US embassy cable - 01ABUJA2301

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