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