VZCZCXRO6213
RR RUEHPA
DE RUEHUJA #0519 0620617
ZNR UUUUU ZZH
R 030617Z MAR 06
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC 4790
INFO RUEHOS/AMCONSUL LAGOS 3512
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS ABUJA 000519 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS TO USTR FOR C. HAMILTON 
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 ECON NI
 
SUBJECT:  THE FIRST IMF FINDINGS REVIEW OF NIGERIA PSI 
 
¶1. Summary: On February 28, the International Monetary Fund 
(IMF) review team debriefed the international community on 
their six-month assessment of Nigeria's Policy Support 
Instrument (PSI).  They said the PSI was "on track", and 
that all benchmarks have been met, except for the late 
submission of the Nigeria Extractive Industry Transparency 
Initiative's (NEITI) first interim report. When asked about 
the potential impact of the higher reference price for oil 
in the 2006 budget, the team was non-committal. End summary. 
 
 ¶2. An IMF review team in Nigeria from February 15-28 
briefed the international community on the results of the 
six month assessment of Nigeria's PSI on February 28. The 
final report of the IMF assessment will be presented to the 
Fund's Management and then to the Executive Board for 
discussion by mid April.  Overall growth and performance 
were good, fiscal policy was on track and measures had been 
taken to strengthen monetary policy during the second half 
of 2005. The "core" inflation rate was down and had been in 
the single digits for the past two to three months. 
 
¶3. During this period the Central Bank of Nigeria (CBN) used 
an exchange rate band but, in the long term, the CBN was 
looking to have more exchange rate flexibility. The CBN had 
established a Monetary Policy Department and issued a policy 
statement in mid-February that stated its intention to have 
a more flexible exchange rate and to extract liquidity from 
the market. On structural performance all the targets were 
met except for the first interim NEITI audit.  It was 
originally scheduled to be completed in December 2005, but 
was completed in early January 2006. 
 
¶4. Looking forward, the Executive Board of the IMF wanted 
the reforms to continue in several areas, including budget 
and monetary policy, the reduction of civil servants and 
public expenditure tracking. The areas that the IMF wants 
the reforms to be extended are privatization and the 
expansion of "due process" (anti-corruption and public 
procurement) from the federal to state level (Six pilot 
states have been selected).  New areas of reform include 
customs and trade facilitation and the passage of key 
legislation on fiscal responsibility. 
 
¶5. Though the GON's reforms are very ambitious, the IMF team 
noted the GON showed no signs of reform fatigue, a good 
indicator that things were slowly beginning to turn around. 
The enactment of reform-related legislation like the Public 
Procurement Bill and the Fiscal Responsibility Bill would 
help to institutionalize reforms. 
 
¶6. Comment: Macroeconomic reforms are still fragile and can 
still be subjected to shocks to the economy.  The recently 
passed budget has increased the benchmark price for oil from 
US$33 to US$35 per barrel, and the CBN Governor, Charles 
Soludo has criticized this change for its potential 
inflationary impact.  When questioned about this the IMF 
review team was non-committal. Though the "core" inflation 
rate has gone down to a single digit, the "headline" 
inflation rate, which covers essential food items, remained 
in double digits at the end of 2005.  The National Bureau of 
Statistics had the year-on-year inflation rates as of 
October 2005 declining from 23.1% to 22.1%. Financial 
Derivatives Company Limited, a Lagos-based economic think 
tank also concurred on the decline of the year-to-year 
inflation rate from 24.9% to 24.2% during the same period. 
In contrast, the CBN had the year-to year inflation rate at 
11.9% and the 12 month average inflation rate at 17.9% in 
its monthly report for December 2005.  The problems in the 
Niger Delta have reduced petroleum output and therefore the 
revenues upon which the budget was based. Prolonged 
interruptions of significant levels of oil production are an 
even more serious concern. End Comment. 
 
CAMPBELL