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Cablegate: The Fourth and Final Imf Review of Nigeria's Psi

VZCZCXRO3583
PP RUEHC
DE RUEHUJA #1954/01 2531304
ZNR UUUUU ZZH
P 101304Z SEP 07 ZDK CTG MANY SVC'S
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 0888
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 7856
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 001954

SIPDIS

SENSITIVE

SIPDIS

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

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

Ref: A. ABUJA 426

B. 2006 ABUJA 2397
C. 2006 ABUJA 519

ABUJA 00001954 001.3 OF 002


SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY.

1. (SBU) Summary. In its fourth Nigeria review, the IMF will
recommend a positive outcome and noted satisfaction with overall
macroeconomic figures. The third review had a few benchmarks that
were not met, one of which questioned a $200 million loan from the
Chinese Export Import Bank. Data from the Central Bank of Nigeria
(CBN) showed that inflation is currently 6%, foreign exchange
reserves are increased steadily to $43.5 billion, and the non-oil
sector growth rate was 8%. However, overall GDP growth was
constrained by instability in the Niger Delta. The IMF expressed
concern with key issues regarding the management of oil resources
and the excess crude account (ECA). The final report to the IMF
Board is due in mid-October. GON and IMF would like to continue
their relationship, but in what form has yet to be determined. End
Summary.

2. (SBU) On August 31, Michael Bell, International Monetary Fund
(IMF) Senior Resident Representative, held a briefing on the 4th and
final review of the Government of Nigeria's (GON) Policy Support
Instrument (PSI). Nigeria's PSI began in October 2005 for a two
year period with reviews mandated every six months. The goal of the
PSI was to further reform momentum and assist Nigeria in paying off
its Paris and London Club debts.
.
-----------------------
Third Review Highlights
-----------------------
.
3. (SBU) IMF staff recommended completion of the third review
although a number of benchmarks had not been met. Waivers were
recommended for five structural assessment criteria and two
quantitative criteria on reserve money and concessional external
borrowing. The concessional borrowing was a $200 million loan from
the Chinese Export Import Bank to finance a telecommunications
satellite. The loan caused a staff judgment of "nonobservance" of
the continuous assessment criteria that no new non-concessional
external debt be contracted or guaranteed during the PSI period.
Major challenges noted following the third review were: fiscal
policy remaining consistent with macroeconomic activity, developing
and implementing guidelines on the effective use of oil savings to
ensure that more efficient and targeted capital expenditures are
maintained, and continuing structural reforms.
.
---------------------------
The Fourth and Final Review
---------------------------
.
4. (SBU) Bell reported that IMF staff would recommend a positive
evaluation and considered the overall macro economic outlook as
positive. There will not be as many waivers as before and those the
GON requested were minor. The tone of the review was very cordial
and data were forthcoming in contrast to the third review. The
fourth review was based on five structural assessment criteria and
three structural benchmarks. Three structural assessment criteria
were met and two not met. Bell did not indicate the status of the
structural benchmarks.

Structural Assessment Criteria:
-- Complete restructuring of Ministries, Departments and Agencies
(met).
-- Bid opening of the Abuja Electricity Distribution PLC (not met).
-- Issue reports on State Economic Empowerment and Development
Strategy (SEEDS) benchmarking for 36 states (met).
-- Federal Inland Revenue Service (FIRS) to implement a human
resource management system (not met).
-- CBN introduction of a vehicle/instrument to reduce interest rate
volatility (met).

Structural Benchmarks:
-- Complete restructuring of CBN, National Bureau of Standards,
Nigerian National Petroleum Corporation (NNPC), Center for
Management and Development and FIRS.
-- Open bids of sale of eight oil service companies.
-- Nigerian Customs Service to conduct survey of personnel.

5. (SBU) Bell indicated that inflation is 6%, much lower than the
IMF projection of 9%. Foreign exchange reserves increased to $43.5
billion. The non-oil sector growth rate was 8% and GDP growth rate

ABUJA 00001954 002 OF 002


at 4%. Bell contended that overall GDP growth rate was less than
expected because of oil production losses in the Niger Delta. This
resulted in an overall lower than expected export growth rate.

6. (SBU) There was a significant carryover of deficits from last
year with increased expenditures higher that expected. For 2007,
expenditures have been lower than expected and the new
administration will not submit to large carryovers from year to
year. Fiscal policy is on track for the first part of the year, but
the IMF said there may be challenges for the rest of the year. The
2008 budget submission is expected to be submitted in October and
passed before the end of this year. Last year was the first time
since 1999 that the budget was passed by the National Assembly
before the new year started. The IMF has insisted that the 8/i^QQ2reserve money (currency in circulation and with the CBN)
assessment criteria, with the GON contending it has met the target,
but IMF disagreement on definitional issues.
.
----------------------
Managing Oil Resources
----------------------
.
7. (SBU) The IMF commented that one major key issue was the
management of oil resources. Production from traditional producing
areas is down and the sector is facing new challenges. The oil and
gas sector needs more reinvestment to facilitate expansion,
especially in the gas sector where the GON has ordered that flaring
cease by 2008. The IMF stressed the need for an effective mechanism
for preserving the oil price windfall and that there need to be
clear guidelines for the use of the excess crude account (ECA). The
decisions on usage and spending of the ECA should be based on
rigorous criteria. The court system is examining whether the ECA is
constitutional, and the IMF is concerned that without it
unproductive spending is likely to increase.
.
----------
Next Steps
----------
.
8. (SBU) The deadline for IMF report submission and PSI expiration
is October 16, 2007. IMF officials expect the final report to be
submitted by mid-October. In addition there will be a regular IMF
country assessment team viS/Sv$Q.Q6QQ. (SBU) Comment: Nigeria has gained from the monitoring role the
PSI has played. It has improved macroeconomicFQ{I and
civil service transformation. The PSI lent credibility and served as
an outside auditor keeping GON actions under close surveillance.
Embassy will work closely with the IMF representative and other
local contacts to monitor new borrowing and other actions which
might erode recent achievements. With close to 70% of the GDP in
West Africa, Nigeria can be a role model and set the direction of
the region. Continued reforms are still ongoing and until they are
clearly entrenched and institutionalized, Nigeria has much to gain
from continued PSI support. End Comment.

GRIBBIN

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