国际货币基金组织（IMF）：尼日利亚：融资后评估报告

INTERNATIONALMONETARYFUND

IMFCountryReportNo.24/49

NIGERIA

February2024

POST-FINANCINGASSESSMENTRELEASE;ANDSTAFFREPORT

DISCUSSIONS—PRESS

InthecontextofthePost-FinancingAssessmentdiscussions,thefollowingdocumentshavebeenreleasedandareincludedinthispackage:

·APressRelease.

·TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard's

considerationonalapse-of-timebasis,followingdiscussionsthatendedonOctober27,2023,withtheofficialsofNigeriaoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwas

completedonDecember14,2023.

TheIMF'stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities'policyintentionsinpublishedstaffreportsandotherdocuments.

Copiesofthisreportareavailabletothepublicfrom

InternationalMonetaryFund·PublicationServicesPOBox92780·Washington,D.C.20090

Telephone:(202)623-7430·Fax:(202)623-7201

E-mail:publications@Web:

InternationalMonetaryFund

Washington,D.C.

◎2024InternationalMonetaryFund

IMFExecutiveBoardConcludes

PostFinancingAssessmentwithNigeria

FORIMMEDIATERELEASE

PRESSRELEASE

PR24/43

Washington,DC-February9,2024:OnJanuary12,2024,theExecutiveBoardofthe

InternationalMonetaryFund(IMF)concludedthePostFinancingAssessment(PFA)'and

endorsedtheStaffAppraisalonalapse-of-timebasis.2Nigeria'scapacitytorepaytheFundisadequate

PresidentTinubuhasmovedaheadwithimportantstructuralreforms:removingfuelsubsidiesandunifyingthevariousofficialforeignexchangewindows.HeappointedaPresidentialFiscalPolicyandTaxReformsCommitteetomakeproposalsforraisingdomesticrevenuetosupportinvestmentsininfrastructure,health,andeducation.Toeasetheimpactofrapidlyrising

inflationonlivingconditions,thegovernmenthasreleasedcerealsfromthegrainreserve,

providedsubsidizedfertilizertofarmers,cappedretailfuelandelectricityprices—thuspartiallyreversingthefuelsubsidyremoval—implementedacivilservicewageaward,andsuspendedtheVATondiesel.

NigeriaexitedtheCovid-19recessionquickly,butgrowth,heldbackbythehydrocarbon

economy,isbarelykeepingupwithpopulationdynamics.Lowrevenuecollectionhamperstheprovisionofservicesandpublicinvestment.Securityconcernspersistinthenorthernpartofthecountry,adverselyaffectingagricultureandfoodsecurity.Latestestimatesshow25million(13percentofthepopulation)asfoodinsecure.Thepovertyratewas37percentin2022.

Growthisprojectedat2.9percentfor2023,and3percentin2024,ashydrocarbon

performancerevives,includingfrombettercontroloftheft.Iftheauthoritiessucceedin

developingandimplementingacomprehensivereformagenda,themedium-termoutlook

wouldbemuchimproved.Headlineinflationreached27percentyear-on-yearinOctober(foodinflation32percent),reflectingfuelsubsidyremoval,exchangeratedepreciation,andpoor

agriculturalproduction.Whilethecurrentaccountregisteredasurplusinthefirsthalfof2023,the30-dayaverageofgrossinternationalreserves(GIR)reportedbytheCentralBankof

Nigeria(CBN)declinedto$33bilioninOctober,covering6monthsofimports.

ExecutiveBoardAssessment

Thenewadministrationhasmadeastrongstart,tacklingdeep-rootedstructuralissuesinchallengingcircumstances.Immediately,itadoptedtwopolicyreformsthatitspredecessorshadshiedawayfrom:fuelsubsidyremovalandtheunificationoftheofficialexchangerates.Sincethen,thenewCBNteamhasmadepricestabilityitscoremandateanddemonstrated

1AftercompletinganIMFlendingproaram,acountrymaybesubjecttoaPostFinancingAssessment(PFA).Itaimstoidentifyriskstoacountry'smedium-temviabiltyandprovideearlywamingsonriskstotheIMF'sbalancesheets.Formoredetailsclickhere.

2TheExecutiveBoardtakesdecisionsunderislapse-oftimeprocedurewhenitisagreedbytheBoardthataproposalcanbe

consideredwithoutconveningformaldiscussions.

70019thStreetNW

Washington,DC20431

USA

IMF.org

2

thisresolvebydroppingitspreviousroleindevelopmentfinance.Onthefiscalside,theauthoritiesaredevelopinganambitiousdomesticrevenuemobilizationagenda.

Likemanyothercountries,Nigeriafacesadifficultexternalenvironmentandwide-ranging

domesticchallenges.Externalfinancing(marketandofficial)isscarce,andglobalfoodpriceshavesurged,reflectingtherepercussionsofconflictandgeo-economicfragmentation.Per-

capitagrowthinNigeriahasstalled,povertyandfoodinsecurityarehigh,exacerbatingthe

cost-of-livingcrisis.Lowreservesandverylimitedfiscalspaceconstraintheauthorities’optionspace.Againstthisbackdrop,theauthorities’focusonrestoringmacroeconomicstabilityandcreatingconditionsforsustained,highandinclusivegrowthisappropriate.

TheCBNhassetoutonawelcomepathofmonetarytightening.TheGovernorhascommittedtomakingpricestabilitythecoreobjectiveofmonetarypolicy,andtheCBNhastakenactionstomopupexcessliquidity.Continuingtoraisethemonetarypolicyrateuntilitispositivein

realtermswouldbeanimportantsignalofthedirectionofmonetarypolicy.TheauthoritiesareexploringoptionstostrengthenNigeria’sreserveposition,thoughacarefulassessmentof

unintendedconsequencesisneededinsomecases.SettlingtheCBN’soverduedollarobligationswillhelprebuildconfidenceinthecentralbankandthenaira.Sharing

comprehensiveinformationonNigeria’sreservespositionwouldfacilitateamorecompleteassessmentoftheexternalsituation.

Thegovernment’sfocusonrevenuemobilizationanddigitalizationwouldimprovepublic

servicedeliveryandsafeguardfiscalsustainability.Theenvisagedreductionintheoveralldeficitin2024wouldhelpcontaindebtvulnerabilitiesandeliminatetheneedforCBN

financing.Temporaryandtargetedsupporttothemostvulnerableintheformofsocial

transfersisneeded,giventheongoingcost-of-livingcrisis.Fuelandelectricitysubsidiesarecostly,donotreachthosethatmostneedgovernmentsupportandshouldbephasedout

completely.

StaffassessesthatNigeria’scapacitytorepaytheFundisadequateunderthebaseline.Theauthorities’policyintentionsarewellplacedtoaddressrisksofadownsidescenariowhere

difficulttrade-offsmayarisebetweenurgenthumanitarianneedsanddebtservice,includingto

theFund.Insuchcircumstancesaggressivemonetarytighteningandfiscaladjustmentcombinedwithsupportfromdevelopmentpartnerswouldbeneededtorestore

macroeconomicstability.

3

Table1.Nigeria:SelectedEconomicandFinancialIndicators,2022–25

2022

Act.

2023

Est.

2024

Proj.

2025

Proj.

Nationalincomeandprices

RealGDP(at2010marketprices)

OilandGasGDP

Non-oilGDP

Non-oilnon-agricultureGDP

Productionofcrudeoil(millionbarrelsperday)

NominalGDPatmarketprices(trillionsofnaira)

Nominalnon-oilGDP(trillionsofnaira)

NominalGDPpercapita(US$)

GDPdeflator

Consumerpriceindex(annualaverage)Consumerpriceindex(endofperiod)

Investmentandsavings

Grossnationalsavings

Public

Private

Investment

Public

Private

(Annualpercentagechange,unlessotherwise

3.3

-19.2

5.0

6.2

1.38

202.4

190.4

2,202

11.3

18.8

21.3

specified)2.9

1.4

3.0

3.8

1.46

245.3

229.8

1,699

17.8

25.0

31.1

3.0

2.5

3.1

3.4

1.47

305.4

278.9

1,219

20.8

25.2

17.1

3.1

3.8

3.0

3.3

1.52

355.2

326.7

1,271

12.8

14.8

15.0

(PercentofGDP)

20.2

-2.3

22.5

19.9

2.5

17.5

19.7

-1.6

21.2

19.2

3.1

16.1

20.2

-0.1

20.3

19.5

3.3

16.3

21.8

-0.2

22.0

21.2

3.6

17.6

Consolidatedgovernmentoperations(PercentofGDP)

Totalrevenuesandgrants

Ofwhich:oilandgasrevenue

Ofwhich:non-oilrevenue

Totalexpenditureandnetlending

Ofwhich:fuelsubsidies

Overallbalance

Non-oilprimarybalance

Publicgrossdebt1

Ofwhich:Fxdebt

FGNinterestpayments(percentofFGNrevenue)

9.1

3.8

4.8

14.5

2.2

-5.4

-6.9

38.7

8.5

90.4

9.4

4.3

4.9

14.8

0.9

-5.4

-7.0

45.6

15.6

83.4

10.8

5.4

5.3

15.1

0.8

-4.3

-6.6

44.5

16.7

81.1

10.9

5.1

5.8

15.5

0.1

-4.5

-6.4

44.3

17.9

79.2

4

Moneyandcredit

Broadmoney(percentchange;endofperiod)Netforeignassets

Netdomesticassets

Ofwhich:Claimsonconsolidated

government

Credittotheprivatesector(y-o-y,percent)

Velocityofbroadmoney(ratio;endofperiod)

Externalsector

Currentaccountbalance(percentofGDP)

Exportsofgoodsandservices

Importsofgoodsandservices

Termsoftrade

PriceofNigerianoil(US$perbarrel)

Externaldebtoutstanding(US$billions)2

Grossinternationalreserves(US$billions,CBNdefinition)3

(equivalentmonthsofimportsofG&Ss)

(Changeinpercentofbroadmoneyatthebeginningoftheperiod,unlessotherwise

17.4

-11.5

28.8

26.2

19.9

3.6

specified)

24.2

-5.6

29.8

9.1

20.2

3.5

17.4

-13.0

30.4

3.1

20.6

3.6

14.93.3

11.5

1.616.5

3.7

(Annualpercentagechange,unlessotherwise

0.2

35.9

14.2

12.6

99.0

119.9

36.6

6.6

specified)

0.5

-12.6

-13.2

-7.9

82.4

110.1

27.9

5.0

0.7

-3.1

-0.5

-1.6

81.2

109.1

23.8

4.4

0.6-5.2-1.9-3.277.4

114.0

26.3

4.9

Sources:Nigerianauthorities;andIMFstaffestimatesand

projections.

1GrossdebtfiguresfortheFederalGovernmentandthepublicsectorincludeoverdraftsfromtheCentralBankofNigeria(CBN).

2Includesbothpublicandprivatesector.

3BasedontheIMFdefinition,thegrossinternationalreservesare$8.2

billionlowerin2023.

INTERNATIONALMONETARYFUND

NIGERIA

POST-FINANCINGASSESSMENTDISCUSSIONS

December14,2023

EXECUTIVESUMMARY

Context.ThenewadministrationunderPresidentTinubuhasstarteditstermwithboldreformsinchallengingcircumstances.Theauthoritiesquicklyimplementedtwomajorreforms:removingfuelsubsidiesandunifyingthevariousofficialforeignexchange

windows.Growthislackluster,inflationhighandaccelerating,andpressuresonthe

nairapersist.Withwidespreadpovertyandrisingfoodinsecurity,socialdemandsfor

governmentsupportaregrowing.Theexternalenvironment—accesstofinancing,foodprices—remainsdifficult,highoilandgaspricesnotwithstanding.

Policies.Theneweconomicteamisfocusedonrestoringeconomicandfinancial

stability,whiledevelopingacomprehensivegrowthagenda.Themainshort-term

challengeistoreinininflationandsafeguardexternalstability.Overthemedium-term,significantlyraisingdomesticrevenuemobilizationisneeded,whiledevelopinga

structuralreformagendathatfacilitateshighandinclusivegrowth.

·Monetaryandexchangeratepoliy:TheCentralBankofNigeria(CBN)is

refocusingonpricestabilityasitscoreobjectiveandhastakeninitialstepstotightenfinancialconditions.Asustainedtighteningcycleisneededtobringdowninflation.This,togetherwithrebuildingconfidenceintheCBN,willhelpstabilizethenaira,andmitigaterisksofaninflation-depreciationspiral.

●Fiscalpolicy:Theauthoritiesaimtoaggressivelyincreaserevenuesandbring

downthedeficit.For2024,thebudgetwillhavetoaccommodateelectricityandpartiallyreturnedimplicitfuelsubsidiesandneededsocialtransfers.Settinga

realisticdomesticborrowingceilingiskeytophasingoutmonetizationofthedeficit

·Financialsectorpolicies.TheCBNhastakenimportantactionstomitigaterisks

inthebankingsystem.Tightsupervisionisneededtosafeguardstability.

CapacitytorepaytheFund.Nigeria'scapacitytorepaytheFundisadequatethoughsubjecttorisks.Intheeventofanadversescenarioinvolvinganinflation-depreciationspiralandaclimateshock,repaymentindicatorswouldweaken.

NIGERIA

2

INTERNATIONALMONETARYFUND

ApprovedBy

CostasChristou(AFR)andJarkkoTurunen

(SPR)

DiscussionstookplaceduringOctober23-27,2023,inAbuja.The

missionhelddiscussionswiththeMinisterofFinanceEdun,the

MinisterofStatefortheBudgetBagudu,theCentralBankofNigeriaGovernorCardoso,andotherseniorofficials.Thestaffteam

comprisedMessrs.Schimmelpfennig(head),Darius,Thomas,Ms.

Swen-Monmia(AFR),Ms.Kale(SPR),Mr.DeLunaMartinez(MCM);andMr.Ebeke(residentrepresentative),andMs.ManggaandMs.

Ikpechukwu(localeconomists).Mr.Ekeocha(OEDAE)participatedinkeypolicymeetings.Mr.Bhutiaprovidedresearchsupport.Ms.

Delcambreassistedwiththepreparationofthereport.

CONTENTS

BACKGROUND

4

RECENTDEVELOPMENTSANDOUTLOOK

5

RISKSTOTHEOUTLOOK

7

POLICYDISCUSSIONS

8

A.MonetaryPolicy

8

B.ExchangeRatePolicy

9

C.FiscalPolicy

10

D.FinancialSectorPolicies

13

CAPACITYTOREPAYANDADVERSESCENARIO

13

STAFFAPPRAISAL

16

BOX

1.IllustrativeUpsideScenariowithaComprehensiveReformProgram

12

TABLES

1.SelectedEconomicandFinancialIndicators,2020–28

18

2.BalanceofPayments,2020–24

19

3.GovernmentOperations,2020–24

20

4.FederalGovernmentOperations,2020–24

21

5.ConsolidatedGovernmentOperations,2020–24

22

6.CentralBankofNigeria(CBN)AnalyticalBalanceSheet,2020–24

23

7.MonetarySurvey,2020–24

24

NIGERIA

3

INTERNATIONALMONETARYFUND

8.IndicatorsofFundCredit–BaselineandDownsideScenarios(RFIArrangements),2023-28__259.FinancialSoundnessIndicators2020–2023–Q226

ANNEX

I.RiskAssessmentMatrix27

NIGERIA

4

INTERNATIONALMONETARYFUND

BACKGROUND

1.Lacklustergrowthoverthelastdecadehascontributedtopovertyandfoodinsecurity.

NigeriaexitedtheCovid-19recessionquickly,butgrowthisbarelykeepingupwithpopulation

dynamicsandthisyear’slargeexchangeratedepreciationisaffectingtheGDPpercapitalevel

significantly.Whilenon-oilgrowthhasaveraged5percentbetween2021-22,thehydrocarbon

economyhasdeclined(–14percent),andinflationisaccelerating.Lowrevenuecollectionhampers

theprovisionofservicesandpublicinvestment.Severesecurityconcernspersistinthenorthernpartofthecountry,adverselyaffectingagricultureandfoodsecurity.Latestestimatesshow25million

(13percentofthepopulation)asfoodinsecure.Thepovertyratewas37percentin2022.

14,000

12,000

10,000

8,000

6,000

4,000

2,000

GDPperCapita

(PPP,constantprices,2017Internationaldollars)

Nigeria

EmergingMarketandDevelopingEconomies Sub-SaharaAfrica

200020022004200620082010201220142016201820202022

14,000

12,000

10,000

8,000

6,000

4,000

2,000

30

25

20

15

10

5

0

FoodInsecureEstimates

(inmillionsofpeople)

Nov-20Apr-21Nov-21Apr-22Nov-22Aug-23

30

25

20

15

10

5

0

Sources:IMFWorldEconomicOutlook,WorldFoodProgram.

Note:FoodinsecurityreferstoLevel3andaboveaccordingtoWFPdefinitions

2.PresidentTinubucampaignedonareformagendaandhasmovedaheadwith

importantstructuralreforms.HetookofficeinMay,appointedhiscabinetinAugust,andanewCBNleadershipinSeptember.Twomajorreformswereimplementedupontakingoffice:removingfuelsubsidiesandunifyingthevariousofficialforeignexchangewindows.Heappointeda

PresidentialFiscalPolicyandTaxReformsCommitteetomakeproposalsforraisingdomestic

revenuetosupportinvestmentsininfrastructure,health,andeducation.Toeasetheimpactof

rapidlyrisinginflationonlivingconditions,thegovernmenthasreleasedcerealsfromthegrain

reserve,providedsubsidizedfertilizertofarmers,cappedretailfuelandelectricityprices—thus

partiallyreversingthefuelsubsidyremoval—implantedacivilservicewageaward,andsuspendedtheVATondiesel.Theseactionshavesofaravertednationwidestrikesbutcomeatafiscalcost.

3.In2021,theExecutiveBoardapprovedRFIfinancingofSDR2.5billionforNigeriainsupportoftheauthorities’policyactionstomitigatetheimpactoftheCovid-19pandemic.

ThisplacedoutstandingcredittotheFundabovetheSDR1.5billionthresholdforwhichaPost-FinancingAssessmentisrequired.ThisreportassessesNigeria’scapacitytorepaytheFundunder

NIGERIA

5

INTERNATIONALMONETARYFUND

Headline

Food

AllItemslessFarmProduceandEnergy

twoscenarios.Thebaselinescenarioispresentedintherecentdevelopmentsandoutlooksection,andadownsidescenarioispresentedinthecapacitytorepaysection.

RECENTDEVELOPMENTSANDOUTLOOK

Mutedgrowth,acceleratinginflation,andaweakexternalpositionposeshort-termpolicychallenges.Financialsectorhealthcouldweakenwithmutedactivity.

4.Growthremainsmuted.Growthaveraged2.4percentinH1-2023andimprovedto3.1percentinQ3.Activityinthehydrocarbonsector,agriculture,andtraderemainsweak,while

informationtechnologyandthefinancialsectoraregrowthdrivers.Growthisprojectedat2.9

percentfor2023,and3percentin2024,ashydrocarbonperformancerevives,includingfrombettercontroloftheft.Agriculture—employing40million—istheweakpoint,sufferingfromthe2022

floodingandelevatedfertilizerprices.

5.Medium-termgrowthisprojectedaround3percent,implyingadeclineinper-capitaGDPindollarterms.Themainengineofgrowthisthenon-oilnon-agriculturalcomponent

(3½percentgrowthperannum)withsignificantcontributionsfrominformationtechnologyand

finance.Oilandagriculturecontinuetolag,associatedwitharelianceonrain,weakinvestment,and

manifoldsecuritychallenges.Iftheauthoritiessucceedindevelopingandimplementingacomprehensivereformagenda,themedium-termoutlookwouldbemuchimproved.

6.Inflationisaccelerating,reflectingsupplyshocksandloosefinancialconditions.

CPIInflation

(percent,year-on-year,Jan'20-Oct'23)

35

30

25

20

15

10

5

35

30

25

20

15

10

5

Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23Jul-23

Sources:HaverAnalytics,NationalBureauofStatistics

Headlineinflationreached27percentyear-

on-yearinOctober(foodinflation

32percent),reflectingfuelsubsidyremoval,

exchangeratedepreciation,andpoor

agriculturalproduction.Financial

conditionsareloose(M3growthof

35percentyear-on-yearinJuly,anegative

realmonetarypolicyrate).Inflationis

projectedtopeakatend2023butthefood

componentrisesthroughQ12024linkedto

nairadepreciation.Byend2024,inflation

shouldgraduallyreturntohistoricallevels

(17percentyear-on-yearatend-2024),

helpedbybaseeffectsphasingoutandassumingmonetarypolicytightening.

7.Whilethecurrentaccountregisteredasurplusinthefirsthalfof2023,reserves

declinedsignificantly.Hydrocarbonexportshavedeclined,likelyowingtopervasivetheftand

inadequateinvestmentinupstreaminfrastructure.Profitrepatriationfromthehydrocarbonsectorhasalsodeclined,dampeningthenegativeimpactonthecurrentaccount.FDIremainssubdued,whileportfoliooutflows(equity,Eurobondrepayments,repatriations)haveincreased.TheCBN-

NIGERIA

6

INTERNATIONALMONETARYFUND

reported30-dayaverageofgrossinternationalreserves(GIR)declinedto$33billioninOctober

(almost$4billionbelowend-2022),covering6monthsofimportsand83percentoftheIMF’sARAmetric.

FollowingtheIMF’sdefinitionofGIR,$8billionin

securitiesareconsideredpledgedcollateralthatarethusnotreadilyavailable,reducingGIRunderthe

IMF’sdefinitionto$25billionatend-October2023.Theauthoritieshavenotsharedfullinformationonshort-termfxliabilitieswhichwouldbenecessaryto

60percent,convergingtotheparallelmarketrate.

Subsequently,theofficialratehastradedbetween

750-850naira/dollar.TheCBNpublishedits2013–22

financialstatementsinAugust—awelcome

transparencystep.MarketshavefocusedonestimatesovertheCBN’snetinternationalreservespositionandhowitisimpactedby:(i)partialinformationonfx

liabilitiesinthe2022statement;(ii)theCBN’soverduedollarobligationstodomesticbanksof$7billion;and(iii)abacklogofpendingdollardemandfrom

ExternalPosition

(aspercentofGDPunlessotherwiseindicated)

5

4

3

2

1

0

-1

-2

-3

-4

-5

CurrentAccountBalance

FinancialAccountBalance

ExternalReservesStock(rhs,inUS$billion)

20192020202120222023Q12023Q2

Thd

42

40

38

36

34

32

30

Sources:CentralBankofNigeria,IMFStaff

calculatenetinternationalreserves.Through2024–25,thefinancialaccountislikelytodeteriorate,withnoprojectedissuanceofEurobonds,largeFundandEurobondrepaymentsof$3.5billion,andportfoliooutflows.Hence,despiteacurrentaccountsurplus,officiallyreportedreservesare

projectedtodeclineto$24billionin2024beforeincreasingagainto$38billionin2028asportfolioinflowsresume.Staffprojectionsassumethattheauthoritiescanrolloverallmaturingforwardsandswaps.

8.Pressuresonthenairapersist,somepositivereformsnotwithstanding.Immediately

afterunificationoftheofficialforeignexchangewindows,theofficialexchangeratedepreciatedby

Naira-USDollarExchangeRate

1600

1400

1200

1000

800

600

400

200

0

PublicationofCBN

Financial

Statements

UnificationofOfficialExchangeRates

JPMorganEstimateofOverdueFXObligationsReleased

100

80

60

40

20

0

-20

Jan-23Mar-23May-23Jul-23Sep-23Nov-23

OfficialRateParallelRateParallel/OfficialPremium(inpercent,rhs)

Sources:Nigerianauthorities'dataandFundStaffcalculations

corporatesseekingtorepatriatefunds.Reflectingmarketconcernsandsegmentationandhigh

inflation,theparallelmarketratedepreciatedby35percentbetweenend-Julyandend-Octobertoabout1,100,andtheparallelmarketpremiumwidenedtoover40percent.

9.Nigeria’sexternalpositionwasassessedasmoderatelyweakerthanwarrantedby

fundamentalsanddesiredpolicysettingsinthe2022ArticleIVConsultation.Theassessmentwasdrivenbypersistentfxshortagesfacedbytheprivatesector,capitaloutflowpressures,and

relianceonimportandfxrestrictionstomanagefxpressures.Whileexchangerateunificationwaspositive,CBN’slownetreserveposition,shortageoffxintheofficialmarket,andloosefinancial

conditionsweighoninvestorconfidence.

10.Althoughthebankingsectorremainssound,capitalizationisdeclining.Nigeria’s

bankingsectorhassofarweatheredthelowgrowth,highinflationenvironment.Atend-June2023,mostbanksreportedprofitsfromrevaluationoffxassetsandeffectivemanagementoffxexposures.

NIGERIA

7

INTERNATIONALMONETARYFUND

Banksareliquid,withareportedliquidassetstoshort-termliabilitiesratioof34percentatend-June2023.Still,banks’capitaladequacyratiohasdeclinedto11percent.Goingforward,non-performing

loansareexpectedtoincreaseasdebtorsfacerepaymentdifficulties.Somebanksarefacing

problemsmaintainingtheircorrespondentbankrelationshipsduetodollarshortages,whichmayaffectcross-borderoperations,includinglettersofcreditforimporters.

11.Authorities’Views:Theauthoritiesbroadlyconcurwithstaff’sbaseline.However,they

emphasizedthattheyaredevelopingacomprehensivereformagendatoachievemuchhigher

growthrates.Theyexpectpressuresonthenairatosubsideasdollarsupplyimprovesandseetheofficialnairaratestabilizingatcurrentlevels,andtheparallelmarketratepremiumdeclining.

RISKSTOTHEOUTLOOK

Riskstotheoutlookaretothedownside,thoughstrongpolicyactionfromthenewgovernmentcouldyieldanupsidescenario.TheRAM(AnnexI)illustratesthechallengingenvironmentfacedbythenewauthorities.Policyreversalisariskandcouldalsoresultfromotherdownsiderisksmaterializing.

12.Inflation-depreciationspiral.Withoutsufficientmonetarypolicytightening,oriftherearefurthercommoditypriceshocks,inflationcouldcontinuetoaccelerate.Anadverseconfidenceshockcouldexacerbatethesearchfordollarsfromresidents,reinforcingthedesireofforeigninvestorstoliquidatelocalcurrencyholdings,andexertingmorepressureonthenaira.Suchadverseinflationorexchangerateshockswouldfeedintoeachother,potentiallyleadingtoaself-reinforcingspiral.

13.Growthisvulnerabletoagriculturalandoilproductionshocks.Aclimateshockwouldimpactagriculture—andthusfoodsecurity—becauseofthedominan