Cablegate: Nigeria: Donors Discuss 2002 Budget, Prsp And

This record is a partial extract of the original cable. The full text of the original cable is not available.



E.O. 12958: N/A

1. Summary. A donors meeting in Brussels November 19-20
focused on Nigeria's macroeconomic situation, the 2002 budget
and the Poverty Reduction Strategy (PRS) process. Although
GON economic progress for most of the year has been languid,
donors agreed that the GON showed fourth quarter improvement
with lower spending, slower monetary growth and a more
liberal foreign exchange market. Given flagging global oil
prices, donors questioned the assumption of $18 per barrel of
crude oil as the basis for 2002 budget revenue projections.
The GON's large public wage bill (recurrent expenditures
represent 65 percent of the total 2002 draft budget
expenditures) was also received as an issue of concern.
Donors were disappointed that the draft IPRSP did not contain
a clear roadmap for how the GON expects to achieve the full
PRSP. End Summary.

2. Core donors met in Brussels November 19-20 to discuss
Nigeria's 2002 Budget, the Interim Poverty Reduction Strategy
Paper (IPRSP) and medium-term development priorities. The
first day was devoted to donors only sessions. The GON
delegation, led by Principal Secretary to the President
Stephen Oronsaye, attended the November 20 meeting. In
addition to USAID Country Director, USAID Economist and
Embassy EconOff, representatives from the IMF, World Bank,
DFID and officials from the European Union, the Netherlands,
Germany, Belgium, Sweden, France, Denmark and Canada
attended. Other GON attendees included Director-General of
the Debt Management Office, Akin Arikawe and Secretary of the
Economic Policy Coordinating Committee (EPCC), Festus

Macroeconomic Performance

3. The IMF Representative Arvind Subramanian opened the
conference with a short presentation on Nigeria's
macroeconomic situation. He commented that 2001
macroeconomic performance was poor. GON performance was
checkered by an overly expansionary fiscal policy, inflation
at roughly 19 percent and a spread of 20 percent between the
parallel and official exchange rates. Moreover, GON failure
to save a significant part of the USD 8 billion in 2000-2001
excess oil proceeds for a rainy day had stymied the IMF's
priority objective for Nigeria, the avoidance of boom-bust
cycles. Subramanian said the IMF Board would meet the week
of November 26 to discuss Nigeria's fourth quarter
performance and next steps.

4. Subramanian claimed that fourth quarter performance had
improved. The GON, he said, had restricted spending from
roughly N30 billion per month to N20 billion per month.
Monetary growth slowed from 50 percent in September to 28
percent by December. The exchange rate market had
liberalized somewhat now that the CBN was allowing the
purchase of foreign exchange at more than a 0.5 percent
difference from the official rate.

2002 Budget Proposal

5. On the 2002 budget, the IMF believed the proposal was more
transparent and realistic than the 2001 budget. The capital
budget was significantly smaller than 2001 with all projects
subject to due process review. However, overall spending
showed virtually no decline from 2001. Many donors were
concerned that the GON assumption of USD 18 per barrel for
oil exports would not be realized in 2002 and would,
therefore, result in higher deficit spending since actual
revenue would not match the estimated earnings.

6. Responding to a donor inquiry, Presidential Principal
Secretary Oronsaye stated that the President would not

revisit the oil price assumption, but would work with the
National Assembly to trim from the budget an additional N50
billion (USD 446 million). (Comment. The President will
face an uphill battle negotiating a further budget reduction
since many national legislators already deem the budget too
austere. End Comment.) However, Oronsaye pledged, should
world oil prices plummet, the GON would not succumb to
deficit spending; the GON would only release allocations
based on actual revenues.

Interim Poverty Reduction Strategy Paper

7. There was general dissatisfaction with GON progress on the
IPRSP submitted to the donors November 16. The World Bank
representative pointed out the IPRSP should not be an
abbreviated PRSP, but rather a roadmap describing the process
the GON will follow to develop the full PRSP. The roadmap
should describe the information and analysis needed to
determine the sources of poverty, identify available GON
resources and prioritize anti-poverty programs. However, the
GON's draft IPRSP lacks this strategic roadmap. Many donors
felt the draft IPRSP did not reflect inputs from a broad
range of Nigerian stakeholders nor did it show the requisite
understanding of poverty and its causes. Donors expressed
concern that the PRSP should be a document -- planned,
authored and fully embraced by Nigerians -- and not an
artificial paper exercise driven by donor community demands.

8. Attempting to defend the IPRSP, the GON delegation replied
that the EPCC had received input from state governments and
by end-December would hold a stakeholders meeting with civil
society on the PRSP. Oronsaye promised the process would be
open-ended and non-exclusive. He also recognized that the
PRSP must rely solely on Nigerian resources, although a large
resource gap would exist, hopefully to be partly filled by
donor support. The World Bank representatives said that the
Bank would provide the GON with examples of successful IPRSPs.

Medium Term Objectives/Challenges

9. The donors identified the following medium-term
development priorities for Nigeria:

-- civil service reform; the public wage bill is too large,
preventing allocation of resources to poverty alleviation;

-- development of Nigeria's non-oil sector; use of oil
revenues to promote private sector investment in the non-oil
economy; privatization will be key to recovering efficiency;

-- development of agriculture to accelerate poverty reduction;

-- cessation of GON involvement in steel production; Ajeokuta
revitalization should stop; and

-- capacity-building within the Office of the Chief Economic
Advisor, particularly the Federal Office of Statistics, in
order to facilitate the PRSP process.

10. The GON delegation agreed with most of these goals,
although Oronsaye asserted that the President would not
tackle civil service reform before the 2003 Presidential
elections. The delegation raised the issue of debt relief.
Akin Arikawe felt strongly that the GON's debt obligations
were unsustainable, particularly now that Nigeria is outside
a formal IMF program.

11. Comment. The Brussels meeting provided donors a valuable
opportunity to discuss the status of Nigeria's progress
vis--vis the IMF and the Poverty Reduction Strategy. The
IMF's characterization of Nigeria's fourth quarter
macroeconomic performance bodes well for the next IMF team's
visit to Abuja in January. However, Embassy believes that
the IMF's optimism about further reduction of proposed
capital expenditures is misplaced. The GON pledge that the
President would not bend to deficit spending pressure should
oil prices fall was reassuring; however, the GON will be
hard-pressed to honor that pledge if oil prices remain low,
especially when the election season begins in earnest and
political considerations take precedence over economic
imperatives. End Comment.

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