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AFRICAN DEVELOPMENT BANK
PROGRAM: ECONOMIC GOVERNANCE, DIVERSIFICATION
AND COMPETITIVENESS SUPPORT PROGRAM
(EGDCSP)
COUNTRY: FEDERAL REPUBLIC OF NIGERIA
APPRAISAL REPORT
OSGE DEPARTMENT
October 2016
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TABLE OF CONTENTS
ACRONYMS AND ABBREVIATIONS ....................................................................................................... ii
PROGRAM INFORMATION ...................................................................................................................... iii
LOAN INFORMATION ............................................................................................................................... iii
ADB KEY FINANCING INFORMATION .............................................................................................................. iii
TIMEFRAME - MAIN MILESTONES .................................................................................................................. iii
PROGRAM EXECUTIVE SUMMARY ........................................................................................................iv
RESULTS BASED LOGICAL FRAMEWORK .......................................................................................................... v
I. INTRODUCTION: THE PROPOSAL ............................................................................................... 1
II. COUNTRY CONTEXT ....................................................................................................................... 2
2.1 POLITICAL DEVELOPMENTS AND GOVERNANCE CONTEXT ............................................................. 2
2.2 RECENT ECONOMIC DEVELOPMENTS, MACROECONOMIC AND FISCAL ANALYSIS .......................... 2
2.3 COMPETITIVENESS OF THE ECONOMY ............................................................................................. 4
2.4 PUBLIC FINANCIAL MANAGEMENT ................................................................................................. 4
2.5 INCLUSIVE GROWTH, POVERTY AND SOCIAL CONTEXT.................................................................. 5
III. GOVERNMENT DEVELOPMENT PROGRAM ......................................................................... 6
3.1 GOVERNMENT DEVELOPMENT STRATEGY AND MEDIUM-TERM REFORM PRIORITIES .................... 6
3.2 CHALLENGES TO NATIONAL DEVELOPMENT PROGRAM ................................................................. 7
3.3 CONSULTATION AND PARTICIPATION PROCESSES ........................................................................... 8
IV. BANK SUPPORT TO GOVERNMENT STRATEGY ................................................................. 8
4.1 LINK WITH THE BANK STRATEGY ................................................................................................... 8
4.2 MEETING THE ELIGIBILITY CRITERIA ............................................................................................. 9
4.3 COLLABORATION AND COORDINATION WITH OTHER PARTNERS .................................................... 9
4.4 RELATIONSHIP WITH OTHER BANK OPERATIONS ......................................................................... 10
4.5 ANALYTICAL WORK UNDERPINNING ............................................................................................ 10
V. THE PROPOSED PROGRAM ......................................................................................................... 11
5.1 PROGRAM GOAL AND PURPOSE .................................................................................................... 11
5.2 PROGRAM COMPONENTS .............................................................................................................. 11
COMPONENT 1: STRENGTHENING PUBLIC FINANCE MANAGEMENT ................................................ 11
COMPONENT 2: PROMOTING ECONOMIC COMPETITIVENESS AND DIVERSIFICATION ..................... 13
COMPONENT 3: FOSTERING SOCIAL INCLUSION ................................................................................ 16
5.3 POLICY DIALOGUE ........................................................................................................................ 17
5.4 LOAN CONDITIONS ....................................................................................................................... 18
5.5 APPLICATION OF GOOD PRACTICE PRINCIPLES ON CONDITIONALITY ........................................... 18
5.6 FINANCING NEEDS AND ARRANGEMENTS ..................................................................................... 18
5.7 APPLICATION OF BANK GROUP NON-CONCESSIONAL BORROWING POLICY ................................... 18
VI. OPERATION IMPLEMENTATION ........................................................................................... 19
6.1 BENEFICIARIES OF THE PROGRAM................................................................................................. 19
6.2 IMPACT ON GENDER, POOR AND VULNERABLE GROUPS ............................................................... 19
6.3 IMPACT ON ENVIRONMENT AND CLIMATE CHANGE ..................................................................... 19
6.4 IMPACT ON PRIVATE SECTOR DEVELOPMENT ............................................................................... 19
6.5 IMPLEMENTATION, MONITORING AND EVALUATION .................................................................... 20
6.6 FINANCIAL MANAGEMENT, DISBURSEMENT AND PROCUREMENT ARRANGEMENTS..................... 20
VII. LEGAL DOCUMENTATION AND AUTHORITY .................................................................... 22
7.1 LEGAL DOCUMENTATION. ............................................................................................................ 22
7.2 CONDITIONS ASSOCIATED WITH THE BANK’S INTERVENTION ...................................................... 22
7.3 COMPLIANCE WITH BANK GROUP POLICIES ................................................................................. 22
VIII. RISKS MANAGEMENT ............................................................................................................... 22
IX- RECOMMENDATION ................................................................................................................. 23
List of Tables
Table 1 : Key Macroeconomic Indicators
Table 2 : Link between the FGN’s Reform Program, CSP, High-5, and the EGDCSP
Table 3 : Prior actions for Phase I and Indicative Triggers for Phase II
Table 4 : Nigeria – Financing requirement and sources 2016 – 2018 (Billions of Naira)
Appendices
Appendix I : Government Letter of Development Policy
Appendix II : Common AfDB, World Bank; and FGN Operation Policy Matrix
Appendix III : Meeting the Eligibility Criteria for PBO
Appendix IV : Map of Federal Republic of Nigeria
i
CURRENCY EQUIVALENTS
(As of October 2016)
1 UA = Naira 435.43
1 UA = USD 1.39687
1 UA = EUR 1.25793
FISCAL YEAR
January 1 – December 31
WEIGHTS AND MEASURES
1metric tonne = 2204 pounds (lbs)
1 kilogramme (kg) = 2.200 lbs
1 metre (m) = 3.28 feet (ft)
1 millimetre (mm) = 0.03937 inch (“)
1 kilometre (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
ii
ACRONYMS AND ABBREVIATIONS
ADB African Development Bank KPI Key Performance Indicator
ADF African Development Fund MDGs Millennium Development Goals
AGO Accountant General’s Office MFS Macroeconomic Framework and Strategy
ARNC Agricultural Research Council of Nigeria MPR Ministry of Petroleum Resources
AuGF Auditor General of the Federation MDAs Ministries, Department and Agencies
BOP Balance of Payments MTEF Medium Term Expenditure Framework
BSO Budget Support Operation MTFF Medium Term Fiscal Framework
CAR Commitment at Risk MTR Mid-Term Review
CBN Central Bank of Nigeria MW Mega Watt
CFRA Country Fiduciary Risk Assessment NPHCDA National Primary Health Care Development Agency
CPPR Country Portfolio Performance Review NSSNCU National Social Safety Net Coordination Unit
CSO Civil Society Organization NNPC Nigeria National Petroleum Corporation
CSP Country Strategy Paper NISER Nigerian Institute of Social and Economic Research
CPIA Country Policy and Institutional Assessment PBO Policy/Program Based Operation
DFID Department for International Development PCR Project Completion Report
DO Development Objective PCG Partial Credit Guarantee
DPs Development Partners PEFA Public Expenditure and Financial Accountability
DSA Debt Sustainability Analysis PFM Public Financial Management
DMO Debt Management Office PRG Partial Risk Guarantee
EE Energy Efficiency PPP Public Private Partnerships
EEA Exposure Exchange Agreement PSD Private Sector Development
ESW Economic and Sector Work PSDS Private Sector Development Strategy
EU European Union RBM Results-Based Management
FGN Federal Government of Nigeria RE Renewable Energy
FIRS Federal Internal Revenue Service RESP Rural Electrification Strategy and Plan
FEC Federal Executive Council SME Small and Medium Enterprises
FM Financial Management SOE State-Owned Enterprise
FMOF Federal Ministry of Finance SSN Social Safety Nets
FY Fiscal Year SLG States and Local Governments
GACN Gas Aggregation Company of Nigeria Limited STEM Science, Technology, Engineering and Math
GBS General Budget Support TD Transmission and Distribution
GCI Global Competiveness Index TCN Transmission Company of Nigeria
GDP Gross Domestic Product TYS Ten Year Strategy
GIFMIS
Government Integrated Financial Management
Information Systems UA Unit of Account
GSAA Gas Supply Aggregation Agreement UBEC Universal Basic Education Commission
GTA Gas Transportation Agreement USD United States Dollar
HDI Human Development Index VAT Value-added Tax
IMF International Monetary Fund WB World Bank
IOC International Oil Company WBGI World Bank Governance Indicators
IOP Indicative Operational Program WDI World Development Indicators
IPPIS Integrated Personnel & Payroll Information System
IPPs Independent Power Producers
IPSAS International Public Sector Accounting Standards
iii
PROGRAM INFORMATION
INSTRUMENT GENERAL BUDGET SUPPORT – PROGRAM BASED LOAN
PBO DESIGN TYPE PROGRAMMATIC OPERATION
LOAN INFORMATION
Client’s information
BORROWER: FEDERAL REPUBLIC OF NIGERIA
EXECUTING AGENCY: FEDERAL MINISTRY OF FINANCE (FMF)
Financing plan for 2016 and 2017
Source Amount (2016) Amount (2017)
ADB Loan USD 600 Million USD 400 Million
WORLD BANK - USD 2.50 Billion
TOTAL FINANCING USD 600 Million USD 2.9 Billion
ADB key financing information
Loan Currency United States Dollar (USD)
Loan Type Fully Flexible Loan
Interest Rate Base Rate +Funding Cost Margin+ Lending Margin +
Maturity Premium
Base Rate Floating Base Rate based on 6-month USD Libor
Funding Cost Margin1 Refer to footnote
Lending Margin 80 basis points (0.8%)
Maturity Premium 0 basis points
Front End Fee 25 basis points (0.25%)
Commitment Fee 25 basis points (0.25%)
Tenor 20 years inclusive of Grace Period
Grace period 5 years
Average Loan Maturity 12.75 years
Payment Dates 15th March and 15th September
Timeframe - Main Milestones
1 The six months adjusted average of the difference between: (i) the refinancing rate of the Bank as to the borrowings linked to the
Floating Base Rate and allocated to all its floating interest loans denominated in the Loan Currency and (ii) the Floating Base Rate
for each semester ending on 30 June and on 31 December. This spread shall apply to the Floating Base Rate which resets on 1
February and on 1 August. The Funding Cost Margin shall be determined twice per year on 1 January for the semester ending on 31
December and on 1 July for the semester ending on 30 June.
Program Approval November 2016
Loan Effectiveness November 2016
Disbursement Closing Date December 2017
Completion December 2017
iv
PROGRAM EXECUTIVE SUMMARY
Paragraph Topics to cover
Program
overview
Program name: Nigeria – Economic Governance, Diversification and Competitiveness Support Program (EGDCSP).
Expected outputs: The key outputs of the Program are (i) Improved Non-Oil Revenue Mobilization through tax administration & tax
policy reform; (ii) Enhanced Expenditure Control & Rationalization; (iii) Mitigated Fiscal Risks; (iv) Enhanced Transparency and
accountability in Government Own Enterprises (GOEs) and other Government operations; (v) Ensured Value for money through more
efficient public procurement; (vi) Enhanced Energy market competitiveness and diversification through energy sector governance,
financial viability, and generation capacity adequacy; (vii) Improved agriculture sector policy and institutional environment ; (viii)
Fostering Social Inclusion. Overall timeframe: 2016 - 2017; Program Cost: The program cost is USD 1 billion (in two tranches)
Program
outcomes
The Expected outcomes of the program are: (a) Improved Fiscal sustainability, Efficiency, Transparency, and Accountability; (b)
Enhanced Economic diversification and competitiveness, and (c) Improved Access social protection programs (SPP).
Alignment with
Bank priorities
The operation is aligned with three of the operational priorities of the Bank’s Ten-Year Strategy (2013-2022), namely infrastructure,
private sector development, and governance and accountability, which are reiterated in four of the High-5s: emphasizing scaling up
investments in key areas of TYS -Light Up and Power Africa; Feed Africa; Industrialize Africa; and Improve Quality of Life of People
of Africa2. Both energy and agribusiness (value chain investments) will promote industrialisation. The program is also linked to the
three strategic pillars of the Governance Framework and Action Plan, 2014-2018 (GAP II), emphasizing sound public sector economic
management, sector good governance, and investment and business climate enhancement. The operation is also consistent with the
Private Sector Development Strategy, 2013-2017. The program is closely linked to the two pillars of the Nigeria Country Strategy
Paper – (i) Promoting the development of a sound policy environment; and (ii) Investing in critical infrastructure to develop the real
sector of the economy.
Needs
Assessment
and
Justification
Nigeria is facing a severe economic crisis with deteriorating public finances and current account due to the sharp decline in oil prices.
This is compounded by security threats and the cut in oil production caused by militancy in the Niger Delta. Against this backdrop,
FGN has indicated strong commitment to sustain on-going reforms and revitalize the economy. FGN has been taking appropriate
policy actions to address financing needs and cash flow constraints, in addition to protecting foreign reserves, which are currently
under pressure given the limited supply. The proceeds of the proposed loan will contribute to ease pressure on foreign exchange
market, thus help stabilize the Naira and create an enabling macroeconomic environment for growth. The proposed operation to be
disbursed in two tranches is also justified as it will help create fiscal space to facilitate a smooth implementation of the government’s
budget, support fiscal and structural (competitiveness and diversification) reforms, and improve the targeting of social sector spending
to protect the poor and vulnerable segments of the population. It is a timely countercyclical response that will support efforts to
prevent a prolonged recession in the largest economy of West Africa, which would be have ripple effects spilling over to the region
and beyond.
Harmonisation The Bank actively coordinates its interventions with all the major bilateral and multilateral Development Partners (DPs) in Nigeria
through the Development Partners Group (DPG). The DPG is a common strategic approach to support FGN’s development plans. It
derives from the government priorities articulated in the Vision 20:2020. Aid co-ordination is led by the Ministry of Budget and
National Planning. The Bank has worked closely with the World Bank throughout the preparation of EGDCSP. The two institutions
conducted joint field missions and agreed on a joint matrix policy that was extensively discussed with the authorities to address critical
short-term vulnerabilities and medium-term structural challenges. The selected set of reforms are complementary between the two
institutions. The Bank has collaborated with the IMF, which has also provided a letter of assessment to the proposed General Budget
Support (GBS) to assist the Government in the implementation of economic reforms. .
Bank’s Added
Value
The Bank has considerable experience and expertise in PBOs, gained from designing and implementing similar programs in countries
facing exogenous shocks, focusing on fiscal reforms/consolidation, energy and agriculture sector reforms, and competiveness and
investment climate reforms. This includes Angola, Egypt, Ghana, Mozambique and Tanzania. Through the Nigeria Field Office
(ORNG), the Bank has been in continuous dialogue with the Government on the design and implementation of its reform programs,
including measures targeting the energy and agriculture sectors, fiscal reforms, and issues of transparency and accountability. This has
enabled the Bank to gain considerable knowledge and experience in these areas. In addition, the Bank’s position as a reliable and
trusted partner is additional important asset which can help leverage its policy dialogue and facilitate the implementation of difficult
reforms.
Contributions
to Gender
Equality and
women’s
empowerment.
The policy focus on fiscal sustainability will contribute to create fiscal space, part of which will serve towards financing targeted
programs for women’s economic empowerment, particularly in rural areas. The efficiency gains from power sector reforms will have a
positive gender impact, particularly benefiting women and the youth in rural areas where poverty is widespread and basic service
delivery limited. The reforms will also enhance security enabling longer working hours and safety for women. The agricultural sector
interventions will help improve productivity, make the sector more attractive, improve livelihoods and empower rural communities,
particularly women, who depend on the sector as their main income earner. The social protection reforms will target protection and
empowerment interventions on women.
Policy dialogue
and linked
technical
The proposed operation will focus on maintaining fiscal sustainability, transforming the agricultural and energy sectors, and protecting
the poor and vulnerable groups. Through this program and on-going Bank’s operations, the Bank will continue to promote best
practices in fiscal policy and PFM, agriculture, energy, and social protection reforms in Nigeria. The program will create a strong
platform for policy dialogue and advisory services, with ORNG playing a pivotal role.
2 The High-5, an emphasis within the TYS framework intended to scale up investments in some key areas of the TYS are: Light Up and Power
Africa, Integrate Africa, Industrialize Africa, Feed Africa, and Improve the Quality of life of Africans.
v
Results Based Logical Framework
Country and Program Name: Nigeria – Economic Governance, Diversification and Competitiveness Support Program (EGDCSP)
Purpose of the Program: To promote inclusive, diversified, and resilient growth through fiscal sustainability; agricultural transformation and improved access
to energy; and social inclusion
RESULTS CHAIN
PERFORMANCE INDICATORS
MOV
RISKS/MITI
GATION
MEASURES Indicator (including
CSI*) Baseline Target
IMP
AC
T
Inclusive, diversified, and
resilient economic growth
Real GDP growth /
Non-Oil Real GDP
2.7% / 3.6%
(2015) 3.1% / 4.0% (2018) Federal
Ministry of
Finance
(FMF); HDI
Reports
HDI (value) 0.514 (2014) 0.580 (2018)
Unemployment to active
population ratio
Female: 14% ;
Male: 10%
(2015)
Female:11 % ; Male: 7% (2018)
OU
TC
OM
ES
Outcome 1: Fiscal sustainability,
Efficiency, Transparency, and
Accountability improved
Non-oil revenue (% GDP) 3,7% of GDP
(2015) 4,4% (2016); 4.9% (2017),
FMF/Ibrahim
Index of
African
Governance
(IIAG) report
Risk #1:
Lower-than-
budgeted oil
prices and
weaker-than-
expected
domestic
production;
Mitigations:
The fiscal
consolidation
program
includes
buffers (e.g.,
implementation
of TSA,
recovery on
misappropriate
d funds) and
efficiency
measures
(increased non-
oil revenue
collection and
reduced cost of
governance) to
provide
insulation in
the event of
further oil
revenue
shortfalls.
Risk #2:
Limited
capacity to
address the
impact of
shocks with
appropriate
reforms and
implement a
scaled up
Wage bill (% of GDP) 2.3% of GDP
(2015) 2.1% (2017)
Public Management (rank) 18th out 54 (2015) Gain at leat 3 places in 2017
Outcome 2: Economic
diversification and
competitiveness enhanced
Global Competitiveness
Index – score (on a scale of
1-7; 7 being the best)
3.46 (2015) Gain at least 0.5 scores in 2017
GCR (Global
Competitivene
ss Report,
2015-16);
World
Development
Indicators
Agriculture, value added
(% GDP)
20.2% of GDP
(2015) 21.5% of GDP in 2017
Access to electricity;
national, urban and rural
(%)
National : 45%;
Urban: 56.5%;
Rural: 37%
(2013)
National :55% ; Urban: 65% and
Rural : 45% (2017)
Domestic gas supply
(bcf/day) 1.5bcf/day (2015)
1.8bcf/day (2016) – 2.5bcf/day
(2017)
Outcome 3: Access social
protection programs (SPP)
improved
Access to social protection
programs
40 000
households in
2015
60,000 households by 2016 / 100,000
households by 2017.
Office of the
VP - Nigeria
OU
PU
TS
COMPONENT I. STRENGTHENING PUBLIC FINANCE MANAGEMENT
I.1 – Improved Non-Oil Revenue Mobilization through tax administration & tax policy reform
Expand VAT auto collection to
the whole aviation sector, all
GIFMIS Government contracts,
and the Telecommunications, E-
commerce sectors
VAT coverage rate
VAT auto
collection covers
only 40% the
aviation sector in
2015;
VAT auto collection covers 100% of
the aviation sector, 100% of
GIFMIS FG contracts, and 100% of
the Telecom, E-commerce, Power
sectors (2017);
FMF/FIRS
circular/Letter
from the
Auditor
General of the
Federation
VAT / Total revenue ratio 12% (2015) 15% (2017)
Conduct audit of tax payer
corporations with a view to
determining their outstanding tax
payments obligation to FGN
Audit reports of tax payer
corporations 0 audits in 2015
Audit reports of at least 500 tax
payer corporation conducted and
published (2017)
Require all revenue generating
agencies to remit their gross
revenue to the CR
Circular on Gross revenue
to remit gross revenue to
the CRF
No instruction to
remit gross
revenue to CRF
in 2015;
Circular issued by FMF to require
revenue generating agencies to remit
80% of their gross revenue to the
CRF (2016);
Integrate e-filing and e-payment
systems
Circular on integrating e-
filling and e-payments
systems
E-filing and e-
payment systems
not integrated in
2015
Circular issued by FMF: E-filing and
e-payment systems are integrated
(2016)
I.2 – Enhanced Expenditure Control & Rationalization
vi
Expand the biometric based
Integrated Personnel & Payroll
Information System (IPPIS) to
cover MDAs
MDAs coverage rate of
biometric based IPPIS
IPPIS covers
30% of MDAs in
2015
IPPIS cover 50% of MDAs (2016) /
60% of MDAs (2017)
FMF report
capital
expenditure
budget;
Mitigations:
The Bank will
provide
technical
assistance and
institutional
support to the
relevant
agencies to
further enhance
their capacities
to coordinate
and implement
reform
programs.
Risk #3:
security risk
Mitigations:
The authorities
have tightened
up security in
the troubled
spots and other
areas. Social
inclusion
measures have
also been taken
including
closing the
infrastructure
gaps and
income
disparities
among states
while
strengthening
social safety
net across the
country.
Risk #4:
Governance
and Fiduciary
risk
Mitigations:
The fiduciary
risk will be
mitigated by
strengthening
the country’s
procurement
and public
financial
management
Roll out the Treasury Single
Account (TSA) to budgetary
agencies;
Budgetary agencies
coverage rate by TSA
TSA rolled to
80% of budgetary
agencies in 2015
TSA covers to at least 95% of
budgetary agencies (2016); 100% in
2017.
Implement guidelines on travel
related expenditures
Guidelines on travel
expenditures
No guidelines on
travel
expenditures in
2015
Guidelines approved by FEC (2016) FEC minutes
I.3 – Mitigated Fiscal Risks
Implement the 22 point Fiscal
Sustainability Plan for States and
Local Governments (SLG)
National Economic Council
conclusions on the 22 point
Fiscal Sustainability Plan
for SLG
SGL have no
fiscal
sustainability
plan in 2015
Circular issued by FMF (2016) CBN report
Issue a new policy on SLG
borrowing requiring States to
have established a track record of
submitting quarterly fiscal reports
and annual audited financial
statements to the Office of the
Accountant General of the
Federation
New Policy on SLG
borrowing
Old Policy -
Fiscal reports and
annual audited
financial
statements are
required and
submitted to
DMO but not to
the OAG in 2015
New Policy on SLG borrowing
enforced by a FMF Circular (2017) DMO report
I.4 – Enhanced Transparency and accountability in Government Own Enterprises (GOEs) and other Government operations
Resume publication of waivers
and exemptions granted,
estimated revenue foregone
Waivers and exemptions
granted
Waivers and
exemptions are
no longer
published
Resumption of publication (2017)
FMF report
Implement the Presidential
Initiative on Continuous Audit
National Economic Council
conclusions on the
Presidential Initiative on
Continuous Audit
Audit is not
conducted
continuously in
2015
Reports – Payroll Audits (2016)
Publish monthly NNPC financial
and operational reports
Monthly NNPC financial
and operational reports
Financial and
operational
reports published
up to December
2015
Publication to restart with January
2016 reports (2016)
NNPC report
Publish audited financial
statements for the Group’s
consolidated operations in 2014
audited in accordance with Article
7(2) of the NNPC Act
Financial audit statements
for the Group’s
consolidated operations in
2014
Latest financial
statements
audited in 2013
Financial audit statements for the
Group’s consolidated operations in
2014 audited and published (2016)
NNPC report
Publish monthly reports on the
Revenue Framework (Federal
Account) and the excess Crude
Account (ECA) produced within
30 days of close of the month and
monthly fiscal reports on budget
execution for the Federal
Government (FG) within 15 days
of the end of each month
Monthly reports on the
Revenue Framework
(Federal Account) and the
excess Crude Account
(ECA) produced within 30
days of close of the month
Reports not
prepared and
published
regularly since
2015
Monthly reports on the Revenue
Framework (Federal Account) and
the excess Crude Account (ECA)
produced within 30 days of close of
the month published (2016)
The Office of
Accountant
General
(OAG) report
Monthly fiscal reports on
budget execution for the
Federal Government (FG)
within 15 days of the end
of each month
Reports not
prepared and
published
regularly since
2015
Monthly fiscal reports on budget
execution for the Federal
Government (FG) within 15 days of
the end of each month published
(2016)
1.5 Ensured Value for money through more efficient public procurement
vii
Roll out commitment
management and control module
of GIFMIS;
Number of MDAs covered
by commitment
management and control
module of GIFMIS
No MDAs
covered in 2015
At least 20 and 40, cumulative,
MDAs covered in 2016 and 2017
respectively.
AG report
systems,
including at
SLG levels
through this
operation.
Coverage rate of FGN
“Capital and Overhead”
budget expenditures
0% (2015)
At least 25% and 45%, cumulative,
of federal government ‘capital and
overhead’ budget expenditures
covered in 2016 and 2017
respectively
Implement “procure to pay”
module of GIFMIS in MDAs
Percentage of FGN
budgeted expenditure on
“Procure to Pay” module of
GIFMIS in MDAs
Only 15% of
FGN budgeted
expenditure in
2015
Effectiveness for at least 50% of
FGN budgeted expenditure (2016)
Adopt E-procurement Strategy E-procurement Strategy
E-procurement
Strategy drafted
in 2015
Adoption E-procurement Strategy
(2016)
COMPONENT II. PROMOTING ECONOMIC DIVERSIFICATION AND COMPETITIVENESS
II.1 – Enhanced Energy market competitiveness and diversification through energy sector governance
Appointment of the Chairman and
commissioners for the NERC
Presidential appointment of
the NERC Commission
NERC has no
Board in 2016
Presidential appointment signed
(2017).
Approve and implement the rural
electrification strategy plan
Rural Electrification
Strategy Plan
A draft prepared
in 2015 Approval by FEC (2016)
FEC minutes
Implementation reports No report in 2015 Implementation report prepared and
released (2017)
II.2 – Improved Energy market competitiveness and diversification through financial viability
Implement a Cost reflective
electricity tariff
Multi Year Tariff Order
(MYTO) Published
Tariff below cost
recovery in 2015 MYTO 2015 published (2016) NERC report
Implement the gas pricing
aggregation
FG order to GACN to
commence gas pricing
aggregation
Various gas price
paid to sellers in
2015
FG issues an order to GACN to
commence gas pricing aggregation
(2016)
FEC minutes
II.3 – Enhanced Energy market competitiveness and diversification through power generation adequacy
Operationalize the Contract-based
Transitional Electricity Market
MOU on Contract-based
Transitional Electricity
Market
MOU signed but
not enforced in
2015
MOU enforced (2016)
FEC minutes
Unbundle the NGC (Nigeria Gas
Company)
Legal document on the
Unbundle
NGC is not
unbundle in 2015
Legal document on the unbundling
signed by the Corporate affairs
commission - Legal Incorporation of
the two entities (2016)
Ministry of
Petroleum
circular
Operationalize the Gas Supply
and Aggregation Agreement
between GACN, Gas supplies and
major buyers of gas
Gas Supply and
Aggregation Agreement
between GACN, Gas
supplies and major buyers
of gas
No effective in
2015
Effective and operationalize
agreement in 2017 FMF Letter
II.4 Improved agriculture sector policy and institutional environment
Approve the Nigeria Agriculture
Promotion Policy
Nigeria Agriculture
Promotion Policy
The strategy and
policy document
has been drafted
in 2015
Approved by FEC (2016)
Minutes of
FEC showing
approval of the
document /
copy of 2017
budget / Letter
of FMF
confirming
that SOCU
established;
LG Desk
office
established;
Registry
Increase the capital budget
allocation for the sectors of
agriculture
Capital budget allocation
for sectors of agriculture
Agriculture:
N46.47 Billions /
0.77% (2016)
Increase by at least 50%, in the 2017
budget, the capital budget allocation
compare to the 2016 budget
allocation (2017)
Submit to the National Assembly
the draft Bill establishing the
Staple Crop Processing Zone
Authority (SCPZA)
draft Bill establishing the
Staple Crop Processing
Zone Authority
Draft not yet
submitted in 2015 Draft Bill submitted in 2017
Approve the National Water
Resources Bill for Irrigation
National Water Resources
Bill for Irrigation
Draft is being
prepared in 2015 Approved by FEC (2016)
viii
Approve the Agriculture Research
Council of Nigeria (ARCN)
reform strategy
Agriculture Research
Council of Nigeria
(ARCN) reform strategy
Draft Strategy
document
available in 2015
Approved by FEC (2016)
process has
commenced
COMPONENT III. FOSTERING SOCIAL INCLUSION
Establish and operationalize the
National Social Registry and
Gender dis-aggregated Database
of Poor and Vulnerable
Households
Number of states with
National Social Registry
and Gender dis-aggregated
Database of Poor and
Vulnerable Households
7 of states with
established Social
registry in 2015
At least 26 states in 2016 and 36
states in 2017 VP office
report
Set up the National Social Safety
Net Coordinating Unit in the Vice
Presidency
National Social Safety Net
Coordinating Unit in the
Vice Presidency
Process has
started in 2015 Functional Unit (2016)
Allocate budget for social safety
nets out of social sector
expenditure
Share of budget for social
safety nets out of social
sector expenditure
14.6% in 2015 20% in 2016, increase of 2% in 2017 FMF report
Formulate a comprehensive
National Social Protection Policy
National Social Protection
Policy
Not covered in
the existing draft
national SP
policy in 2015
National Social Protection Policy in
place (2016) VP’s office)
Funding : ADB Loan = 2016 FGN’s fiscal year - UA 429.8 million or USD 600 Million and 2017 FGN’s fiscal year - UA 286.6 million or USD 400 Million;
World Bank Loan = 2017 FGN’s fiscal year - USD 2.5 billion in 2017
1
REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB TO THE BOARD
OF DIRECTORS ON A PROPOSED LOAN TO THE FEDERAL REPUBLIC OF NIGERIA TO
FINANCE THE ECONOMIC GOVERNANCE, DIVERSIFICATION AND COMPETITIVENESS
SUPPORT PROGRAM (EGDCSP)
I. INTRODUCTION: THE PROPOSAL
1.1. Management submits the following Report and Recommendation for a proposed ADB loan of
US Dollars 600 million to the Federal Republic of Nigeria to finance the Economic Governance,
Diversification and Competitiveness Support Program (EGDCSP). The proposed operation is the first in
a programmatic series of two General Budget Support (GBS) covering the fiscal years 2016 and 2017 for a
total indicative financing of USD 1 Billion. The operation responds to the request for budget support, from
the Federal Government of Nigeria (FGN), submitted to the Bank in November 2015, in the wake of
continued decline in oil prices. Oil and gas are the country’s main source of export revenue. In line with the
Bank’s Policy on Program-Based Operations (PBOs), this operation is proposed for approval against the
achievement of key Prior Actions from the Government’s implementation of far-reaching reforms in public
finance management, power and agriculture sectors and social inclusion programmes. It provides counter-
cyclical fiscal stimulus to revitalize the economy and support diversification, competitiveness, economic
transformation and inclusive growth.
1.2. Nigeria is facing severe economic, social and security challenges exacerbated by falling
international oil prices, slow global growth and tight financing conditions. The challenges include: (i)
over dependence on the oil sector for export earnings and public revenue; (ii) significant infrastructural
deficit, especially in power and transport; (iii) widespread poverty and inequality; and (iv) insecurity in the
Northeast and resurgence of militancy in oil-producing areas. Given the weight of the Nigerian economy in
the region, these challenges, if not urgently confronted, could have significant spill over effects on West and
Central Africa.
1.3. The proposed operation aims at assisting Nigeria in the implementation of its economic and
social transformation program by supporting reforms in the following areas: (i) PFM to strengthen revenue
collection, and enhance efficiency, transparency and accountability in the use of public resources; (ii)
sustainable energy supply through improved sector governance and greater private sector engagement; (iii)
agriculture modernization by strengthening the policy and institutional framework; and (iv) social
inclusion by enhancing the policy and institutional framework for protecting and empowering the poor
and vulnerable groups. FGN has reiterated its strong commitment to implement and sustain reforms in
these areas, as set out in the Letter of Development Policy (see Appendix I) in support of the ongoing
efforts to revitalize the economy. Against this backdrop, and given the current resource constraints faced by
the country arising from the severe drop in oil prices and considerable expenses incurred in fighting security
threats, this operation will contribute to creating the required fiscal space to facilitate implementation of the
2016 budget. It is a timely response that supports the Government’s efforts to prevent a prolonged recession
and its adverse effects, notably on trade, spilling over to the West and Central African region.
1.4. The proposed operation is fully aligned with the Country’s Vision 20:2020 and the Bank’s Ten Year
Strategy reiterated through the High-5, notably, (i) Light up and Power Africa, (ii) Feed Africa, and (iii)
Improve Quality of Life of the People of Africa. The proposed operation was jointly prepared with the
World Bank. The two institutions worked with the government to design the robust Programme Policy
Matrix that underpins our support (see, Appendix II). The Bank has also worked in close consultation
with the IMF. In addition to dialogue with the Government, consultations were also held with other
stakeholders including the private sector, Civil Society Organizations (CSOs), and development
partners.
2
II. COUNTRY CONTEXT
2.1 Political Developments and Governance Context
2.1.1. Nigeria has evolved into a stable and vibrant democracy, despite being threatened by
recent security challenges. The May 2015 elections marked the fifth consecutive national vote, and
further consolidated the transition since 1999 from military rule to democratic governance in Nigeria.
The elections signified important strides in Nigeria’s electoral development and democratic
dispensation, and were characterized by observers as the freest and fairest in the country’s history.
Nigeria also has a vibrant National Assembly, and enjoys a dynamic press, with myriad of newspapers
playing a critically important role in articulating voice, and demanding transparency and accountability
in the public sector. However, threats to political stability and social cohesion have emerged recently
from fundamentalist and other militant groups in the Northeast instigating violence, including unrest in
oil-producing states and increased incidences of oil-pipeline vandalism during 2016.
2.1.2. Against this challenging backdrop, the Government is pursuing, as a priority, the building
of a culture of transparency and accountability to promote good governance. Efforts are being
scaled up to improve Nigeria’s image as a country riddled with widespread corruption, particularly in
management of oil and gas resources. The 2015 corruption perception index of Transparency
International ranked Nigeria 136th out of 175 countries. The Mo Ibrahim Index of African Governance
(2015) ranks Nigeria 39th out of 54 countries with overall score of 44.9 (out of 100), lower than the
African average (50.1) and West African average of 52.4. The overall score under Nigeria’s Country
Policy and Institutional Assessment (CPIA) declined slightly to 3.8 in 2015 from 3.9 in 2014, due to
drop in performance in 3 categories: economic management, structural policy and social inclusion.
2.2 Recent Economic Developments, Macroeconomic and Fiscal Analysis
2.2.1. The Nigerian economy3 has been hard hit by the mid-2014 oil price shock. The sharp decline in
oil prices has had adverse impact on
economic growth, public finances and
external accounts. In spite of being
broad-based, with agriculture and
services representing the lion’s share of
GDP, the economy is heavily dependent
on the oil sector (10% of GDP). Over
90% of exports and at least 70% of
government revenues come from the oil
sector. Persisting lower oil prices are
significantly reducing the flow of foreign
exchange, weakening domestic demand,
depressing output in the non-oil sector,
adversely affecting the macroeconomic
framework, and increasing vulnerability in
the financial sector. Against this backdrop, growth in 2015 declined significantly to about 2.7% from 6.3% in
2014. The Naira has been under intense pressures; it has lost over 40% of its value in the parallel market at
the end of 2015. The overall fiscal deficit doubled to 3.7% in 2015 compared to its 2014 level, a sharp
contrast to fiscal surpluses in the range of 2% – 6%, in the past decade. For the first time in a decade, the
current account balance turned negative at -2.4% in 2015. The country’s foreign exchange reserves have
3 GDP amounts to about US$ 500 billion in 2015 from US$ 574 billion in 2014. Sector (% of GDP) in 2015: Agriculture (20.2%); Industry (24.2% of which
Oil and Gas 10.8%, Manufacturing 9.8 %,) and Services (55.6% of which ICT 10.8%, Trade 17.6%).
3
dwindled to US$ 25.3 billion (end-August, 2016), equivalent to around 5 months of imports, compared to
US$ 34 billion in 2014. At the same time, the shortage of foreign exchange and the pass through effect of the
recent exchange rate adjustment drove inflation to double digits 9.6 % in 2015 and 17.6% in September
2016, from 8% in 2014, heightening uncertainty on investment decisions, since access to foreign exchange
impacts the cost of production (see, Table 1).
2.2.2. The increase in inflation has been more structural than demand driven, caused by a hike in
electricity tariff, fuel price and foreign exchange shortage. A food import bill of US$5 billion per year
has also been contributing to inflation and putting pressure on the exchange rate. The Central Bank of
Nigeria (CBN) has been facing foreign exchange demand of about US$5 billion per month, against a supply
of only US$ 1 billion. To curb inflation, CBN tightened monetary policy by raising interest rate from 11% to
12%, then to 14%, and bank reserve requirements from 20% to 22.5%. However, CBN also re-introduced
(June 2016) a single market structure through the inter-bank/autonomous window, from which the exchange
rate will be market-driven, de facto abandoning its 16-month long fixed exchange rate regime. This policy
move is expected to narrow the parallel market premium (which is 50% at end of October 2016), ease
pressures on the external reserves, moderately increase the availability of foreign currencies and contribute to
taming inflation. However, the structural nature of the drivers of inflation underscores the need to address the
issue through reforms that enhance competitiveness of the energy sector and diversification of the economy
towards agro-industry and agro-allied industries.
2.2.3. Meanwhile, for the first time in more than two decades, the economy has slipped into a
recession4 in the second quarter of 2016. Output is projected to contract in 2016 by 1.7%, as the
economy adjusts to foreign currency shortages arising from lower oil receipts, sharp reduction in power
generation, vandalism of oil installations, lower oil production and weak investor confidence. Given the
important weight of the Nigerian economy in the West and Central Africa region, a continued contraction in
growth could adversely impact neighbouring countries that have long-standing trade relations with Nigeria.
CBN’s foreign exchange restrictions to manage demand (in response to scarcity of foreign exchange), and
the delayed implementation of the 2016 Budget, have slowed growth and pose a threat to the Government
diversification agenda and non-oil sector contribution to growth.
2.2.4. To support economic recovery, the 2016 Budget (N6.06 trillion) is expansionary; it is 20%
higher than the 2015 Budget. It is designed as a fiscal stimulus to the declining economy, and catalyst for
inclusive growth through increased spending in critical infrastructure (30% of the budget) and in social
protection programs (8% of budget) for the poor and vulnerable groups. The FGN objective is to keep the
fiscal deficit within the 3% limit of the Fiscal Responsibility Act (FRA). In order to create the needed fiscal
space, the authorities are implementing bold reforms to enhance non-oil revenue mobilization while
improving expenditure control and transparency. The financing of the fiscal deficit includes expected
funding from the Bank (i.e., US$ 600 million, the proposed operation), international capital markets5 (USD 1
billion), and residually from the domestic capital market (in the range of USD 2.5 to USD 4 billion).
Although the level of total debt stock amounts to a manageable 13.0% of GDP (below the country-specific
threshold of 19.3%), Nigeria’s debt position experienced some deterioration and slipped from a low-risk to a
medium-risk debt distress. The debt portfolio is mostly vulnerable to shocks associated with revenue, exports
and substantial currency devaluation. The increasing burden and vulnerability of FGN debt (Table 1) signal
the need for the government to adopt a prudent and efficient debt management strategy underpinned by a
coherent package of policies to address heightened short-term vulnerabilities while fostering a balanced
sustainable growth path over the medium-term.
4 The economy contracted by 0.4% and 2.1% in the first and second quarters of 2016, respectively- the first decline since 2004. 5 The Debt Management Office (DMO) is in the process of appointing two international banks and a local bank as financial advisers for the issuance of $1
billion Eurobond.
4
2.2.5. The medium term economic outlook is subject to significant risks related to the vicissitudes of
the oil market, investor sentiment, the security situation and the Government’s capacity to implement
an appropriate and coherent package of policy reforms to adapt to the prevailing environment. Due to
the projected sluggish growth in 2016 (-1.7 percent) and likely shortfalls in external financing, domestic
financing needs to fully implement the budget are large and could crowd out private sector credit and
investment. The outlook is expected to gradually improve in 2017 and 2018 with GDP growth respectively
rebounding to 3.2% and 4.2%, as FGN implements a bold fiscal and structural adjustment program (in
priority sectors such as PFM, energy and agriculture), which is supported by the proposed operation. This
scenario also assumes better terms of trade, recovery of investment in the oil and gas sector and increased oil
production from 2.0 million barrels per day (mbpd) in 2015 to 2.2 mbpd, 2.3 mbpd, and 2.4 mbpd in 2016,
2017 and 2018 respectively. The key risks to the economic outlook include lower-than-budgeted oil prices
and shortfalls in non-oil revenues, a further deterioration in the finances of state and local Governments, and
a resurgence of insecurity.
2.3 Competitiveness of the Economy
2.3.1. Nigeria’s economic competitiveness6 is undermined by a host of factors. These include
inappropriate regulatory environment, inadequate and deficient infrastructure (e.g., transport, water
and energy), poor access to finance and difficult macroeconomic environment (e.g., high inflation,
insufficient foreign exchange, and residual issues in exchange rate policy). According to Global
Competitiveness Index (GCI) 2015, Nigeria’s ranking declined to 127th in 2015 from 120th in 2014. World
Bank’s Ease of Doing Business 2016 showed that the country’s overall performance improved only slightly
from ranking of 170th to 169th out of 189 countries. This slight improvement is due to better performance in
two of the ten indicators (registering property and protecting minority investors). The country actually
regressed in three criteria (starting business, getting credit, and access to electricity), while the ranking
remained unchanged in the remaining five indicators. Overall, Nigeria’s external competitiveness has been
adversely affected by the managed and pegged exchange rate policy adopted in March 2015, which was
abandoned only recently in May 2016.
2.3.2. Other significant constraints to a competitive business environment include perceived
widespread corruption, poor legal enforcement of contracts, security issues and low in investor
confidence. The government is making efforts to address these constraints. As a strategy to promote
economic diversification, the Government is committed to changing the perception of Nigeria as a
challenging place to do business through targeted interventions to improve the business environment and
making significant strides in the Global Competitiveness/Ease of Doing Business Ranking. In this
connection, the delay in passing the Petroleum Industry Bill (PIB) continues to adversely affect investments
into the sector. The PIB is an important step towards a more appropriate legal, fiscal and regulatory
framework for the oil and gas sector. It is expected that this bill will be passed soon. The Government is also
committed to enhancing transparency, institutionalizing good governance and compliance with the rule of
law, restoring security and stability to North East and intensifying the fight against corruption to detect and
deter the systemic diversion of public wealth for private benefits. In this regard, the law enforcement
agencies are accelerating their efforts to prosecute acts of corruption in accordance with the law.
2.4 Public Financial Management
2.4.1. Nigeria has been implementing a series of PFM reforms, in the wake of the 2000 Country
Financial Accountability Assessment (CFAA) and 2005/06 Public Expenditure Management and Financial
Accountability Reviews (PEMFAR), which indicated that the risk of funds misuse, waste and diversion was
6 The private sector accounts for 80% of Nigerian GDP, of which the Micro, Small and Medium Enterprises (MSMEs) comprise the bulk of private
businesses, representing about 50% of the GDP and 25% of employment.
5
high (Technical Annex I). Recommendations of these reviews were well-received by the government, and
culminated in enactment of the Fiscal Responsibility Act 2007, the Public Procurement Act 2007 and the
Financial Reporting Council of Nigeria Act 2011. The authorities also installed the Government Integrated
Financial Management System (GIFMIS) in 2012, and drafted the new Audit Bill currently under
consideration. There are also plans to revise the Fiscal Responsibility Act. In 2012, a Public Expenditure and
Financial Accountability (PEFA) assessment identified the remaining gaps in the area of strengthening PFM.
The PEFA has been finalised, but not yet published on account of government disagreement with some of the
ratings.
2.4.2. Other government corrective actions include the adoption of a new Chart of Accounts, and a
uniform chart of budget classification consistent with COFOG7 and GFS8 2001. There has also been
improvements in the Cash Management System {through introduction and roll out of the Treasury Single
Account in 2015: TSA coverage is now above 90%)}, and in Budget Monitoring and Financial Reporting,
among recent initiatives. The achievements from these reforms include: (a) timely submission of audited
financial statements and audit reports to National Assembly; (b) gradual migration to International Public
Sector Accounting Standards (IPSAS) accrual basis accounting and reporting; (c) establishment of function
budget management system; and (d) availability of fiscal reports for at least 97% of budget expenditures on
real time basis. In addition to these significant achievements, FGN publishes its annual budgets, and budget
implementation is carried out in an orderly manner.
2.4.3. Despite these impressive gains, some of the weaknesses identified in the 2012 PEFA still exist,
especially in the critical area of external oversight and legislative scrutiny of the annual audit, with the Public
Accounts Committee generally tardy in considering audit reports from the Auditor General for the Federation
(AuGF). In addition, implementation and follow up of audit recommendations is weak. These are core
shortcomings operating against good financial governance. Strategies are currently being developed to
improve this fundamental legislative oversight role, including drafting the new audit bill. Meanwhile, AuGF
continues to function under an outdated law of 1958, although it conducts its audits in close conformity with
INTOISAI9 standards. Transparency is impaired by lack of publication of annual audit reports of the
Government, as well as those of key revenue-generating parastatals. The proposed operation will contribute
to addressing this issue. Another key weakness relates to internal audit system, which is still primarily ex
ante, pre-payment audit. This situation is contrary to the dictates of good practices for modern internal audit.
The proposed operation will also support the Presidential Initiative on Continuous Audits (PICA) of
Ministries, Departments and Agencies (MDAs) to strengthen control over FGN finances. This work has
started with payroll, and be extended to all entities where federal money is being spent or received, so that
FGN can exercise better oversight. Furthermore, the proposed operation will assist FGN in achieving the
transition to a risk-based form of internal audit, focusing on systemic issues of control and assurances.
2.5 Inclusive Growth, Poverty and Social Context
2.5.1. Social deprivation and exclusion remain pertinent development challenges for Nigeria. The
strong economic growth of the last decade, averaging 6.8% annually, has not created sufficient jobs to absorb
the estimated 1.8 million annual entrants into the labour market. The strong performance was mainly driven
by the non-oil sector, led by telecommunications and posts, hotels and restaurants, construction and real
estate. High consumer demand, fuelled by oil revenues, has been the driving force behind the non-oil sector
growth. However, poverty has increased since 2011, with estimates that more than 60% Nigerians live on
less than $1.25/day; unemployment and underemployment remain high (13% and 19% respectively),
especially among the youth, exacerbating widespread poverty and inequality10, in a country where social
7 Classification of Functions of Government 8 Government Finance Statistics 9 International Organization of Supreme Audit Institutions. 10 GINI and IHDI are respectively, 28.7 and 0.32. The poverty and other social indicators are exacerbated in the North, partly because of the insurgency.
6
safety nets are weak. Child malnutrition is also high, with 41% of under-five children adversely affected.
Nigeria is ranked 152 out of 188 countries by the 2015 HDI report, and 125 out of 133 countries by the 2015
Social Progress Index. Inequality in income and assets, unequal access to basic infrastructure and services, as
well as certain social and cultural norms, have been the driving forces behind poverty in Nigeria (See
Technical Annex II).
2.5.2. Beyond some improvements in MDGs over the past decade, significant effort is needed to
achieve related SDGs. Poor access to, and low quality of, social services are prevalent, with disparities and
inequalities affecting mainly women and the youth, representing approximately 50% of the population. The
2015 Gender Gap index ranks Nigeria 125 out of 145 countries with a score of 0.638. Efforts towards gender
equality in economic participation and opportunity are required, particularly more action on wage equality
and employment. In addition, the notable inequality in education attainment and political empowerment
needs to be addressed. The youth unemployment (35.9%) and “working poor” challenge is particularly acute,
given the poor responsiveness of education to skills needs of industry. The informal sector continues to be a
major source of job creation, but caters mainly for working poor (76.6% of employment), leaving youth and
women vulnerable. Nigeria is ranked 11th globally in maternal mortality, and second highest in terms of new-
born deaths worldwide; with malnutrition accounting for over 50% of under-five mortality. About 65% of
the rural population do not have access to electricity, and only 30.0% have access to safe drinking water and
adequate sanitation (Technical Annex II).
III. GOVERNMENT DEVELOPMENT PROGRAM
3.1 Government Development Strategy and Medium-Term Reform Priorities
3.1.1. Nigeria’s long-term development strategy is outlined in its Vision 20:2020, aimed at providing
security for all, and generating quality jobs and improved welfare of the people, with particular
emphasis on scaling up support to the high-poverty North-East region. The Vision aims to place Nigeria
among the top 20 economies in the world by 2020. The key medium-term priorities are: (i) to create an
enabling environment for sustainable, inclusive economic growth; (ii) to diversify, transform and render the
economy more competitive; (iii) to create employment opportunities; and (iv) to reduce poverty on a
sustainable basis. In the medium term, particular emphasis will be given to ensuring significant investments
in infrastructure, agriculture and energy. Under infrastructure, the strategy involves building facilities (such
as roads, rail, water supply, bridges, power,) for creating an enabling environment to attract foreign and local
investments, and encouraging Public-Private Partnerships (PPPs). This would entail increasing significantly
the share of capital spending in the budget, from 30% currently to 50% by 2025. Under agriculture, the
strategy is to transform the sector into an engine of income growth for farmers, promote value-chains, create
jobs for the youth and ensure food security for the nation. Under energy, the strategy involves significantly
improving electrical power supply and distribution in order to enhance social welfare, boost productivity and
stimulate private sector development.
3.1.2. The government has articulated policy orientations for reducing poverty, fighting corruption
and restoring security across the country. The poverty reduction agenda includes, in particular, gradually
increasing spending on social welfare programmes, such as health and education, to around 35% from
current levels of 15%. Overall, for the medium term strategic focus, agriculture and energy, and solid
minerals, are seen as sectors that are potential engines of growth, transformation and diversification of the
economy. These ambitions are mirrored in the Medium Term Expenditure Framework (MTEF 2016-2018),
which will boost capital spending for infrastructure, agriculture and solid minerals, expand social protection
and safety net programmes and stimulate private sector investment. The real sector reforms in infrastructure,
agriculture and solid minerals, will be underpinned by complementary enabling-environment reforms in
PFM and improved public sector governance.
7
3.2 Challenges to National Development Program
3.2.1. Nigeria’s overarching challenge is to make a paradigm shift from heavy reliance on
hydrocarbons to a broad-based, competitive and inclusive economic growth model. To unlock its
potential, Africa’s largest economy will have to specifically address the following challenges:
3.2.2. Maintaining fiscal sustainability to fund stronger economic growth and poverty reduction.
While in terms of sectoral contribution to GDP, Nigeria’s economic output is relatively diversified11, for
export earnings and FGN revenue there is over-dependence on oil. More than 90% of export earnings, and
75% of budgetary revenues, come from the oil sector. Thus, declining oil prices since June 2014 have
heightened vulnerabilities across sectors, adversely affected economic growth, with deleterious effect on the
country’s finances. To meet the goals of Nigeria’s Transformation Agenda under Vision 2020, the authorities
will have to pursue the implementation of sound macroeconomic policies to move away from oil revenue
dependence and create the needed fiscal space while creating an enabling environment for the private sector
through improved governance and business climate.
3.2.3. Addressing the sizeable infrastructural deficit, especially in power and transport to unlock the
competitiveness of the non-oil sector. According to the IMF’s recent projections, Nigeria is set to remain
Africa’s largest economy in the near future. However, after several decades of neglect, the country’s
dilapidated infrastructure is a key bottleneck to economic development. The erratic supply of electricity has
continued to plague every aspect of the economy. Over 50% of the population lives without access to
electricity, over 90% of industrial consumers and a significant share of residential consumers operate their
own power generators. The road network is also vital to Nigeria’s economic growth because 80% of
Nigerian traffic (people and goods) is conducted by road. However, a recent survey indicates that 50% of
Federal roads, 70% of State roads, and 90% of Local Government roads are in very poor condition due to
low quality of construction and maintenance. If rehabilitated, the power and transport sectors could become
the bedrock of the country’s future growth by helping improve competitiveness in agriculture, industry and
services.
3.2.4. Modernizing agriculture to enhance its contribution to economic growth and job creation.
Agriculture has the highest potential for developing the non-oil sector, expanding the manufacturing base,
improving the trade balance and fostering inclusive growth. While employing 84% of Nigeria’s workforce,
agriculture only contributed to 20.2% of GDP in 2015. Nigeria was the leading world exporter of groundnuts
and a significant producer of palm oil, cocoa and cotton in the 1960s. Due to the Dutch Disease and the
ensuing loss of competitiveness compounded with large migrations from rural to urban centers and low
productivity in agriculture over years, Nigeria lost its leading position to countries like Malaysia, Indonesia
and Brazil. Owing to growing urbanization, Nigeria spends about US$5 billion annually on food imports and
population growth will bring the cost of food imports to unsustainable levels both from the economic and
fiscal standpoint by 2050. Foreign experience in China, Vietnam, Brazil and Thailand has shown that growth
in the agricultural over the past three decades has led to a substantial increase in per capita income. With a
growing unemployed youth population, Nigeria has no other choice, but to emulate this development model.
3.2.5. Fostering social inclusion to build a more cohesive society, reduce poverty and address the root
causes of insecurity. While the poverty rate in Nigeria declined by about 10 percent between 2004 and
2013, the number of poor didn’t decline. The trickle-down effect of growth was curtailed by high population
growth (2.7 percent a year), the inability of the labour market to absorb the estimated 1.8 million annual
entrants, poor delivery of social services, inequalities in terms of income and opportunities. Social
11 While Nigeria is considered as a “resource-driven” nations, 86 % of its GDP is outside the resource sector. With resource share of GDP of only 14%
Nigeria’s economy is relatively diversified compared with that of many other oil producers (Venezuela, Iran, UAE, Saudi, and Kuwait), ranging from 24%
to 61%. The bulk of the Nigerian GDP is in services, and agriculture is the single largest sector, contributing 20.2% of GDP. (McKinsey Global Institute, July 2014).
8
VISION 20:2020 Revised CSP: 2013-2017 High-Five EGDCSP
Vision: A large, strong ,
diversified, sutainable and
competitive economy.
Strategic Objective: To
promote inclusive and green
growth
Strategic Objective: to
accelerate Africa's development
over the next 10 years and
within the context of the Bank’s
Ten-Year Strategy
Operational Policy Objective: To
support the Government’s
development and poverty reduction
agenda.
Vision 20:2020 Strategic
Pillars: (i) Guaranteeing the
productivity and wellbeing of the
people; (ii) optimizing the key
sources of economic growth; and
(iii) fostering sustainable and
economic development.
The CSP Strategic Pillars: (i)
Supporting the Development of
a Sound Policy Environment for
Social Inclusion; and (ii)
Investing in Critical
Infrastructure to Promote the
Development of the Real Sector
of the Economy.
Four High-Five linked to the
EGDCSP : (i) Light Up and
Power Africa; (ii) Feed Africa;
(iii) Industrialize Africa; and (iv)
Improve Quality of Life of
People of Africa.
The EGDCSP Components: (i)
Maintaining Fiscal Sustainability; (ii)
Enhancing Efficiency, Transparency,
and Accountability in Government
Operations; (iii) Promoting
Economic Diversification and
Competitiveness; and (iv) Fostering
Social Inclusion.
Table 2: Table 2: Link between the Vision 20:2020, CSP, High-Five, and EGDCSP
deprivation and exclusion was further exacerbated by regional disparities between the thriving coastal states
and the poverty-trapped zones. These heightened inequalities are the bedrock for social unrest and violence
and have resulted in the deteriorating security situation through increased acts of terror, armed conflicts in
the North-East and attacks on oil and gas infrastructure by militants in Niger Delta. In addition to the reforms
needed to foster economic growth, a set of targeted social inclusion policies would help address youth,
gender and regional poverty gaps; reinforce national cohesion and defuse the sources of conflict.
3.3 Consultation and Participation Processes
3.3.1. During the proposed program’s identification, preparation and appraisal, extensive
consultations were held by the Bank’s multi-disciplinary team with various stakeholders, including
FGN officials, the private sector, CSOs and development partners. In addition, the program design is
underpinned by Nigeria’s Vision 20:2020, its Transformation Agenda and the Bank’s CSP, which are all
products of consultative processes. The consultations with DPs and CSOs, research institutes, and other non-
state actors, provided opportunity to discuss the scope and focus of the operation, and gave the task team
myriad perspectives on current issues, including political economy issues, facing Africa’s largest economy.
The consultation process with stakeholders continued during the appraisal and post-appraisal missions. The
Bank’s country office in Nigeria will ensure that there is continuous engagement with these stakeholders
throughout the implementation of the proposed operation.
IV. BANK SUPPORT TO GOVERNMENT STRATEGY
4.1 Link with the Bank Strategy
4.1.1. The proposed operation is linked to the two pillars of the Bank Group Nigeria Country
Strategy Paper 2013-2017, namely: (i) support development of sound policy environment for social
inclusion; and (ii) investing in critical infrastructure. The Bank’s key objectives under the CSP are closely
aligned with the priorities
of FGN under Vision
20:2020. By focusing on
PFM reforms to strengthen
governance, and
agriculture and energy
sectors to stimulate
growth, the proposed
operation is also fully
aligned with three of the
core operational priorities
of the Bank’s Ten Year
Strategy (TYS, 2013-2022), which emphasizes Governance and Accountability, Infrastructure and Private
Sector Development. These areas of focus are also consistent with three of the High-Five priorities: (i) Light
up and Power Africa, (ii) Feed Africa, and (iii) Improve Quality of Life of the People of Africa. The focus on
agriculture is aligned with the Bank’s Strategy12 for Agriculture Transformation in Africa (2016-2025).The
proposed operation is also closely linked to the three strategic pillars of the Governance Framework and
Action Plan, 2014-2018 (GAP II), notably Public Sector and Economic Management, Sector Governance,
and Investment and Business Climate), and Private Sector Development Strategy, 2013-2017 (Investment
and Business Climate for Competitiveness). By putting emphasis on access to electricity and agricultural
transformation, the proposed operation is also consistent with pillars 1 and 2 – Legal Status and Property
12 The Bank’s Strategy for Agriculture Transformation in Africa includes 7 set of enablers: (i) Increase productivity, (ii) realize the value of increased
production, (iii) increase investment into enabling infrastructure, (iv) create an enabling agribusiness environment with appropriate policies and regulation, (v) catalyse flows of capital, (vi) ensure inclusivity, sustainability and effective nutrition, and (vii) coordinate
9
Rights and Economic Empowerment – of the Gender Strategy (2014-2018). The link between the proposed
program, the High-Fives, CSP and FGN development agenda is summarized in Table 2.
4.2 Meeting the Eligibility Criteria
4.2.1. Nigeria meets the Bank’s Eligibility Criteria for Program Based Operations. Under the criterion
relating to Government commitment to poverty reduction and inclusive growth, the country has a long-term
development agenda in its Vision 20:2020 aimed at creating an enabling environment for sustainable
economic growth, generating employment opportunities and reducing poverty. The action FGN has taken, in
the 2016 Budget, to significantly increase spending on social welfare programs, such as social protection,
health, and education, demonstrates Nigeria’s commitment to poverty alleviation. Regarding the political
stability criterion, the country enjoys relative political stability (see § 2.1.1), while dealing with an upsurge in
militant attacks on oil fields that have sent crude production currently plummeting to an almost 30-year low.
4.2.2. Regarding macro-economic stability, the sharp decline in oil prices has negatively impacted
government revenues and export performance. The July 2016 IMF Staff Visit Report noted that the
economic outlook remains challenging, in light of expectations that oil prices will remain low for a long
time, combined with continuing risk aversion by investors and downside risks in the global economy.
However, FGN is implementing significant structural reforms to respond to these external shocks and
achieve macro-economic stability (see § 2.2). Regarding fiduciary risk, while the Bank’s 2016 FRA for
Nigeria rates the overall risk as substantial, it also identified strengths including a well-developed
procurement management system and mitigating measures. Regarding harmonisation, there is strong
development partners’ presence and effective aid harmonization and coordination in Nigeria, with a well-
established structure for dialogue. The details of how Nigeria meets the eligibility criteria are provided in
Appendix III.
4.3 Collaboration and Coordination with Other Partners
4.3.1. Development Partners’ interventions are coordinated through the Development Partners
Group (DPG), a common strategic approach to support FGN’s development plans. The DPG derives its
work program from the Vision 20:2020 priorities and its implementation strategy, the Transformation
Agenda (TA)[1]. The DPG seeks to streamline DP’s support, increase aid effectiveness, leverage resources,
accelerate implementation and deliver quick results. Strategic partnerships among DPs are particularly
important for aid effectiveness in Nigeria, given that overall ODA is relatively small, accounting for 2% of
GDP. Aid coordination is led by the Ministry of Budget and National Planning. The Bank actively
participates in coordination activities, and DPs meet regularly to discuss policy issues, drawing from work of
DPs/FGN thematic and sector working groups. The DPG has 12 thematic groups, each chaired by a DP in the
area of their strategic focus namely Agriculture and Irrigation, education, energy, environmental and climate
change, governance and accountability, health/social protection, infrastructure PPP, macroeconomic analysis,
political governance and conflict prevention Gender and Justice, transport, and North East. The Bank chairs
the Infrastructure and Transport thematic group.
4.3.2. In the line of DPs’ collaboration and coordination framework, the proposed operation was
jointly developed with the World Bank. The latter is planning to provide budget support to Nigeria in 2017
for about USD 2.5 billion. In this collaborative effort, the two institutions have conducted, since January,
2016, a record four joint missions for scoping, preparation, appraisal and post-appraisal consultations
with the Nigerian authorities. During this period, they also participated in two IMF Article IV and Staff
Review missions in March and July, 2016. In addition, after the Pre-Board Technical Session held on this
operation, the team undertook another mission to Abuja in the second half of October 2016 for further
consultation with the World Bank and the Government. The IMF provided technical and analytical
support, particularly on issues relating to fiscal, monetary and exchange rate policies, and the need for social
[1] The Government is in the process of drafting a successor TA to replace the expired 2011-2015.
10
protection to ease the impact of the reforms on the vulnerable. The components of the proposed EGDCSP,
and the policy actions and triggers, are drawn from the common World Bank/ADB/FGN agreed policy
matrix (see Appendix II). Harmonization with the World Bank, and dialogue with FGN and other DPs, will
continue during implementation, involving discussion of emerging issues and joint monitoring of
performance. Thus, the proposed operation has been designed ensuring complementarity and synergy with
the World Bank operation, as well as consultations with the IMF.
4.4 Relationship with Other Bank Operations
4.4.1. There is complementarity and strong relationship between the proposed operation and Bank
interventions in the country portfolio. By promoting reforms in PFM and contributing to fiscal space for
implementation of FGN’s reform programme, the proposed operation will assist in improving the
effectiveness of service delivery and supporting the ongoing Bank operations in Nigeria. At August 2016, the
Bank’s portfolio comprised 48 operations for a total commitment of UA 3.23 billion. The portfolio consists
of 24 public sector operations valued at UA 1.081 billion (33.38%), and 24 private sector projects of UA
2.156 billion (66.62%). The overall disbursement rate stands at 67% (see Technical Annex V).
4.4.2. Lessons from past and on-going similar operations: The key lesson learnt from the two previous
budget support operations in Nigeria and the portfolio generally, is the need for flexibility in responding to
the country’s development challenges. Other lessons include the need to use country systems, align support
to FGN priorities and collaborate closely with DPs, as key success factors for projects and programmes
implementation. Nigeria is not an aid dependent country, and the Bank should be flexible and responsive to
urgent and pertinent requests from the Government. The proposed program is a rapid response to an urgent
FGN request for budget support to contribute to filling the funding gap, restoring macroeconomic stability
through cushioning foreign exchange reserves, and supporting economic recovery by providing resources
for the executing the 2016 countercyclical Budget.
4.5 Analytical Work Underpinning
4.5.1. The design of the proposed operation benefitted from various analytical works: (i) the 2016-
2018 Medium Term Expenditure Framework and Fiscal Strategy Paper (ii) Agricultural Investment Growth
and Poverty Reduction in Nigeria13; (iii) the 2016 Nigeria Country Strategy Paper Mid-Term Review; (iv)
Economic Assessment Reports of Nigeria by the IMF and the World Bank; and (v) the 2014 McKinsey
Global Institute Report on Nigeria14. In addition, at the request of the Nigerian authorities, the Bank
prepared, in April 2016, research papers on Monetary and Exchange Rate. The findings of these analytical
works include the following: (i) Nigeria has achieved strong growth momentum during the decade to 2014,
but this has not translated into significant reduction of poverty and inequality; (ii) extreme poverty and
hunger are likely to persist under the current growth path, unless there is significant improvement in
agricultural productivity and efficiency of public spending; (iii) social inclusion and protection programs are
weak, uncoordinated and not targeted to appropriate groups; (iv) more effort is needed to enhance
competitiveness and promote diversification, through agriculture and energy sectors, to spearhead
industrialization and transformation of the economy; (v) there are significant macroeconomic risks inherent
in the heavy dependence on the oil sector; and (v) there is a need to pursue further reforms towards sound
management of exchange rate and overall monetary policy, and to strengthen PFM systems and achieve
fiscal consolidation, at federal and state levels.
13 Diao, X., M. Nwafor, V. Alpuerto, K. Akramov, and S. Salua. 2010. Agricultural Investment Growth and Poverty Reduction in Nigeria. IFRIPI
Discussion Paper 00954. 14 Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy, McKinsey Global Institute, 2014.
11
V. THE PROPOSED PROGRAM
5.1 Program Goal and Purpose
5.1.1. The goal of the proposed operation is to support implementation of FGN’s medium term
development agenda aimed at building a diversified, competitive, inclusive and fiscally sustainable
economy in the context of declining oil prices and security challenges.
5.2 Program Components
5.2.1. The package of reforms under the proposed program is organised around three
complementary Components: (i) Strengthening Public Finance Management; (ii) Promoting Economic
Competitiveness and Diversification through energy sector reforms, and agricultural transformation; and (iii)
Fostering Social Inclusion.
Component 1: Strengthening Public Finance Management
5.2.2. The objective of this component is to support FGN’s efforts in strengthening PFM and creating the
needed fiscal space through: (i) enhanced non-oil revenue mobilization, (ii) expenditure control, and
improved fiscal risk mitigation; (iii) efficiency in FGN operations through transparency and accountability,
improved public investment management and budget execution; and (iv) enhanced value for money in public
procurement.
5.2.3. Challenges and Constraints: Non-oil revenues amount to less than 5% of GDP in Nigeria,
compared to around 15%-20% in peer countries. Nigeria also has one of the lowest VAT rates in the
world (5%) as well as a narrow tax base. Thus, oil and gas sectors have been by far the main contributors to
FGN revenues. This dependency on oil and gas has largely been the source of the fiscal challenges facing the
economy. With oil revenue falling by 56% in 2015, from its 2014 level due to the sharp decline in prices,
significant fiscal pressures have emerged during 2016. Consequently, FGN budgeted oil revenues at a lower,
more realistic, reference price of US$38/b against US$53/b budgeted for 2015. As a result of these
developments, FGN is currently facing the challenge of maintaining fiscal sustainability, while aiming to
transit towards more inclusive and diversified growth.
5.2.4. The government’s policy objectives of ensuring security and good governance, developing
infrastructure, and diversifying the economy are constrained by the limited revenue available to
meet priority expenditures. Without improving efficiency in FGN operations, strong revenue mobilization
and appropriate expenditure rationalization, achievement of fiscal sustainability will be compromised. In
addition, if not well-managed, borrowings pose substantial fiscal risks to FGN, which has recently bailed out
some States and Local Governments (SLGs) unable to service their debt. Moreover, there is a perceived
lack of transparency and accountability in the operations of FGN, especially in the use of revenue
generated from the oil sector. The financial reports of FGN and key revenue-earning entities15 are
currently behind schedule16. For those agencies whose reports have been audited, the reports are not made
available to the public. Overall, elements of sound financial good governance have been lacking in the public
sector, and there is persisting challenge of ensuring timely production of information, accuracy of data, and
regular publication of resultant reports.
5.2.5. Recent Government Actions: Since 2015, FGN has been implementing bold fiscal consolidation
measures, while increasing budget allocations to infrastructure and social development to support
economic diversification, competitiveness and inclusiveness. The focus has been on curtailing corruption
and waste, reducing leakages, enhancing efficiency in use of resources, and improving compliance. On the
15 Federal Internal Revenue Service, Nigeria Custom Service, and Nigeria National Petroleum Corporation
17 Aviation, Banking, Commerce and Trade, Conglomerates, Construction, Government business, Hospitality, Insurance, Manufacturing, Multinationals, Oil
& Gas marketing, Oil & Gas producing, Oil & Gas servicing, Other financial institutions, Professional services, and Telecommunications.
12
revenue side, the commendable measures implemented to broaden the tax base, plug loopholes, improve
tax administration and compliance, and enhance collection include: (i) expansion of VAT auto collection
base to 40% of the aviation sector; (ii) centralizing the operating surpluses of revenue-generating agencies,
through the recently rolled out TSA; (iii) integration of tax e-filing and e-payment systems; (iv)
strengthening collection of Corporate Income Tax (CIT) and; (v) strong on-going actions towards recovery
of misappropriated funds and other assets (at least N.200 billion so far recovered, out of N.350 billion
target).
5.2.6. On the expenditure side FGN has been adjusting to the persisting oil price shock by streamlining the
cost of government and improving efficiency of service delivery through: (i) the establishment of the
Efficiency Unit in the Ministry of Finance in February 2016 to promote efficiency in the public sector;
(ii) a Zero-Based Budgeting approach to contain recurrent expenditure; (iii) the removal of fuel subsidy,
and a move towards cost reflective electricity tariff; and (iv) progressive elimination of ghost workers
from the FGN payroll through implementation of biometric-based Integrated Personnel & Payroll
Information System (IPPIS), which has already led to savings of over N.50 billion (USD 160 million) and 43,000 ghost workers removed from the Federal payroll as of September 2016. In addition, the work on
computerization of government accounting began in 2012, with installation and roll out of GIFMIS. It is now
being supported by the establishment of TSA to promote efficiency and improve cash management. To
minimize medium-term fiscal risks, FGN is enhancing fiscal responsibility through a 22 action points Fiscal
Sustainability Plan (FSP). The FSP highlights 5 key strategic objectives: (i) Accountability & Transparency,
(ii) Increase in Public Revenue, (iii) Rationalisation of Public Expenditure, (iv) Public Financial
Management Reforms, and (v) Sustainable Debt Management. All State Governments are required, from
2016 onwards, to comply with these 22 action points of the FSP.
5.2.7. Program Reforms: The proposed operation will enhance FGN’s commitment to ensuring that
there are no reversals of these sound and appropriate policies, by supporting further reforms to
strengthen PFM. To improve non-oil revenue mobilization, the proposed operation will support the
following policy measures: (i) requiring all revenue-generating agencies to remit 80% of their gross revenue
to the Consolidated Revenue Fund (CRF) (prior action #1); (ii) further expanding of VAT auto collection to
the 16 sectors17 targeted by the Federal Inland Revenue Service (FIRS); and (iii) conducting audit of at least
500 tax payer corporations with a view to determining their outstanding tax payments obligation to FGN
(indicative trigger). . To enhance expenditure control and rationalization, mitigate fiscal risks, and improve
transparency and accountability, the proposed operation will support: (i) expansion of the IPPIS to cover
50% (prior action #2) and 60% in 2017 (indicative trigger) of MDAs; (ii) the roll out of TSA to 95% of
budgetary agencies; (iii) implementation of travel-related expenditure guidelines by the Efficiency Unit
(prior action #3); (iv) implementation of the 22 point Fiscal Sustainability Plan for SLG (prior action #4);
(v) requiring SLGs to have established a track record of submitting quarterly fiscal reports and annual
audited financial statements to the Office of the Accountant General; (vi) implementation of the Presidential
Initiative on Continuous Audit – (PICA) (prior action #5); (vii) timely production and publication of
financial and audited reports of the Federation and key revenue-earning entities; (viii) rolling out
commitment, management and control module of GIFMIS; (ix) implementation of procure to pay module of
GIFMIS; and (x) adoption of e-procurement strategy. Overall, apart from the prior actions for this
operation, it is evident from the Policy Matrix (Appendix II), that the Government has already
implemented, ahead of schedule, other significant reforms initially slated for implementation by
December 2016.
17 Aviation, Banking, Commerce and Trade, Conglomerates, Construction, Government business, Hospitality, Insurance, Manufacturing, Multinationals, Oil
& Gas marketing, Oil & Gas producing, Oil & Gas servicing, Other financial institutions, Professional services, and Telecommunications.
13
5.2.8. Expected Results: The implementation of these bold reforms will contribute to strengthening PFM,
and infuse efficiency, transparency and accountability into FGN operations. The expected results
include: (i) increase in the share of non-oil revenues to GDP from 3.7% in 2015 to 4.4% in 2016, and 4.9%
in 2017, compared to a baseline of 3% in 2014; (ii) a reduction in wage bill growth from 2.6% in 2015 to
2.1%, and 1.8% of GDP in 2016 and 2017, respectively; (iii) estimated savings of over N15 billion (USD 50
million) annually on travel cost; and (iv) improved ranking in the African Governance Public Management
Index. The improved fiscal and macroeconomic stability arising from these reforms will support the
medium-term inclusive growth, poverty reduction and social inclusion.
Component 2: Promoting Economic Competitiveness and Diversification
5.2.9. The objective of this component is to promote economic competitiveness and diversification by
supporting reforms in the energy and agriculture sectors.
A. Energy Sector Reforms to support competitiveness and diversification
5.2.10. This sub-component focuses on improving energy sector competitiveness and diversification through
better governance, enhanced financial viability, and generation capacity adequacy of the sector.
5.2.11. Challenges and Constraints: Inadequate energy supply is the major impediment to
industrialization. It locks productivity to low levels, preventing sectors such as agriculture to move
from subsistence activities to agro-industry. Limited transmission capacity, poor reliability and quality of
electricity supply, high distribution losses, revenue shortfalls, inadequate gas to power supply and vandalism
of gas pipelines, characterize the state of the energy sector. These have unfavorable effects on the
transformation, competitiveness and diversification of the Nigerian economy. The current supply/demand
gap (17,720MW) is high, considering a total installed capacity of 12,522 MW (2013), out of which only
3,953MW(2016) is available to the Distribution Companies (DISCOs). These companies face high
distribution losses averaging 50%, poor maintenance of equipment, metering problems, insufficient gas
supply, and liquidity issues. There are currently huge payment arrears for gas supplied18, poor institutional
and regulatory framework and lack of capacity in the gas sector. As a result, the unreliable electricity supply
has led to expensive ‘self-generation’ of electricity by majority businesses and households, which experience
on average 32 power outages in a typical month. In addition, the electricity tariffs, since privatization of the
generation and distribution segments, have been deemed not cost reflective, ranging from N17.02/kWh to
N24.09/kWh (9–12 US Cents/kWh), based on the DISCOs operating regions. The national electricity access
rate is estimated at 56.5%, which needs to be significantly increased if the country is to realize its economic
transformation agenda (see Technical Annex III).
5.2.12. Recent Government Actions: Faced with these challenges and constraints, FGN reform program
focuses on improving the generation, governance and financial viability of the power and gas sectors;
improving access to electricity, rationalizing tariffs to cost reflective level and streamlining the gas
supply chain. FGN has implemented a number of measures to address some of these industry issues
including: (i) development of a rural electrification framework, (ii) establishment of gas institutions and (iii)
adoption of planning tools, such as the Gas Supply Aggregator Company of Nigeria and the Gas Master
Plan, as well as review of the electricity tariff regime. FGN also reduced the cost of fuel subsidy in
December 2015 by increasing the price of kerosene. In May 2016, in spite of strong opposition from
trade unions, FGN took a bold and significant step with a 67% increase in the price of petrol. For the
2016 budget, there is no provision for fuel subsidy (Technical Annex III19). These measures signal strong
political commitment to reforms implementation.
18 The arrears classified under the DISCOs and Generation Companies (GENCOs) segments are estimated at N162 billion and N156 billion respectively.
According to the CBN the N213 billion Nigerian Electricity Market Stabilization Facility has disbursed over N120.2 billion to the respective entities. 19 DPs have discussed with the authorities the issue of full liberalisation of petroleum product prices, to remove the risk of renewed subsidy costs and allow
forces of supply and demand to regulate the market.
14
5.2.13. FGN has also outlined a plan to establish a USD25 billion infrastructure fund; and has
appointed a transaction adviser to structure a power sector bond scheme expected to solve the liquidity and
arrears problem of the sector. The proposed scheme, championed by Nigeria Bulk Electricity Trading Plc
(NBET), shall revolve around a multi-year program of Promissory Notes issuance by DISCOs on the Nigeria
Bond market. FGN has also drafted a Rural Electrification Strategy and Plan (RESP), which will provide the
framework for the Rural Electrification Agency (REA) to access the Renewable Energy Fund: This Fund has
been established and is holding N 2 billion for provision of incentives, such as capital subsidies and technical
assistance20. FGN’s initiative to increase access to electricity, connect households and businesses and
diversify from dependence on DISCOs, is further facilitated by the recent Draft Mini Grid Regulation.
The Regulation’s objective is to accelerate electrification in areas without Distribution Networks (“Unserved
areas”) and non-functional distribution grids (“Underserved areas”) by attracting participation of private
sector and communities in achievement of nationwide electrification. The Regulation also seeks to mitigate
major risks associated with sudden tariff changes and stranded Mini-Grid operator investments due to
extension of the main grid to cover the Mini-Grid area.
5.2.14. Program Reforms: The proposed operation will support continuation of the FGN reform
program. To improve energy sector governance and financial viability of the sector, the program will
support: (i) appointment of the new Chairman and Commissioners for the Nigeria Energy Regulatory
Commission (NERC) (ii) approval and implementation of a RESP; (iii) implementation of a cost reflective
electricity tariff (prior action #6); and (iv) implementation of the gas pricing aggregation. To improve
generation adequacy, the program will also support; (i) unbundling Nigeria Gas Company (NGC) into two
separate entities for transmission and marketing21, to ensure that the Gas Sale & Aggregation Agreement
(GSAA) and Gas Transportation Agreement (GTA) are effective; (ii) operationalizing the Contract-based
Transitional Electricity Market (indicative trigger); and (iii) operationalizing the Gas Supply and
Aggregation Agreement between GACN, Gas supplies and major buyers of gas. There will be continuous
dialogue with FGN in these important areas, with a view to obviating policy reversals that would jeopardize
the effectiveness of reform implementation. It is noteworthy that, one of these program activities envisaged
for 2017, has already been achieved in 2016 i.e. nomination of the NERC Chairman and Commissioners to
be presented to the Senate and subsequently appointed; (see Appendix II, for detailed policy actions).
5.2.15. Expected Results: Policy actions supported by the proposed operation will result in the
following: (i) cost reflective tariffs and increased attractiveness of the power sector to private investments,
with potentially higher real rate of return than the current 11%, and reduction of distribution losses from
current level of 50%; (ii) electricity access rate of around 75% by 2020 (90% by 2030) from the current 45%;
(iii) an enabling environment for rural electrification; and (iv) implementation of the Domestic Gas Supply
Obligations to ensure sustainable gas availability to the power sector from the current 1.3bcf to 3bcf by 2017.
B. Agriculture sector transformation for economic diversification
5.2.16. The objective of this sub-component is to support agriculture sector transformation for economic
diversification by improving the policy and institutional environment.
5.2.17. Challenges and Constraints: Agriculture is the dominant sector of the economy, particularly in
rural areas where it employs 84 percent of labor force, mostly women, and accounts for 56 percent of
rural income. However, despite significant agricultural potential, Nigeria spends over US$5 billion a year
importing food, including major staples such as wheat, rice, sugar and fish. The agriculture sector is suffering
from decades of low productivity of smallholder farms, which constitute more than 75% of cultivated land.
Smallholders are constrained by: (i) insufficient knowledge of agricultural best practices and low soil
fertility; (ii) poor access to capital to invest in seeds, fertilizers, and agro-chemicals; (iii) limited access to
20 See detailed information on the Energy Sector in the Technical Annex III. 21 Nigerian Gas Pipeline and Transportation Company (NGPTC), Nigerian Gas Marketing Company (NGMC)
15
markets because of poor road networks, (iv) inadequate industrial-scale value addition, processing and
storage facilities; (v) prevalence of crop pests and diseases; (vi) insufficient and inefficient extension services
to farmers; (vii) low public spending; and (viii) limited private sector involvement. There are also significant
land tenure constraints that require amendments to the Land Use Act 1978 (see Technical Annex IV).
5.2.18. These challenges, if addressed, could result in significant and sustainable growth of agricultural
output, job creation, and poverty reduction. The productivity of the sector will be boosted by (i)
implementing the Agriculture Transformation Agenda (ATA), shifting towards more production of high-
value crops, for both import substitution and food security; and (ii) increasing land under cultivation, by
developing large commercial farms that would create significant employment for a young labor force. In
addition, there is an urgent need to strengthen the policies, as well as the institutional capacity, to enhance
agricultural productivity and farmers’ access to the market, and improve the management of the sector. The
needed reforms will include the following: (i) the crafting, by FGN, of an enabling environment for
agricultural transformation; (ii) the setting up of implementation modalities fit for purpose; and (iii)
developing strategies for attracting significant investments in agriculture and agribusiness. These are key
challenges in agriculture in Nigeria. They will require FGN efforts to implement sound policies and
strategies for results in the following areas: (i) farmer access to improved technologies, involving creation of
input markets; (ii) developing the market for agricultural produce to incentivize productivity; (iii) improving
the business climate (better access to land, electricity, finance, etc.) to stimulate investment in agriculture;
and (iv) enhancing efficiency in management of the agriculture sector. In addition, given the poor yields for
virtually all crops in Nigeria, there is a need for enhanced research in agriculture, as well as the strengthening
of extension services.
5.2.19. Recent Government Actions. Nigeria embarked on an accelerated effort to transform its
agricultural sector with the launch of ATA in 2011. ATA is the largest-ever government-enabled
private sector-led effort to meet the challenges in the agriculture sector, combining institutional reforms
with key public investments. It is a comprehensive effort to: (i) connect markets, support private sector
participation, and promote productivity growth in a few specific food staple value chains; (ii) increase
domestic production for food security; (iii) reduce dependence on food imports; and (iv) expand value-
addition to locally produced agricultural products and, in the process, create new jobs. The Bank is currently
funding the ATA Support Programme Phase I (ATASP1), and will scale up this Programme with ATASP-2,
which would include additional niche commodities and broaden coverage to more states and regions of the
country. The key innovations under ATA include: (i) the Growth Enhancement Scheme (GES) to improve
farmers’ access to modern agricultural inputs; (ii) the Nigerian Incentive-Based Risk Sharing System for
Agriculture Lending (NIRSAL) to de-risk lending to agriculture; and (iii) the Staple Crop Processing Zones
(SCPZ) based on the comparative advantage of each region and aimed at forming clusters in major food
production for rice, sorghum, cassava, fisheries and horticulture.
5.2.20. Program Reforms: The proposed EGDCSP will support the FGN agriculture transformation
agenda aimed at strengthening the policy and institutional framework for agricultural development.
Program-supported actions will include: (i) approval of the Nigeria Agriculture Promotion Policy (prior
action #7), which aims to unlock the full potential of the sector by addressing key constraints22; (ii) approval
of a National Water Resources Bill for Irrigation; and (iii) approval of the Agriculture Research Council of
Nigeria (ARCN) reform strategy; (iv) increase by at least 50%, in the 2017 budget, the capital budget
allocation for the sectors of agriculture and solid mineral, compared to the 2016 budget allocation (indicative
22These constraints include (i) low productivity through access to land, soil fertility, access to information and knowledge, access to inputs, production
management, storage, processing, and marketing and trade; (ii) low private sector investment through access to finance , and agribusiness investment development; and (iii) inadequate regulation by institutionally realigning the Federal Ministry of Agriculture and Rural Development through harmonizing
institutional setting and roles of the three tiers of government (Federal, State, and Local) in the sector, maximizing the contributions of youth and women,
developing rural infrastructure, adopting climate smart agriculture, enhancing research and innovation, implementing policy that ensure food, consumption and nutrition security.
16
trigger); and (v) submit to the National Assembly the draft Bill establishing the Stable Crop Processing Zone
Authority (indicative trigger).
5.2.21. Expected Results: Government’s focus on increased production of food staples will contribute to
better nutrition, food security, job creation, macroeconomic stability through low inflation and limited
food import, and poverty reduction, as well as expand the scope for agricultural exports. These are
potential results from the activities envisaged under the proposed EGDCSP; they will contribute to creating
an enabling policy and institutional environment for the sector. This will enhance sector governance
(including effectiveness of public spending), attract private sector investments and improve competitiveness
of the sector.
Component 3: Fostering Social Inclusion
5.2.22. Challenges and Constraints: The country’s wealth has not substantially reduced poverty and
inequality (see §2.5.1). Progress in implementing social protection programmes has been slow, with narrow
coverage and limited interventions by pertinent sector ministries. Social Safety nets have suffered from poor
planning and implementation, lack of credible means of identifying and reaching the poor, unsustainable
programs and inefficient delivery mechanisms. In addition, policies and programmes to address youth
unemployment have faced myriad challenges relating to implementation, inconsistent policies, and training
and skills development with weak linkages to employment requirements (NISER, 2013).
5.2.23. Recent Government Actions: FGN has initiated significant actions towards a more effective and
sustainable approach to social inclusion. It is putting in place a social protection policy framework, to
clearly define institutional roles and responsibilities and the appropriate options and instruments. This will
create a better platform for national dialogue and policy formulation. FGN has also announced a social
welfare package (designated as Special Intervention Programs), with a significant allocation of N500 billion,
representing 8.2% of the 2016 budget, the second highest allocation, almost equal to interior security outlays
(8.4%). These actions are aimed at fostering job creation and economic empowerment. FGN is also
standardizing procedures, and harmonizing systems, to achieve efficiency and cost-effectiveness in social
safety net delivery. A Coordinating Unit has been established in the Vice Presidency to strengthen synergies
at all levels (see Technical Annex II), avoid duplication and obviate the risk of policy reversals in this
important area of targeted interventions to promote social inclusion.
5.2.24. Program Reforms: The proposed operation will support the social protection program aimed at
enhancing the policy and institutional framework for protecting and empowering the poor and
vulnerable groups. The proposed EGDCSP will support FGN policy actions in the following areas: (i)
budget allocation (recurrent and capital) for social safety net, equivalent to 20% of social sector spending,
included in the 2016 budget (prior action #8), and in the two forward years of the MTEF; (ii) establishment
and operationalization the National Social Registry System and Gender Dis-aggregated Database of Poor
and Vulnerable Households covering at least 26 states (indicative trigger); and (iii) formulation of a
comprehensive national social protection policy (see Appendix II, for detailed policy actions).
5.2.25. Expected Results: These program activities will result in significantly increasing the coverage of
the poor and vulnerable, in terms of access to social protection programmes. A unified social registry
system will be established by the Office of the Vice president on social investment, covering at least 10
states every year. By 2018, it is projected that there will be a 20% annual increase in the number of poor and
vulnerable people with access to cash transfers.
17
5.3 Policy Dialogue
5.3.1. The program
log-frame and the
Policy Matrix will
form the basis for
policy dialogue around the expected
outcomes of the
Components of the
program. Policy
dialogue will focus on
the following issues:
(i) PFM reforms,
fiscal sustainability
reforms, promoting
revenue mobilization
and improving
expenditure efficiency
to boost economic
growth; (ii) Energy
and agricultural
sector reforms, aimed
at improving
reliability of gas and
electricity supply, and
agricultural
transformation for
economic
diversification and job
creation; (iii) and
Social protection measures, to protect
the poor through an
improved policy and
institutional
framework and well-
targeted safety net
measures for the poor
and vulnerable groups
(women, youth,
people in rural and
remote areas). The
proposed operation is
supported by a Bank
Staff research paper
on exchange rate
policy that will
Table 3: Prior Actions for Phase I and Indicative Triggers for Phase II
Phase I – Prior Actions (2016) Phase II - Indicative Triggers ( 2017)
General Overriding Trigger #1: Prepare a
Medium-Term Economic Recovery Plan.
Evidence Required: Copy of the Plan
Component I – Strengthening Public Finance Management
Prior Action #1: Require all revenue generating
agencies to remit 80% of their gross revenue to the
Consolidated Revenue Fund. Evidence Required:
Circular issued by Hon. Federal Minister of Finance;
Status: Met
Trigger #2: Conduct audit of at least 500 tax
payer corporations, with a view to determining
their outstanding tax payments obligation to FGN.
Evidence Required: Letter from Auditor General
of the Federation confirming completion of the
audits
Prior Action #2: Expand the biometric-based Integrated
Personnel & Payroll Information System (IPPIS) to
cover 50% of MDAs. Evidence Required: Progress
report from the Federal Minister of Finance. Status:
Met
Trigger #3: Expand the Integrated Personnel &
Payroll Information System (IPPS) to cover 60%
of MDAs. Evidence Required: Progress report
from Federal Ministry of Finance;
Prior Action #3: Implement Guidelines on travel-
related expenditures. Evidence Required: Circular
issued by Hon. Federal Minister of Finance. Status: Met
Prior Action #4: Implement the 22 point Fiscal
Sustainability Plan for SLG. Evidence Required:
National Economic Council Conclusions. Status: Met
Prior Action #5: Implement the Presidential Initiative
on Continuous Audit. Evidence Required: National
Economic Council Conclusions. Status: Met
Component II – Promoting Economic Diversification and Competitiveness
Prior Action #6: Implement the Multi-Year Tariff
Order (MYTO) Cost reflective electricity tariff.
Evidence Required: Evidence of Commencement of the
MYTO-2015. Status: Met
Trigger #4: Make effective or operationalize the
Gas Supply and Aggregation Agreement between
GACN, Gas supplies and major buyers of gas.
Evidence Required: A Letter from Federal
Ministry of Finance confirming that the agreement
has become effective;
Prior Action #7: Approve the Nigeria Agriculture
Promotion Policy document. Evidence Required:
Federal Minister of Agriculture and Rural Development
publication. Status: Met
Trigger #5: Increase by at least 50%, in the 2017
budget, the capital budget allocation for the
sectors of agriculture and solid mineral, compare
to the 2016 budget allocation. Evidence Required:
Copy of the 2017 Budget;
Trigger #6: Submit to the National Assembly the
draft Bill establishing the Stable Crop Processing
Zone Authority. Evidence Required: Copy of the
draft Bill and the letter of transmission to the
National Assembly;
Component III – Fostering Social Inclusion
Prior Action #8: Allocate budget for social safety nets
out of social sector expenditure. Evidence Required:
Copy of 2016 Budget
Status: Met
Trigger #7: Establish and operationalize a
National Social Registry and Gender
disaggregated database of poor and vulnerable
household covering at least 26 states. Evidence
Required: Letter of FMF confirming that SOCU
established; LG Desk office established; Registry
process has commenced,
18
support policy dialogue with FGN. Overall, FGN’s reform agenda is sound, and its implementation is
heading in the right direction, in spite of the challenging political economy environment. The challenge is to
sustain the dialogue with the authorities with a view to obviating policy reversals that would compromise the
effectiveness of the reforms. The dialogue will also improve the quality of the Bank’s portfolio in the
country, based on lessons learned from the CSP Mid-Term Review, the Country Portfolio Performance
Reviews and Project Completion Reports. Policy dialogue around the reforms supported by the proposed
operation will continue with DPs in Abuja.
5.4 Loan Conditions
5.4.1. Prior actions: Before the proposed operation is presented to the Board for approval, the prior actions
presented in Table 3 will have to be met by FGN, and the required documentary evidence submitted to the
Bank. The prior actions are drawn from the FGN policy matrix agreed with the Bank and the World Bank
during Program Appraisal.
5.5 Application of Good Practice Principles on Conditionality
5.5.1. The design of the proposed EGDCSP is in line with good practice principles on conditionality.
The reform policy matrix is fully owned by FGN. It reflects its policy reform program (Letter of
Development Policy, Appendix I). The operation is harmonized with the World Bank’s operation. In
addition, the EGDCSP contains a limited number of important prior actions, in key areas of FGN reform
program.
5.6 Financing Needs and Arrangements
5.6.1. Nigeria’s total financing requirements for the medium-term (2016-2018) are estimated at N5,
390.0 billion (Table 4). Under current fiscal
outlook, revenues (from oil and gas) will fall below
projections, and additional external financing, as
envisaged in the proposed operation, is required to
fill the gap. Thus, the proposed operation will
contribute to (i) moderating cuts in capital
expenditure since it is critically important to support
the growth agenda, particularly for an economy
currently in recession; and (ii) reducing FGN’s
recourse to higher cost domestic financing, which
could crowd out private sector access to credit.
Overall, the program is fully funded, as the
estimated financing gap is to be filled by resources
from the World Bank and AfDB, and domestic and
other external borrowing. The FGN has included
these resources, as envisaged financing, in its
approved 2016 Budget and in the 2016-2018 Medium Term Fiscal Framework. These FGN financing
projections are based on the government’s discussions with World Bank and AfDB, regarding the requested
budget support from the two institutions.
5.7 Application of Bank Group non-concessional borrowing policy
5.7.1 Nigeria is transitioning to middle income country status but is still eligible for ADF financing in
the transitional period. It has low risk of debt distress, with a total public debt stock amounting to only 13%
of GDP (See §2.2.4). Moreover, the authorities are committed through the 2016-2019 Medium Term Debt
Strategy (MTDS) to low (cost and risk) borrowing and better debt management. The MTDS main guidelines
and targets include reaching (i) an optimal debt composition of 60:40 for domestic and external debt,
respectively, as against the current 86:14, and (ii) a domestic debt mix of 75:25 for long and short-term
19
debts, respectively, as against the current of 69:31. The MTDS also seeks to maximize recourse to
concessional and semi-concessional external sources for the financing of key infrastructure projects.
VI. OPERATION IMPLEMENTATION
6.1 Beneficiaries of the Program
6.1.1. The EGDCSP will directly benefit FMF and ministries and public entities in charge of the
energy, agriculture and social sectors. The Nigerian people will be the ultimate beneficiaries from fiscal
reforms, as the resultant fiscal space provided by budget support will enhance funding for pro-poor priorities
and services delivery. The private sector will also benefit from the pay-offs from more reliable and
affordable electricity, and transparent and efficient PFM system, particularly relating to procurement
practices. The people will benefit from gains in agricultural productivity, employment creation and improved
operational efficiency and competitiveness in the energy sector, which will result in enhanced security and
reliability of power supply.
6.2 Impact on Gender, Poor and Vulnerable Groups
6.2.1. Impact on gender: The proposed operation will have a positive impact on Nigerians. By
supporting fiscal sustainability through increased revenue mobilization, and enhanced expenditure control
and rationalization, the fiscal space created would facilitate financing programs for women’s economic
empowerment and protection, particularly in rural areas. The efficiency gains from power sector reforms will
have a positive gender impact, particularly benefiting women and the youth in rural areas where poverty is
widespread and basic service delivery limited. Electricity will also enhance security, enabling longer
working hours and safety for women. The agricultural sector interventions will help improve productivity,
make the sector more attractive for investments, improve livelihoods and empower rural communities,
particularly women, who depend on the sector as their main income earner.
6.2.2. Impact on Poor and Vulnerable Groups: The application of cost reflective tariffs raises risk for the
vulnerable groups stemming from upward tariff adjustments. This will be mitigated by appropriate
categorization (commercial and residential), and by applying preferential rates to the poor. A key measure
supported by the proposed programme is the approval of a Rural Electrification Strategy and Plan: its
implementation will enhance access by rural dwellers to adequate, reliable and affordable electricity. This
will go a long way in improving the quality of life of the rural poor and expanding their economic
opportunities. The various social support schemes, such as youth employment and empowerment initiatives,
access to finance and market for artisanal women, conditional cash transfer to the most vulnerable groups,
will mitigate the adverse impact of reforms. The implementation of agriculture policy actions (focused on
food staples), supported by the proposed programme, will improve access to foods staples, address food
security and child malnutrition, and thus, contribute to productivity and human capital development.
6.3 Impact on Environment and Climate Change
6.3.1. The proposed EGDCSP is classified as Category 3, in accordance with the Bank’s environmental and
social impact assessment policies. This operation focuses on policy and institutional reforms, with no adverse
environmental or climate change impact. On the contrary, the EGDCSP-supported reforms can contribute to
improvements in the environment, and combating climate change, through the emphasis on promoting clean
and renewable energy in Nigeria as well as, energy efficiency. The envisaged policy and regulatory reforms
in the sector could ultimately lead to more private investment in clean energy. Reforming the energy tariffs is
also expected to boost energy efficiency, both on the supply and demand sides.
6.4 Impact on Private Sector Development
6.4.1. The proposed operation will have a positive impact on Nigeria’s economic competitiveness and
private sector development. The program’s focus on fiscal sustainability will help create fiscal space for
increased investments in critical areas such as infrastructure, which will eventually reduce the cost of doing
20
business and benefit the private sector. Component I measures related to fiscal reforms will enhance overall
macroeconomic stability, which is critical to attracting private investments on a sustained basis. Improved
debt management, and a possible reduction in the deficit over time, will help reduce the risk of crowding out
the private sector in terms of access to credit. Measures geared towards enhancing efficiency, transparency
and accountability in government operations, including improvements in the public procurement function,
will help improve overall governance and minimise corruption, hence improving the business enabling
environment.
6.4.2. The proposed operation places particular emphasis on the energy and agriculture sectors, in view of
their critical roles in the Nigerian economy and their potential huge impact on private sector development.
Pursuit of a cost reflective electricity tariff, and unbundling of the Nigeria Gas company, for example, will
help attract private investments in the sector. The resultant efficiency gains emanating from competition will
lower energy prices in the medium to long term. This will boost Nigeria’s competitiveness, reduce the cost of
production and enhance profitability of businesses, including SMEs. It will contribute to improving access to
adequate, reliable and affordable electricity, which is a necessity for the development of the private sector
and for achieving economic transformation and diversification.
6.5 Implementation, Monitoring and Evaluation
6.5.1. Implementation Institutional Framework: The Federal Ministry of Finance will be responsible for
overall coordination and implementation of the program, in collaboration with Ministry of Budget and
National Planning, the Ministry of Power, Works, and Housing , the Ministry of Agriculture and Rural
Development and other relevant agencies. During appraisal, capacity of these ministries to implement the
program was found adequate for the purposes of this operation.
6.5.2. Monitoring and Evaluation Arrangements: The Operations Policy Matrix agreed between the
Nigerian authorities, the Bank and World Bank, as well as the related indicators in the Results-Based Logical
Framework, will be the basis for monitoring and evaluation. The program will rely on national arrangements
for monitoring and evaluation, as well as on the FGN framework for reporting results. The Bank will work
with the Federal Ministry of Finance and the Ministry of Budget and National Planning, who have overall
responsibility for monitoring the economy. The Bank will conduct regular supervision of the programme, in
coordination with the World Bank, to assess progress achieved against indicators in the Policy Matrix.
ORNG will play a critical role in monitoring implementation and program results. ORNG will also sustain
policy dialogue with FGN, World Bank, IMF, and other DPs. Upon completion of the operation, a PCR will
be prepared to evaluate progress against the Results-Based Logical Framework and draw lessons from the
operation.
6.6 Financial Management, Disbursement and Procurement Arrangements
6.6.1. Country Fiduciary Risk Assessment: The Bank’s Fiduciary Risk Assessment, conducted for
Nigeria in 2016, rates the overall risk as Substantial, with particular weaknesses in legislative scrutiny of
audit reports of the Auditor General of the Federation. The Assessment found inadequate monitoring of
implementation of audit recommendations. In addition, the Human Resource Management module has not
yet been implemented to support the new Payroll system, government internal audit is weak, and the manual
controls over initiation of commitments are generally ineffective (with the ‘procure to pay’ module yet to be
implemented). There is also a lack of linkage between policy priorities and budgetary allocations. The new
government is addressing some of these weaknesses. The lack of full integration of the medium term sector
strategies of Federal Ministries in the budget process is also being addressed, by ensuring that budget
priorities fully mirror the policy priorities and inform budget allocation. To this end, FGN is piloting a
budget formulation framework, to link sectoral budgets to defined government priorities. FGN is keen to
ensure that budgeted expenditure to be fully justified, using a zero-based approach to determine expenditure,
rather than the traditional incremental budgeting arrangement that had characterized the budget process over
the years.
21
6.6.2. In budget management and economic transparency, progress has been made in a number of
fronts, including those supported under the program. These include, among others: (a) adoption of, and
compliance with, implementation of a uniform chart of budget classification and chart of accounts consistent
with Classification of Functions of Government (COFOG) and Government Finance Statistics (GFS) 2001;
(b) improvements in the timeline of submission of audited financial statements and audit reports to the
National Assembly; (c) adoption and roll-out of a TSA for improved cash management amid liquidity
deficits, and saving significant costs in ‘ways and means’ borrowing; (d) progress towards migration to
International Public Sector Accounting Standards (IPSAS) accrual basis of accounting and reporting, in as
much as challenges remain in perfecting the cash basis; (e) steps towards the establishment of a functional
budget management system, whereby all expenditures will be controlled through a commitment management
system under GIFMIS, and revenues (now accounted for, largely in real time), through a revenue
management platform; and (f) fiscal reports are available for at least 97% of public expenditures financed
from the budget on a real time basis. The procurement management system is already well developed, and
will be enhanced by the adoption of the ‘procure to pay’ module that will link procurement to the financial
management system. There appears, therefore, to be a strong commitment by FGN to good economic
governance, with measures being taken to avoid policy reversals, and ensure long term sustainability.
6.6.3. Disbursement and Flow of Funds: The proposed loan of USD 600 million, being the first
tranche of a two-tranches operation totalling an indicative amount of USD 1 billion, will be disbursed
upon fulfilment of agreed prior actions and disbursement conditions. The front-loading of the operation
is appropriate, as it is a strong contribution to filling the financing gap created by the sharp decline in oil
prices. It will assist the country’s efforts to quickly build a buffer of foreign exchange reserves, which would
contribute to easing pressure on the foreign exchange market and stabilizing the Naira. The resources will be
strong countercyclical support for Nigeria’s efforts to achieving macroeconomic stability and economic
recovery. Such economic recovery would signal the end of the current recession, which, if prolonged, has
potential to severely affect the economies of neighbouring countries in West and Central Africa. In addition,
given FGN’s demonstrated commitment to significantly scaling up infrastructure investments (representing
30% of the 2016 Budget), the resources will contribute to creating the fiscal space for investments in power,
housing and transport, which are key sectors for stimulating the strong economic growth required to exit the
recession.
6.6.4. Transfer of the funds from the Bank to FGN will be through a dedicated Special Foreign
Currency Account opened in the Central Bank of Nigeria. The funds will be converted to Naira and
transferred to the Consolidated Revenue Fund of FGN. These resources will be recorded appropriately in the
financial management system of FGN. The proceeds of the loan will be used to finance Government
expenditures. Disbursements from the Consolidated Revenue Fund shall not be tied to any specific purchases
and no special procurement arrangement shall be required. The proceeds of the loan shall, however, not be
applied to finance expenditures on the Negative List defined in the Loan Agreement.
6.6.5. Audit: Due to the fiduciary risks associated with the proposed program (§ 6.6.1), and the high
value of the loan, additional fiduciary safeguard arrangements shall apply to this operation. An audit
of the flows of funds into and out of the dedicated Foreign Currency Account of FGN, held with CBN, shall
be carried out by independent auditors23 acceptable to the Bank, within two months after the end of the fiscal
year. The audit report shall be submitted to the Bank within three months of the end of the relevant fiscal
year. (See Technical Annex I).
6.6.6. Procurement: Procurement arrangements for the proposed operation will be in accordance with
the country’s procurement systems as detailed in the Public Procurement Act (PPA) of 2007. The use of
country’s procurement systems is consistent with the Bank’s new Procurement Policy framework, which became
effective in January 2016. (See Technical Annex I).
23 The Auditor General of the Federation shall be deemed acceptable by the Bank to conduct this audit
22
VII. LEGAL DOCUMENTATION AND AUTHORITY
7.1 Legal Documentation.
The Loan Agreement between the African Development Bank and the Federal Republic of Nigeria.
7.2 Conditions Associated with the Bank’s Intervention
7.2.1. Conditions Precedent to Entry into Force of the Loan Agreement: The entry into force of the Loan
Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section 12.01 of the
General Conditions Applicable to Loan and Guarantee Agreements of the Bank.
7.2.2. Prior Actions: Before the proposed operation is presented to the Board, FGN shall have provided
evidence, satisfactory in form and substance to the Bank, that the Prior Actions for the proposed EGDCSP,
outlined in Table 3, have been fully met.
7.2.3. Conditions precedent to disbursement of the USD 600 million: Disbursement of the Loan (USD 600
million) shall be conditional upon the entry into force of the Loan Agreement, and the transmission to the
Bank, by the Federal Government of Nigeria, of the details of a foreign currency account with the CBN for
purposes of receiving the proceeds of the Loan.
7.3 Compliance with Bank Group Policies
7.3.1. The proposed EGDCSP complies with all applicable Bank Group policies and guidelines. The
key Bank Guidelines and other policies applied to this Program include the following: (i) Bank Policy on
Program-Based Operations (2012, 2013, and 2014), (ii) the Ten-Year Strategy (2013-2022), and its
reiteration in the High5s; (iii) the Governance Strategic Framework and Action Plan 2014-18, (iv) the
Revised Staff Guidance on Quality-at-Entry Criteria and Standards for Public Sector Operations, (v) the
Energy Sector Policy of the Bank Group (2012), (vi) Agriculture Development Policy; and (vii) Private
Sector Development Strategy, 2013-2017.
VIII. RISKS MANAGEMENT
8.1. The risks and mitigation measures of the program, summarized in the logical framework, are also
presented as follows: (i) Risk #1 - Oil prices and market related risks. A lower-than-budgeted oil price and
disruption in domestic oil production would cause revenue shortfalls, continue to put pressure on exchange
rate, and weaken further growth prospects. Mitigating measures: FGN is implementing a bold fiscal
consolidation program to maximize revenue and diversify the economy away from oil, increase expenditure
efficiency and consolidate extra-budgetary revenues and expenditure (see Appendix II); (ii) Risk #2 -
Limited institutional capacity to address the impact of shocks and adapt to the new environment of lower oil
prices with appropriate reforms. Mitigating measures: The Bank and other DPs are providing technical
assistance and institutional support to further enhance public sector capacity to coordinate and implement
reform programs. The newly created Efficiency Unit in the Ministry of Finance will play an important role in
supporting FGN objective of ensuring efficient and effective use of public resources; (iii) Risk #3 -
Governance and Fiduciary risks: Nigeria has a reputation for widespread corruption in the management of
its vast oil and gas resources. The substantial capital expenditures to be managed in the big-ticket 2016
budget also carries some risks in the procurement process. Moreover, there are still some weaknesses in
PFM, especially at sub national levels. Mitigating measures: These risks will be mitigated by strengthening
the country’s PFM systems, including at SLGs levels through this operation; and (iv) Risk #4 - Security and
social exclusion related risks. Mitigating measures: The authorities have tightened security in the troubled
spots and other areas. Social inclusion measures have also been taken to strengthen safety nets and create
jobs and income generating opportunities for poor and vulnerable groups (see §5.2.23).
23
IX- RECOMMENDATION
Management recommends that the Board of Directors approve an ADB loan not exceeding USD 600 million
to the Federal Republic of Nigeria for the fiscal year 2016 for the purposes, and subject to the conditions,
stipulated in this report. Management invites the Board to note that this operation is part of a two-fiscal-year
(2016-2017) programmatic series, for a total indicative amount of USD 1 billion.
APPENDIX II: COMMON AFDB/WORLD BANK/FGN OPERATION POLICY MATRIX
Legend
Reforms supported by the African Development Bank
Reforms supported by the World Bank
Reforms supported by the African Development Bank and the World Bank
MEDIUM-TERM
POLICY
OBJECTIVES
POLICY MEASURES
MOV
STATUS AS OF END
OCTOBER 2016
(FOR 2016 POLICY
MEASURES)
AREA OF FOCUS FOR
THE AFDB AND THE
WORLD BANK (WB)
2016 2017
[AfDB and WB General Trigger#1] Prepare
a Medium-Term Economic Recovery Plan AfDB and WB
Component I. Strengthening Public Financial Management
1.1 Revenue
Mobilization
through improved
tax administration
& tax policy
reform
Expand VAT auto collection to the
aviation sector
FMF/FIRS circular AfDB and WB
Expanded VAT auto collection to the 16
sectors targeted by FIRS
FMF/FIRS circular AfDB and WB
[AfDB INDICATIVE TRIGGER#2]
Conduct audit of at least 500 tax payer
corporations with a view to determining their
outstanding tax payments obligation to FGN
Letter from the Auditor
General of the
Federation
AfDB
[AfDB PRIOR ACTION#1]
Require all revenue generating
agencies to remit 80% of their gross
revenue to the CRF;
Integrate e-filing and e-payment
systems
Remove or phase out waivers and exemptions
that have fulfilled their purpose, based on the
recommendations of the Committee
established for the purpose [FMOF]
FMF/FIRS circular Fully implemented AfDB and WB
MEDIUM-TERM
POLICY
OBJECTIVES
POLICY MEASURES MOV STATUS AS OF END
OCTOBER 2016
(FOR 2016 POLICY
MEASURES)
AREA OF FOCUS FOR
THE AFDB AND THE
WORLD BANK (WB) Cancel waivers and exemptions that
are no longer necessary
Submit a Bill to the National Assembly that
seeks to increase the rate of VAT from 5% to
7.5% [FMOF]
FMF circular Partially implemented WB
Update and published the Transfer Pricing
documentation requirements, including the
tax return schedule
FIRS WB
1.2 Expenditure
Control &
Rationalization
[AfDB PRIOR ACTION#2]
Expand the biometric based
Integrated Personnel & Payroll
Information System (IPPIS) to cover
50% of MDAs
[AfDB INDICATIVE TRIGGER#3]
Expand the biometric based Integrated
Personnel & Payroll Information System
(IPPIS) to cover 60% of MDAs
FMF report Fully implemented AfDB and WB
Uundertake specific measures (bulk purchases
of common goods; special discount travel
arrangements; use of special payment
methods for soft expenditures; use of specific
guidelines and norms for pricing of
procurement items) recommended by the
Efficiency Unit to reduce overhead
expenditures [FMOF/EFFIC. UNIT]
FMF report AfDB and WB
Roll out the Treasury Single
Account (TSA) to at least 95% of
budgetary agencies
Approve a policy introducing a ceiling for tax
expenditures to be included in the Annual
Budget [FEC]
FMF report Fully implemented AfDB and WB
[AfDB PRIOR ACTION#3]
Implement guidelines on travel
related expenditures
Approve a fuel price modulation policy that
includes a commitment to building buffers in
the Stabilization Fund to cater for subsidies in
the event of world price increases [FEC]
FEC minutes Fully Implemented AfDB
Approve the fuel price modulation
policy
NNPC Partially Implemented AfDB
Approve a policy introducing a
ceiling for tax expenditures to be
included in the Annual Budget
FEC Partially Implemented WB
1.3 Mitigating
Fiscal Risks
Publish a new Medium-term Debt
Strategy (MTDS) for 2016-2018
Approve a policy requiring MBNP to include
list of all sovereign guarantees (with explicit
or implicit contingent liabilities) in the federal
budget [FEC/FMBNP/DMO]
DMO report Fully Implemented AfDB and WB
MEDIUM-TERM
POLICY
OBJECTIVES
POLICY MEASURES MOV STATUS AS OF END
OCTOBER 2016
(FOR 2016 POLICY
MEASURES)
AREA OF FOCUS FOR
THE AFDB AND THE
WORLD BANK (WB) [AfDB PRIOR ACTION#4]
Implement the 22 point Fiscal
Sustainability Plan for SLG
Issue a policy requiring ex-ante provisioning
for commercial bank loans to states and local
governments (SLG); FEC has approved
guidelines for undertaking credit risk
assessment prior to issuance of loan
guarantees, on-lending, and other debt related
transactions [FEC/DMO]
FMF report Fully Implemented AfDB
Issue a new policy on SLG borrowing
requiring States to have established a track
record of submitting quarterly fiscal reports
and annual audited financial statements to the
Office of the Accountant General of the
Federation
DMO report AfDB and WB
Approve guidelines for undertaking credit
risk assessment prior to issuance of loan
guarantees, on-lending, and other debt related
transactions
[FEC/DMO] WB
1.4 Improving
transparency and
accountability in
Government Own
Enterprises (GOE)
and other
Government
operations
Approve a new approach to the ratification of
tax exemptions and waivers that is part of the
annual budget process [FMOF/FEC]
FMF report WB
Resume publication of waivers and
exemptions granted, estimated revenue
foregone
FMF report AfDB and WB
[AfDB PRIOR ACTION#5]
Implement the Presidential Initiative
on Continuous Audit
FMF report Fully Implemented AfDB
Publish monthly NNPC financial
and operational reports
Publish the audited financial statement for the
Group’s consolidated operations in 2014,
along with its 17 subsidiaries, upon
submission of the Group’s audited financial
statements to the National Assembly by the
AUGF [NNPC]
NNPC report Fully Implemented AfDB and WB
MEDIUM-TERM
POLICY
OBJECTIVES
POLICY MEASURES MOV STATUS AS OF END
OCTOBER 2016
(FOR 2016 POLICY
MEASURES)
AREA OF FOCUS FOR
THE AFDB AND THE
WORLD BANK (WB) Publish audited financial statements
for the Group’s consolidated
operations in 2014 audited in
accordance with Article 7(2) of the
NNPC Act
Submit the 2015 audited financial statements
of the NNPC Consolidated Group to FEC
[NNPC]
NNPC report Fully Implemented AfDB and WB
Publish monthly reports on the
Revenue Framework (Federal
Account) and the excess Crude
Account (ECA) produced within 30
days of close of the month and
monthly fiscal reports on budget
execution for the Federal
Government (FG) within 15 days of
the end of each month
Publish on its website, the audit report and the
annual audited financial statements of the
Federal Government for FY 2015 upon
submission to the National Assembly
[AUGF]
The Office of
Accountant General
(OAG) report
Partially Implemented AfDB and WB
Publish the audit report and the
annual audited financial statements
of the Federal Government for FY
2014 within 30 days of submission
to the National Assembly
Issue a Bill to establish a risk-based internal
audit function has been submitted to the
National Assembly [FMOF]
The Auditor General
(AuG) report
Partially Implemented AfDB and WB
Establish a risk-based internal audit
function in the FMF and submit to
FEC of the Policy Framework
Issue a Bill to replace the Finance (Control &
Management), Act 1958 is approved by FEC
FMF circular WB
1.5. Improving
public investment
management and
budget execution
Adopt the framework for appraising new
development projects to be included in the
budget
Federal Executive
Council (FEC) minutes
WB
1.6. Ensuring
value for money
through more
efficient public
procurement
Roll out commitment management
and control module of GIFMIS in at
least 20 MDAs, covering at least
25% of federal government ‘capital
and overhead’ budget expenditures;
Roll out commitment management and
control module of GIFMIS has been
expanded to 40, cumulative, MDAs, covering
at least 45%, cumulative, of federal
government ‘capital and overhead’ budget
expenditures [AGF]
AG report Fully Implemented AfDB and WB
Start of Implementation of e-procurement of
goods and services in 6 pilot ministries at the
Federal level: Water, Health, Education and
Agriculture, Science and Technology, and
Finance [BPP]
AG report AfDB and WB
MEDIUM-TERM
POLICY
OBJECTIVES
POLICY MEASURES MOV STATUS AS OF END
OCTOBER 2016
(FOR 2016 POLICY
MEASURES)
AREA OF FOCUS FOR
THE AFDB AND THE
WORLD BANK (WB) Implement “procure to pay” module
of GIFMIS in MDAs for at least
15% of government budgeted
expenditure
Application of the Price Norm for Goods and
Services in the above 6 ministries [BPP]
AG report Fully Implemented AfDB and WB
Adopt E-procurement Strategy Application of Framework Agreements in all
MDAs [BPP/EFFI. UNIT]
AG report Partially Implemented AfDB and WB
Adopt Price Norm for Goods and Services AG report Partially Implemented WB
Component II. Promoting Economic Diversification and Competitiveness
2.1. Improving
energy market
competitiveness
through energy
sector governance
[AfDB PRIOR ACTION#6]
Implement the Multi-Year Tariff
Order (MYTO) Cost reflective
electricity tariff
Codify and implement an internal and
supervisory governance structure for TCN
[FMP]
NERC report Fully Implemented AfDB
Approve and implement the rural
electrification strategy plan
FEC minutes Partially Implemented AfDB
2.2. Improving
energy market
competitiveness
through financial
sector viability
Unbundle the NGC (Nigeria Gas
Company)
Contract-based Transitional Electricity
Market is made effective (i.e., Power
Purchase Agreements between generation
companies and NBET, and Vesting Contracts
between NBET and distribution companies,
are activated
Ministry of Petroleum
circular?
Partially Implemented AfDB
Appoint a Chairman plus six commissioners
for NERC in compliance with Power Sector
Reform Act 2015 and has transmitted the
names to Senate for confirmation
2.3. Improving
energy market
competitiveness
through power
generation
adequacy
Enforce the MOU signed between
the IOC and FG on Gas Supply [AfDB INDICATIVE TRIGGERS#4] Operationalize the Gas Supply and
Aggregation Agreement between GACN, Gas
supplies and major buyers of gas
[FMP/NERC]
FEC minutes / FMF
Letter
Partially Implemented AfDB
Implement the gas pricing
aggregation
FEC minutes Partially Implemented AfDB
Establish an Institutional mechanism
established to drive investment climate
reforms in Nigeria
WB
MEDIUM-TERM
POLICY
OBJECTIVES
POLICY MEASURES MOV STATUS AS OF END
OCTOBER 2016
(FOR 2016 POLICY
MEASURES)
AREA OF FOCUS FOR
THE AFDB AND THE
WORLD BANK (WB)
2.4. Improving the
agriculture sector
policy and
institutional
environment
[AfDB PRIOR ACTION#7]
Approve the Nigeria Agriculture
Promotion Policy document
Submit to the National Assembly [NAGESS]
the Bill for National Agricultural Growth
Enhancement Support Scheme (NAGESS)
has been
Minutes of FEC
showing approval of the
document
Fully Implemented AfDB
[AfDB INDICATIVE TRIGGERS#5] Increase by at least 50%, in the 2017 budget,
the capital budget allocation for the sectors of
agriculture and solid mineral, compare to the
2016 budget allocation.
Copy of the 2017
Budget
[AfDB INDICATIVE TRIGGERS#6] Submit to the National Assembly the draft
Bill establishing the Staple Crop Processing
Zone Authority (SCPZA)
Copy of the draft Bill
and the letter of
transmission;
AfDB
Approve the National Water Resources Bill
that will, among other things, improve
irrigation [FEC/NAGESS]
Minutes of FEC
showing approval of the
document
AfDB
Draft a National Water Resources
Bill for Irrigation
Minutes of FEC
showing approval of the
document
Fully Implemented AfDB
Approve the Agriculture Research
Council of Nigeria (ARCN) reform
strategy document
Approve the draft bill for Agriculture Credit
and Financing Scheme
Minutes of FEC
showing approval of the
document
Fully Implemented AfDB
Component III. Fostering Social Inclusion
3.1. Fostering
social inclusion by
protecting and
empowering the
poor and
vulnerable groups
Establish and operationalize a National Cash
transfer Program by the SSN Coordinating
office [VP’s OFFICE]
VP office report AfDB
[AfDB INDICATIVE TRIGGERS#7] Establish and Operationalize a National
Social Registry and Gender dis-aggregated
Database of Poor and Vulnerable Households
covering at least 26 states
VP office report / Letter
of FMF confirming that
SOCU established; LG
Desk office established;
Registry process has
commenced
AfDB
MEDIUM-TERM
POLICY
OBJECTIVES
POLICY MEASURES MOV STATUS AS OF END
OCTOBER 2016
(FOR 2016 POLICY
MEASURES)
AREA OF FOCUS FOR
THE AFDB AND THE
WORLD BANK (WB) Set up the National Social Safety
Net Coordinating Unit in the Vice
Presidency
Establish a tracking framework and
mechanism for pro-poor expenditures in the
Federal Budget [FMBNP] (pro-poor
expenditures to be defined)
VP office report Fully Implemented AfDB
Develop a strategic framework and
implementation plan for job creation
and youth employment
Approve the establishment a framework for
ensuring adequate provision of budget
allocation for conducting regular household
surveys to monitor poverty in Nigeria
[FEC/FMBNP]
Copy of approved
Report FEC/VP’s office
Partially Implemented AfDB
[AfDB PRIOR ACTION#8]
Allocate budget for social safety
nets – 20% of social sector spending
in the 2016 budget
Allocate budget for social safety nets in social
sector spending – increase of 2% compare to
2016 budget
2016 Budget / 2017
Budget
Fully Implemented AfDB
Formulate a comprehensive national
social protection policy
Copy of revised
report(FMBNP/FMLP/V
P’s office)
Partially Implemented AfDB
APPENDIX III - NIGERIA: MEETING THE ELIGIBILITY CRITERIA FOR PBO
Prerequisites Country Eligibility
Government
Commitment
The Government of Nigeria is committed to reducing poverty and improving the well-being of its
population. This commitment is driven by the Government’s long-term development agenda as outlined in
its Vision 20:2020.
Macroeconomic
framework
Nigeria has achieved strong growth over the past decade, averaging about 6.8% annually and being among
the highest in Sub-Saharan Africa. The sharp decline in oil prices in second half of 2014 has posed major
risk to Nigeria’s macroeconomic stability. However, recent bold policy actions undertaken by Government
will ensure macroeconomic stability without endangering the delivery of critical public service and boost
prospects for more inclusive growth. These policy measures include among others: (i) introduction of a
greater flexibility in the Exchange Rate policy to restore the automatic adjustment properties of the
Exchange Rate; (ii) integration of tax e-filing and e-payment systems; (iii) expansion VAT auto collection
base; (iv) rolling out TSA to at least 95% of budgetary agencies; (v) expansion of the biometric based
Integrated Personnel & Payroll Information System (IPPIS) to cover 50% of MDAs to reduce the
likelihood of ghost workers; and (vi) removal of fuel subsidy. The IMF has issued a letter of assessment
for the proposed operation, which will assist the Government in the implementation of these reforms. In
the medium-term, the outlook is threatened by the rising interest rates on the international capital markets,
lower-than-budgeted oil prices, declining international reserves, and lower than projected non-oil
revenues. Nevertheless, Nigeria remains at a low risk of debt distress with total debt amounting to a
manageable 13% of GDP, of which 2.1% of GDP is external debt.
Political
stability
Nigeria has strengthen its credentials as stable democracy with the smooth political transition in 2015,
through the democratic process. The April 2015 general elections marked the fifth consecutive national
elections, further consolidating the transition from military to democratic rule that began in 1999. The
elections signified important strides in Nigeria’s electoral and democratic development, and were
characterized by observers as freest and fairest in Nigeria’s history. However, political instability arising
from attacks by Boko Haram in the Northern parts of the country pose some threats.
Satisfactory
fiduciary risk
assessment
The Bank has undertaken a fiduciary review of the PFM system as part of the Country Strategy Paper
Medium Term Review. The analysis identifies key fiduciary risks including: 1) Shortcomings in the
legislative oversight and external scrutiny – the legislature is behind in its review of the AuG audit reports,
there is a lack of formal follow-up of the implementation of the AuG’s recommendations; 2) Internal
Audit is still primarily pre-audit and transaction based, as opposed to the modern practice of prioritizing
risk management and systemic issues; 3) Commitment control has not yet been fully integrated into the
GIFMIS as the “Procure to Pay” module is only now being piloted.
Harmonization Donors coordinate and harmonize interventions through the Development Partners Group (DPG), a
common strategic approach to support FGN’s development plans. DPG provides a common understanding
of the developing challenges facing Nigeria and upon which Donors develop their own strategy. The DGP
is a dynamic framework which: (i) reflects key donors’ concerns as regards the economy, corruption and
security issues; (ii) outline the contours of the political cycle and describe optimistic as well as pessimistic
scenarios; and (iii) outline opportunities and risks as well as discuss constraints for Development Partners
such as those relating to the Borrowing Plan (BP). To prepare the proposed operation, the Bank has
worked closely with the World Bank, and consulted with the IMF. The Bank and the World Bank
conducted joint field missions and agreed on a joint matrix policy that was extensively discussed with the
authorities.
APPENDIX IV: MAP OF FEDERAL REPUBLIC OF NIGERIA