Search

 

Cablegate: Nigeria: Nigeria Seeks a Second Psi with Imf

VZCZCXRO9386
PP RUEHMA RUEHPA
DE RUEHUJA #1289/01 1851413
ZNR UUUUU ZZH
P 031413Z JUL 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 3288
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHOS/AMCONSUL LAGOS 9536
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 001289

SENSITIVE
SIPDIS

DEPARTMENT PASS TO USTR AGAMA
TREASURY FOR PETERS, RHALL
DOC FOR 3317/ITA/OA/KBURRESS
DOC FOR 3130/USFC/OIO/ANESA/DHARRIS

E.O. 12958: N/A
TAGS: EFIN ECON EINV PGOV NI
SUBJECT: NIGERIA: NIGERIA SEEKS A SECOND PSI WITH IMF

REF: A. ABUJA 1191
B. ABUJA 1014
C. 07 ABUJA 2589
D. 07 ABUJA 1954
E. 07 ABUJA 426
F. 06 ABUJA 519
G. 05 ABUJA 497

1. (SBU) SUMMARY: On June 11, the IMF briefed Development Partners
on a mid-May visit to Nigeria regarding discussions for a second
Policy Support Instrument (PSI) between Nigeria and the IMF. The
IMF mission commented that Nigeria's economic performance remained
strong; output had grown, inflation was in the single digits and
external and fiscal positions had strengthened significantly. The
financial sector was growing and supporting private economic
activity. The IMF expects Nigeria's economic outlook would remain
favorable if appropriate GON policies were sustained; but expressed
concern regarding the delayed 2008 budget passage, and rapid
depletion of the Excess Crude Account (ECA) in the face of dwindling
oil production. The IMF welcomed the GON intention to maintain a
close policy dialogue in the context of a second PSI. If the IMF
proceeds with a second PSI it would signify endorsement of President
Yar'Adua's economic programs and policies at least in areas of broad
macroeconomic management. END OF SUMMARY
.
PSI Primer
----------
.
2. (U) In May, an IMF mission spent several weeks in Nigeria
discussing a new economic management program to be supported by its
PSI. The visit was at the invitation of the GON. On June 11, the
IMF Senior Resident Representative, Michael Bell, briefed
Development Partners on the GON-IMF discussions, and noted that
negotiations on a second PSI for Nigeria are still on-going. (NOTE:
The IMF had in October 2005 approved a two-year PSI for Nigeria
under its newly created PSI framework. The PSI supported Nigeria's
economic reform efforts which commenced in 2004. The first PSI was
based on Nigeria's National Economic Empowerment and Development
Strategy (NEEDS) and Poverty Reduction Strategy, and focuses on
rapid and sustainable non-oil growth and poverty reduction. (See
reftels D, E, F & G. END NOTE.)
.
Current Macroeconomic Environment
---------------------------------
.
3. (U) The IMF observed that economic growth would continue at about
9%, driven by strong performance in agriculture and trade.
Inflation has been kept at single digits, but food inflation remains
volatile. Foreign reserves exceeded $59 billion as of end-May 2008
and were projected to hit $85 billion by December 2008. The
remaining external debt of $3.3 billion at end-2007 is largely to
multilateral creditors. The financial sector is stronger and
expanding rapidly with bank branches and deposit accounts having
grown significantly from 1.7 trillion naira ($14.17 billion) in 2004
to 2.23 trillion naira ($18.58 billion) by end of 2007. The IMF
also noted that Nigerian banks have increased lending to the private
sector particularly in oil and gas. Private sector credit as a
percentage of GDP rose from 12% in January 2006 to 22% in January
2008. However, broad money grew from 18% in January 2006 to 60% in
January 2008, potentially posing a serious threat to monetary
management.

4. (U) Nigeria is also increasingly integrating into global
financial markets; the volume of debt internationally traded grew
from $3 billion in December 2006 to $9 billion at the end of 2007.
Investment in naira assets has been spurred by improved
macroeconomic conditions, robust external reserves, and global
liquidity developments.
.
Emerging Challenges
-------------------
.
5. (U) The IMF team highlighted the challenge to past success in
de-linking domestic spending from oil revenue flows. It is
concerned with rapid depletion of oil revenue savings in the face of
dwindling oil production. The IMF also noted caution that the
changing composition of official spending complicates fiscal policy.
Increased fiscal discipline at the federal level could be negated
by larger expenditures by states and local governments driven by
large releases from the ECA (reftel A). The team reiterated the
need for the GON to secure agreement with states on a fiscal
framework that would continue to de-link spending from oil revenue
flows and protect macroeconomic stability


ABUJA 00001289 002 OF 002


6. (U) The IMF lamented that the oil sector has been negatively
affected by continuing unrest in the Niger Delta, resulting in oil
production disruptions. Non-oil growth is also constrained by poor
infrastructure, especially the lack of electricity. The IMF
cautioned that excessive spending could cause the prospects for
non-oil growth to deteriorate. It encouraged the GON to address the
infrastructure gap within a strengthened public financial management
system (reftel G).

7. (U) According to the IMF, increased private credit has fuelled
rising private demand, and a rapid rise in broad money. Local banks
are offering new products found in other emerging markets, and are
expanding into cross-border and cross-sector activities. The
surging investment in naira assets and global integration underscore
the increasing need to maintain good policies and adjustment to
sustain macroeconomic stability. The IMF cautioned that growing
money demand from the rapidly changing financial system and
increased capital flows pose serious challenges to monetary
management.
.
Moving Ahead
------------
.
8. (U) The IMF welcomed the GON intention to maintain a close policy
dialogue in the context of a second PSI, however, it encouraged the
GON to strengthen fiscal discipline, prioritize spending in line
with absorptive capacity in addressing infrastructure needs to
sustain non-oil growth, and synergy between fiscal and monetary
policies. It urged that prudent fiscal policies -- in particular,
the oil price based fiscal rule -- be sustained for macroeconomic
stability. It stressed that the GON should secure agreement with
the states on a fiscal framework to delink spending from oil revenue
flows to protect macroeconomic stability, and called for the
replication of economic reform legislations, such as the Public
Procurement and Fiscal Responsibility, at the States level to widen
and institutionalize reforms. On Nigeria's increasing integration
into global financial markets and the growth opportunities it
offers, the GON was advised to stay ahead of developments in the
financial sector, and strengthen banking supervision.
.
Comment
-------
.
9. (SBU) Nigeria's major challenge remains maintaining an
appropriate mix of the fiscal and monetary policies required to
maintain low inflation and macroeconomic stability for robust
economic growth. The recent trend of large extra-budgetary fund
releases from the ECA does not indicate that the Yar'Adua
administration could sustain fiscal discipline, particularly at the
sub-national levels. The resulting fiscal expansion has placed the
burden of controlling inflation solely on the Central Bank of
Nigeria (CBN). In response, the CBN has recently used stronger
measures to reduce money growth -- including increased sales of
foreign exchange, more aggressive open market operations, and a
further increase in monetary policy rate (MPR) and cash reserve
requirements (CRR) (see reftel B). It also has required an increase
to capitalization for stockbrokers.

10. (SBU) A second PSI for Nigeria would signify IMF endorsement of
the administration's macroeconomic management under the Yr'Adua
vision 20/20/20 (Nigeria being the 20th largest economy in 2020) and
would be a positive signal to investors. The IMF is preparing a
report for IMF Board approval on the visit, and when the Board
approves will send the report and notify the GON of the IMF's
willingness to continue PSI discussions. Following that, it will be
up to the GON to formally notify the IMF that it intends to sign a
second PSI. The IMF expects the discussions to end in 2008 and that
a new PSI will be in place by January 2009.

SANDERS

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO:

 
 
 
 
 
 
  • Pacific.Scoop
  • Cafe Pacific
  • PMC