take up nearly half of GG revenues in interest payments making the fiscal position highly vulnerable to real interest rate shocks. It also leaves little fiscal room for vital social spending on education and health, where Nigeria fares poorly compared to peer countries in sub-Saharan Africa (SSA).

5. Urgent revenue mobilization and fuel subsidy reforms are critical to create
much needed fiscal space. Successful revenue mobilization episodes in SSA highlight the
need for comprehensive fiscal reforms supported by high-level political commitment. The
mission recommended the following package of measures, which are estimated to create
fiscal savings of close to 6 percentage points of GDP during 2023-27 while also making room
for higher social spending.

• Remove fuel subsidies and address oil theft. As a near-term priority, the mission
highlighted the urgent need to remove fuel subsidies fully and permanently, which
disproportionately benefit the well-off, by mid-2023 as planned. The government should
also prioritize addressing oil thefts and governance issues in the oil sector to restore
production to pre-pandemic levels.

• Step up implementation of tax administration reforms. The mission welcomed the steady implementation of the tax automation system (TaxPro Max) and recommended stepping up efforts to further expand coverage under a well-designed roadmap and strengthen taxpayer segmentation centering on the Large Taxpayer Offices (LTOs). In the medium-term, the authorities should develop a compliance improvement program and comprehensive customs modernization program, improve the effectiveness of the State Internal Revenue Service’s administration of the Pay-As-You-Earn (PAYE) system, and strengthen inter-agency coordination and data sharing.

• Adopt tax policy reforms. The mission advised the authorities to consider adjusting tax rates to levels comparable to the average in Economic Community of West African States (ECOWAS) as compliance improves. This includes further increasing the VAT rate to 15 percent by 2027 in steps while streamlining numerous VAT exemptions based on systemic reviews, increasing excise rates on alcoholic and tobacco products while broadening the base, and rationalizing tax incentives by streamlining tax expenditures based on comprehensive periodic reviews.

• Increase well-targeted social assistance. To mitigate food insecurity and cushion the impact of high inflation and fuel subsidy removal on the poor, the mission recommended increasing social spending by up to 1.7 percentage points of GDP during 2023-27 in welltargeted programs in coordination with the World Bank and other development partners.

6. Fiscal transparency is critical for a sound fiscal policy. Notwithstanding recent improvements, some gaps remain. While the authorities have published the annual financial reports of the state-owned Nigerian National Petroleum Company (NNPC) since 2019, uncertainties remain regarding the nature of tax write offs and fuel consumption volumes. The mission recommended a closer look at the nature of NNPC’s financial commitments to the government and the costing details of the fuel subsidy, including through a financial audit. Stronger cash management and better coordination among key public institutions is needed to increase the realism of budgetary forecasts and reduce reliance on central bank overdrafts. Monetary and Exchange Rate Policies: Head off Inflation Drifts and Address BOP Pressures

7. Monetary conditions are accommodative despite tightening measures undertaken by the CBN. The mission welcomed measures taken by the Central Bank of Nigeria (CBN) to tighten liquidity and curb inflationary pressures through increasing the monetary policy rate (MPR) by a cumulative 400 basis points and raising the cash reserve ratio (CRR). However, overall conditions remain accommodative—the MPR is below inflation,
and financing provided to the budget and the CBN’s directed lending schemes continue to drive strong monetary expansion.

8. Decisive and effective monetary policy tightening is a priority to prevent risks of de-anchoring of inflation expectations. Given the multiplicity of monetary policy tools, market segmentation and weak interest rate transmission, the mission recommended the following measures to effectively tighten the monetary policy stance: (i) fully sterilize the impact of CBN’s financing of fiscal deficits on money supply; (ii) stand ready to further increase the MPR to send a tightening signal; and (iii) continue phasing out CBN’s credit intervention programs, which expanded rapidly during the pandemic to support the economy. The mission welcomed progress in the securitization of the CBN’s existing stock of overdrafts and recommended speedy finalization. Going forward, it would be important to limit reliance on CBN overdrafts for fiscal financing to the statutory limit of 5 percent of previous year’s revenues by pursuing fiscal consolidation, better budgetary planning and resorting to supplementary budgets in case of financing shortfalls. The mission also reiterated its previous recommendations to modernize the 2007 CBN ACT to establish price stability as its primary objective. It also recommended to enhance transparency through timely publishing of audited financial statements.

9. Despite improvement in the current account, the external sector continues to face pressures. Rising oil prices drove export revenues in 2022, generating a merchandise trade surplus. The current account is also improving despite higher profit repatriation by foreign companies. However, large net private outflows by domestic banks and nonbanks in the form of offshore deposits surpassed net inflows by foreign investors putting downward pressure on gross international reserves. Against this backdrop, Nigeria’s external position is preliminarily assessed to be moderately weaker than implied by economic fundamentals.

10. A unified and market-clearing exchange rate remains critical to enhancing confidence. Continued FX shortages, a stabilized exchange rate regime, rising inflation, limited debt servicing capacity, and administrative restrictions on current transactions fuel devaluation speculations. These factors hinder much needed capital inflows, encourage outflows and constrain private sector investment. The mission reiterated its past
recommendations to move towards a unified and market-clearing exchange rate by dismantling the various exchange rate windows at the CBN accompanied by clarity on exchange rate policy and supportive fiscal and monetary policies. In the medium term, the CBN should step back from its role as main FX intermediator, limiting interventions to smoothing market volatility and allowing banks to freely determine FX buy-sell rates.

Banking Sector: Prudently Navigate the Credit Cycle

11. The banking sector is profitable and liquid, while regulatory measures are being adopted. Profitability and banking sector liquidity have remained roughly stable while NPL ratio has dropped to near 5 percent. The share of questionable loans rebounded after the CBN announced the expiration of pandemic-related forbearance in loan classification by end2023; however, the authorities’ stress tests indicate that the banking system remains resilient to a potential significant rise in NPLs. The mission welcomed the implementation of Basel III regulation and recommended monitoring risks from less-regulated digital lenders, ongoing FX shortages faced by the corporate sector, and possible crowding out from the strong sovereign bank nexus, which has increased in recent years. The mission also advised to resolve weak smaller banks and proceed with the winding down of the public asset management company (AMCON) by end-2023.

12. Macro-financial linkages warrant close monitoring. Significant retail credit growth, while partly reflecting financial deepening, may be further propelled by a forthcoming regulation allowing households to tap into their pension savings for mortgage down payments. The mission recommended increased vigilance and adoption of selected macroprudential policy instruments to handle possible retail credit risks.

13. The authorities are making slow but steady inroads into financial inclusion. Nigeria continues to fall short of its inclusion targets, particularly in access to financial products. The share of population with financial access has increased benefiting from nonbanking and informal financial services, but financial exclusion rate at 36 percent remains high relative to peers in SSA. The mission welcomed further expansion of the agent network, the rising uptake of mobile money and electronic payments, and granting of payment service bank licenses to large mobile operators. The authorities have also recently launched promising initiatives to improve financial literacy and promote access to finance for women. The mission welcomed the imminent launch of CBN’s regulatory sandbox for fintech and encouraged the authorities to increase the number of banking agents in underserved regions, provide more targeted training in using financial products, and extend the eNaira further to the unbanked

14. The authorities’ recent actions in response to the 2021 GIABA Mutual Evaluation Report have lessened the risk a public listing by the Financial Action Task Force (FATF). They updated and passed new laws and took regulatory and transparency measures. Sustained actions to address any remaining deficiencies would be important to avoid the risk of FATF grey listing.

Structural policies: Strengthen Agricultural Productivity and Address Corruption

15. Strengthening the performance of the agricultural sector is key to job creation, food security, and social cohesion. Over the next decade, an estimated 25 million additional jobs will be needed to employ the new labor market entrants. For agriculture to continue playing a strong role in employment and ensure food security, boosting production and yields through improved input usage, especially through affordable fertilizers and higher
quality seeds, better storage facilities and a more coordinated policy support across government agencies are recommended.

16. Addressing corruption remains critical to stimulating investment. The mission welcomed recent measures to fight corruption and promote the rule of law and accountability through the passage of the Proceeds of Crimes and Whistleblower’s Act, and efforts to increase the rate of asset declarations by the Code of Conduct Bureau. However, Nigeria is still assessed to have widespread governance weaknesses and the mission was not able to
assess progress in audits of the COVID-19 related emergency spending. The government should redouble its efforts to implement key aspects of the National Anti-Corruption Strategy (NACS), including measures to reduce bribery, improve prosecution and conviction rates for corruption cases, as well as the confiscation of related proceeds of crime.

17. Trade-enabling reforms are essential to promote economic diversification. The reopening of land borders earlier this year is a welcome move to facilitate trade. To speed-up compliance with rules on non-tariff barriers agreed under the African Continental Free Trade Agreement, the mission recommended making operational the already deployed scanners, which would limit tedious physical ports inspection processes and contain customs delays.

The IMF mission would like to thank the authorities and other counterparts for the frank and
thoughtful discussions and kind cooperation.

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Hardship: Labour Begins Strike, Vows to Ground Economy




The Nigeria Labour Congress has vowed to ground the economy as it says the stage is set for a two-day nationwide warning strike in response to the severe economic hardships plaguing the nation on the aftermath of subsidy removal by the Federal Government.

This move has garnered widespread support from key stakeholders, including the banking sector, civil society organisations, and workers’ unions, as they unite to address the growing economic crisis in the country.

The National Union of Banks, Insurance and Financial Institutions Employees, the umbrella organisation representing workers in the banking and insurance industry, on Monday vowed to take part in the strike, effectively shutting down financial activities across Nigeria.

A statement signed by the General Secretary of NUBIFIE, Mr Mohammed Sheikh, underscored the importance of their participation in the two-day warning strike by the NLC, citing the need to draw the government’s attention to the dire economic situation faced by Nigerians.

The leadership of NUBIFIE has issued a notice that all banks will be shut down on Tuesday, 5 and Wednesday, 6 September 2023, in line with the NLC two-day strike directive.

“The directives are imperative to get the needed attention of the government and to warn it against interfering in the internal affairs of unions instead of addressing the punishing economic circumstances we find ourselves in,” the statement emphasised.

Speaking with The PUNCH, the Senior Deputy General Secretary of NUBIFIE, Mr. Aboderin Olusola, reiterated their commitment to the NLC’s cause, stressing the necessity of solidarity among industrial unions during these trying times.

Olusola said, “It was NLC’s directive to all the industrial unions and NUBIFIE didn’t have any option than to issue that circular to all our members and management of banks and insurance companies in Nigeria.”

Joining the chorus of concern, the United Action Front of Civil Society has thrown its full support behind the NLC’s two-day warning strike.

In a statement signed by the Head of the National Coordinating Centre for the United Action Front of Civil Society, Wale Okunniyi, the organisation expressed outrage over the hardship inflicted on Nigerians by the government’s decision to remove fuel subsidies and subsequently raise the price of premium motor spirit.

The Maritime Workers Union of Nigeria has backed the Nigerian Labour Congress to embark on the two-day warning strike.

This was contained in a letter on Monday titled, ‘Compliance to the Nigerian Labour Congress directive on a nationwide two-day warning strike’, signed by the Head of Media, MWUN, John Ikemefuna.

The PUNCH reports that on Friday, the NLC in a communiqué jointly signed by its National President, Joe Ajaero and Secretary, Emmanuel Ugboaja, said it decided to embark on a two-day warning strike following what was described as the failure of the Tinubu-led Federal Government to dialogue and engage stakeholders within the organised labor on efforts to cushion the effects of fuel subsidy removal on Premium Motor Spirit, popularly known as petrol, on the “poor masses”.

The President General of MWUN, Adewale Adeyanju, directed all its affiliates to embark on the two-day nationwide strike.

He said, “This decision is due to the Federal Government’s refusal to engage and reach an agreement with the organized labor on critical issues of the consequences of the unfortunate hike in the price of petrol, which has unleashed massive suffering on Nigerian workers and the generality of the Nigerian citizens.”

“The MWUN as an affiliate of the NLC, is obliged to comply with the directive and has consequently instructed all our members in all ports, jetties, terminals, and oil and gas platforms nationwide to partake on the two days total shut down warning strike as directed by the NLC.”

The Punch

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Naira Continues to Appreciate, Trades for N850/$1 in Parallel Market




The Naira on Wednesday continued its appreciation against the United States dollar on Wednesday, exchanging at N850 per dollar at the close of trading.

The currency appreciated on Tuesday, ending the day at N915 per dollar 24 hours after the Central Bank of Nigeria announced that it was intervening with some measures to curb the fall of the naira. It had earlier traded on Monday at N950 to a dollar.

Bureau de Change operators in Lagos said they bought and sold the naira at N830 to a dollar and N850 to a dollar on Wednesday, adding that demand was lower compared to last week.

However, in Abuja, a BDC operator, Aminu Zakari, said he bought and sold the dollar for N860 per dollar and N845 per dollar. According to him, there has been uncertainty in the parallel segment of the market following the announcement by the CBN.

At the Investor & Exporter forex window, trading commenced at N781.66 to a dollar and reached a high of N799.90 per dollar before closing at N759.86 to a dollar on Wednesday.

Earlier on Tuesday, it closed at N781.30 to a dollar.

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Marketers Propose N720/litre, Suspend Fuel Imports over Forex Crisis




Oil marketers, on Sunday, indicated that the cost of Premium Motor Spirit, popularly called petrol, would rise to between N680/litre and N720/litre in the coming weeks should the dollar continue to trade from N910 to N950 at the parallel market.

They also hinted that dealers seeking to import PMS were being forced to put the plans on hold due to the scarcity of foreign exchange to import the commodity.

The warning came barely one week after the local currency crossed the N900/dollar ceiling, with the naira selling at over 945/dollar at the parallel market on Friday.

Oil dealers said the CBN Importers and Exporters official window for foreign exchange, which boast of a lower exchange rate of about $740/litre, had remained illiquid and unable to provide the $25m to $30m required for the importation of PMS by dealers.

This, they said, had led to the suspension petrol importation by dealers who were initially eager to import the commodity.

Operators told The Punch that the only marketer, Emadeb, who imported the commodity recently, was now finding it tough to recoup its investment due to the depreciation of the naira.

Senior officials of major oil dealers, who spoke to The Punch in separate interviews on Sunday, said PMS price hike was imminent unless the local currency appreciates in the coming weeks.

Leaders of the Major Oil Marketers Association of Nigeria of Nigeria, Independent Petroleum Marketers Association of Nigeria, and Petroleum Products Retail Outlets Owners Association of Nigeria said there was a need for the Federal Government to intervene to address the crisis.

The National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, explained that the price of petrol was now driven by the fluctuations in forex, hence Nigerians should expect a hike soon.

Asked whether oil marketers were considering an increase in petrol price, he replied, “Once there is a slack in the naira against the dollar, there is going to be an effect. The demand and supply of forex is a key factor. We should also understand that it is not only petroleum products that use forex.

“Other manufacturers who import one thing or the other are also searching for dollars. So, the surge for dollars has continued to increase. So now that the dollar is hitting N910 to N940, and approaching N1,000, you should expect to buy PMS at the rate of N750/litre.

“It is simple mathematics, once the dollar is going up, have it in mind that the prices of petroleum products would definitely increase because the products are dollar-driven.”

Ukadike stated that oil marketers were still sourcing dollars from the parallel market, as the CBN’s Importers and Exporters official window was illiquid.

“Nigerians should brace for a price regime of between N680 to N720 if the exchange rate stays around N910 to N950/$, but the price is going to hit N750 once the dollar rises to N1,000.

“This is because marketers still source dollars from the parallel market, and not only marketers but virtually all importers in Nigeria. There is no subsidy any more on petroleum products, so you expect the cost to fluctuate with the dollars,” he stated.

The IPMAN PRO also stated that the Nigerian National Petroleum Company Limited was still the major importer of petrol into Nigeria, though another importer, Emadeb, imported the commodity recently.

“NNPC is still the major importer for now. One other company, Emadeb, imported products recently, but because this product is being sold in naira, getting back their funds is another issue since the naira keeps depreciating, while PMS imports is in dollars.

“This is why it is often difficult to go back and buy again as an independent importer. That is the problem we are facing,” Ukadike stated.

On when Nigerians would start seeing the price increase, he said, “NNPC is like the sole distributor of petroleum products now, so once you see a change in the price of petrol at their outlets, then other marketers will implement it.”

The Punch

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