(C) NIGERIA'S IMF STAND-BY MAY NOT STAND

C O N F I D E N T I A L ABUJA 002301

SIPDIS


E.O. 12958: DECL: 09/14/2011
TAGS: ECON EFIN PREL NI
SUBJECT: (C) NIGERIA'S IMF STAND-BY MAY NOT STAND


(U) Classified by CDA Timothy D. Andrews for reasons 1.5 (b)
and (d).



1. (C) EconOff met 14 September with IMF team leader Hiroshi
Hino to discuss progress on the mission's review of Nigeria's
Stand-by Arrangement. According to Hino, the mission's "job
is very difficult," adding "I will not be recommending an
extension of the SBA nor a staff monitoring program to the
Board." The IMF Board will decide by October whether waivers
will be granted for unmet benchmarks, thereby enabling an
extension of the SBA, or whether the IMF will discontinue its
program with Nigeria altogether. Hino's recommendation will
figure substantially in the Board's deliberations.



2. (C) Hino specified that although Nigeria had met the
majority of the benchmarks, the GON had not made significant
progress on the most important ones. Specifically, he said,
first and foremost was spending: by end of June, GON capital
spending stood at N160 billion with another N88 billion in
warrants issued in August. The agreed targets established in
March by the IMF review set a N240 billion cap on capital
spending for the year. The IMF team's current projections
predict that the GON will spend at least N320 billion on
capital projects by year-end. Hino said that although the
GON perceived its spending as restrained and constituting
major progress toward the agreed target, "This performance is
inadequate."



3. (C) The second critical, but unmet, benchmark is on
reducing the spread between the official and parallel market
rates to no more than 10 percent. As of September 13, the
official rate stood at approximately N112 versus the parallel
rate of N131, leaving a spread of 17 percent. Hino commented
that they had seen virtually no efforts to eradicate the wide
disparity between rates.



4. (C) The third unmet benchmark is on monetary policy
performance -- the effectiveness of the Central Bank of
Nigeria (CBN) to soak up excess liquidity caused by high
capital expenditures. The CBN claims that its open market
operations have had a positive net effect on market
liquidity. However, Hino said, his team believed that the
net effect of the CBN's activities in the market would reveal
an overall negative impact on liquidity -- meaning that the
CBN had purchased more notes and certificates than it had
sold into the market. Finally, Hino pointed to the lack of
progress since June on the civil service audit. He said that
in June, the GON had completed 80 percent of this task, but
had made no progress since then, particularly on the military
and law enforcement agencies.



5. (C) Comment. Termination of the IMF program in Nigeria
would clearly have serious consequences on the GON's external
debt management vis-a-vis the Paris Club. Without an IMF
program, the bilateral debt rescheduling process would not
continue. More importantly, however, without the restraints
placed on the GON by the IMF program, there would be even
fewer incentives for the GON to practice fiscal and monetary
discipline. Elections scheduled for April 2002 and the first
part of 2003 will make it extremely difficult for the
Obasanjo Administration to resist excessive spending. End
Comment.
Andrews