IMF Executive Board Concludes 2022 Article IV Consultation with Nigeria

February 8, 2023

Washington, DC: On February 6, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] 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 Assessment [2]

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.

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

Sources: Nigerian authorities; and IMF staff estimates and projections.

1 Historical data up to date as of January 15, 2023.

2 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.

3 Includes both public and private sector.


[1] 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.

[2] 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 .

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