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Cablegate: The Third Imf Review of Nigeria's Psi

VZCZCXRO9544
PP RUEHMA RUEHPA
DE RUEHUJA #0426 0651709
ZNR UUUUU ZZH
P 061709Z MAR 07 ZDK
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 8783
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 6265
RUEHWR/AMEMBASSY WARSAW 0142
RUEHCD/AMCONSUL CIUDAD JUAREZ 0140
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS ABUJA 000426

SIPDIS

SIPDIS

DEPARTMENT PASS TO USTR FOR LAGAMA
TREASURY FOR LUKAS KOHLER/DAN PETERS
USDOC FOR 3317/ITA/OA/KBURRESS
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS

E.O. 12958: N/A
TAGS: EFIN ETRD ECON PINR NI
SUBJECT: THE THIRD IMF REVIEW OF NIGERIA'S PSI

Ref: A. 2006 Abuja 519
B. 2006 Abuja 2397

1. Summary. On March 3, 2007, the IMF held a briefing of the 3rd
review of the Policy Support Instrument (PSI). Michael Bell, IMF
Senior Resident Representative, stated that the report is still a
work-in-progress and that discussions with the GON are at an interim
stage, but the IMF has seen good economic performance. Inflation is
in the single digits and macro economic targets have been met. The
GON is still committed to reforms but key legislation needs to be
passed by the National Assembly (NA) on tax reform, procurement, and
fiscal transparency. The GON also needs to look at how the Excess
Crude Account (ECA) is used and develop a debt management strategy.
End Summary.

2. Econoffs attended an IMF briefing on the 3rd review of the Policy
Support Instrument on March 3, 2007. Michael Bell, IMF Senior
Resident Representative, painted a rosy picture of the state of the
Nigerian economy. He said the report was still a work in progress
and discussions were at an interim stage.

3. The report assessed Nigerian economic performance as good in the
non-oil sector; however the oil sector has been negatively affected
by unrest in the Niger Delta. Headline inflation had decreased to
8%, with lower food prices the major driver in keeping inflation in
the single digits, however core inflation is running 12%-13%.

4. Regarding the budget, the federal government account was on
target; however the consolidated accounts that include the federal,
state and local government had overruns, partly attributed to higher
state expenditures driven by higher than expected gas revenues, and
by fuel subsidies. The 2007 budget was passed before the new year
began for the first time, which would improve budget implementation,
but which could increase pressure for deficit spending, especially
from the capital account.

Monetary Policy Implementation
------------------------------

6. The Central Bank of Nigeria (CBN) had installed a new IT platform
that was still working out bugs, resulting in a delay in gathering
some data the IMF team needed to complete the review. The
implementation of the CBN monetary policy needed to be strengthened
to be more sensitive to economic developments.

Sustaining Structural Reform
----------------------------

7. The GON was still committed to structural reforms; however,
progress on some of the benchmarks had been delayed. For example,
introductions of the Civil Service's personnel payroll system, and
the Federal Inland Revenue Service's (FIRS) taxpayer identification
system were behind schedule. IMF has stressed the need to
institutionalize the reforms by the passage of key legislation on
tax reform, banking and fiscal transparency. With the elections a
few months away what bills would pass was still in question.

Anchoring Future Policy
-----------------------

8. Areas that would need attention in the future were:

-- Due to gas revenues rising, the GON should institute a similar
fiscal rule or reference price for gas as for oil.

-- A framework on regulating how funds in the ECA should be
accessed, for what purposes, and how accounted for. The Mission held
a workshop to brainstorm initial ideas on the issue.

-- Nigeria has cleared most of its debt with the Paris and London
Club and has a very low debt level. This means that there are
intense pressures to increase new borrowing. To manage those
pressures, the IMF recommended the development of a good debt
management framework for both external and domestic debt.

CAMPBELL

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