RESTRICTED
WORLD TRADE WT/BOP/R/13
1March 1996
ORGANIZATION(96-0752)
Committee onBalance-of-Payments Restrictions
REPORT ONTHE CONSULTATION WITH NIGERIA
1. TheWTO andtheGATT 1947 Committees onBalance-of-payments Restrictions consulted
withNigeria on8and9February 1996. Theconsultation washeldunder theChairmanship ofMr.
P.Witt(Germany), inaccordance withtheCommittee 'sterms ofreference, pursuant toArticle XVIII:B,
paragraph 12(a)ofGATT 1994andtheUnderstanding ontheBalance-of-Payments Provisions ofthe
GATT 1994. TheInternational Monetary Fund wasinvited toparticipate intheconsultation in
accordance withArticle XV:2 ofGATT 1994.
2. TheCommittees hadthefollowing documents before them:
WT/BOP/6/Rev.1 Basic document supplied byNigeria
WT/BOP/W/9 Background paper bytheSecretariat
IMF Nigeria -Background Papers andStatistical Appendix, dated
19October 1995.
Opening statement bytheRepresentative ofNigeria
3. Theopening statement oftherepresentative ofNigeria isattached asAnnex I.
Statement bytheRepresentative oftheInternational Monetary Fund
4. Thestatement made bytherepresentative oftheInternational Monetary Fund isattached as
Annex II.
Discussion intheCommittee
(i) Balance-of-payments position andprospects; alternative measures torestore equilibrium
5. TheCommittee noted with concern thesignificant deterioration inNigeria 'seconomic
performance fromearly1990s. Economic policies hadbeenmarked byalackofmonetary andfiscal
disciplines, andstructural reforms hadnotbeencomprehensive. TheNigerian monetary authorities
hadopted forfixed exchange ratesandinterest ratecontrols. Financing ofthelarge budget deficitWT/BOP/R/13
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through money creation hadfuelled inflation andhadcaused arapid appreciation ofthecurrency.
Nigeria 'sexport structure remained fragile because ofthedependence ofrevenues from petroleum
andpetroleum products oninternational oilmarket prices.
6. Thecurrent account deficit hadincreased to2.9percentofGDPin1994. Anegative balance
onservices andincome accounts, exacerbated bydebtservice obligations, hadoffset Nigeria 'smodest
merchandisetradesurplus;thesubstantialdebtservicingobligationremained,byfar,thegreatestproblem
forNigeria. High netcapital outflows hadalsocontributed totheoverall balance ofpayments deficits
ofthepastyears. Attheendof1994 international reserves stood at1.3months ofimports ofgoods
andservices. Thebalance-of-payments deficit hadbeenfinanced inrecent years byaccumulation of
external payments arrears.
7. TheCommittee wasinformed ofstepsthattheNigerian authorities hadtaken in1995toreverse
thenegative policy direction oftheearly 1990s. Itwasemphasized thatNigeria needed toformulate
andimplementacomprehensivemacroeconomicstabilizationandstructuralreformspackage.Restoration
offiscal balance andcontrol ofmonetary expansion wasnecessary tosustain economic recovery and
reach adurable solution toNigeria 'sexternal financial situation. Current policies relating tothedual
exchange raterégime, interest ratecaps, credit allocations, banknationalizations andfuelandfertilizer
subsidies required reviewing.
8. TheCommittee remarked thatrestrictive trade andpayments measures,including theimport
prohibitions subject toconsideration, weretaken intheoverall context ofinadequate economic policies,
detrimental totheNigerian population itself. Reformulation ofmonetary, fiscal andexchange rate
policies, rather thanimposing quantitative restrictions, would helptocreate conditions fortherestoration
ofahealthy balance ofpayments andimprovement oftheinvestment climate. Nigeria could overcome
thedifficulties ofdiversifying intonon-oil exports byseeking toexploit trading opportunities resulting
from themultilateral liberalization process.
9. TheCommittee alsonoted thatNigeria hadbeenunable toimplement thenecessary domestic
policies toimprove itsbalance ofpayments because ofdomestic political unstability. Greater
transparency andaccountability ofgovernment wereseenasessential tocombat allegations offraud
andcorruption, which dampened theprospects ofinvestment outside thepetroleum sector. Good
governance wasnecessary torestructure thedomestic economy.
10. TheCommittee regretted thelackofup-to-date dataonNigeria 'seconomy, which prevented
theCommittee from taking aconsidered viewoftheeffects ofrecent measures.
11. Therepresentative ofNigeria reconfirmed thecommitment ofhisGovernment totrade
liberalization. The1995 Budget statement referred tomeasures aimed attighter fiscal andmonetary
stances; reduction insubsidies; alignment oftheexchange ratetomarket rates; reduction inpublic
sector expenditure; control ofmoney supply; andprudent fiscal management. Tomatch theseeconomic
andfiscal reforms, theGovernment wascommitted totheprogramme oftransition todemocracy by
1998.
12. Financial liberalization under thestructural adjustment programme of1986hadledtoaserious
financial crisis. Theestablishment ofafloating exchange ratedidnothavethedesired effect. Interest
ratesinNigeria weredetermined bythecostofborrowing rather thanbytheminimum discount rate
oftheCentral Bank. Inorder topromote productive, asopposed tospeculative investment, interest
rateshadbeentemporarily capped. Nigeria hadintroduced atwo-tier exchange ratesystem in1994
asareaction tothespeculative movements offoreign exchange. Under thesystem, theofficial rateWT/BOP/R/13
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wasearmarked forgovernment transactions only, while themarket-determined ratewasusedfor
commercial transactions. Thetworateswere expected toconverge inthefirstquarter of1996.
13. Current stabilization measures were aimed atreducing theGovernment deficit toabout
4.5percentofGDP in1996. Subsidies onpetroleum products hadbeenremoved and,in1994, a
value added taxwasintroduced. Privatization would alsohelptoreduce thepublic deficit. TheCentral
Bank andtheGovernment hadreached anagreement tolimitgovernment borrowing, which would
leadtofinancingofthedeficitthroughlong-terminstruments.Growthofbroadmoneyhadbeenreduced
toabout 4.5percentinthefirsthalfof1995, asagainst 9.2percentinthesame period of1994.
Guidelines forthe1996 Budget, tobeannounced inthenearfuture, would bebased on1995
performance.
(ii) System, methods andeffects ofimport restrictions
14. TheCommittee noted thatdespite some liberalization efforts in1995, Nigeria 'strade régime
remained inward-oriented. TheCommittee questioned theappropriateness ofmaintaining import
prohibitions toovercome thecurrent balance-of-payments problem. Furthermore, theCommittee
considered thatthecurrent import prohibitions werenotconsistent withGATT 1994provisions relating
tobalance-of-payments restrictions. Firstly, thequantitative restrictions werenotapplied tocontrol
thegeneral levelofimports; then, Nigeria hadnotdemonstrated whyprice-based measures werenot
adequate toalleviate balance-of-payments problems without distorting trade; moreover, thebulkof
imports intoNigeria consisted ofchemicals, manufacturing goods, machinery andtransport equipment
whereas import prohibitions onbalance-of-payments grounds applied onafewsectors selectively
protected those sectors. Itwasfurther noted thatimport prohibitions inplace exceeded what was
necessary toaddress thebalance-of-payments situation (paragraphs 3and4oftheUnderstanding).
15. TheCommittee alsosought clarification onthecriteria foradding orsubtracting items from
theprohibited listin1995andsought thereasons whyriceandsome other previously prohibited food
andvegetable items hadbeenselectively brought under tariff protection. TheCommittee 'sattention
wasalsodrawn tosafeguard action onsome agriculture items inthelistofrestrictions andtheabsence
ofrelevant notifications.
16. While recognizing thatNigeria 'sbalance-of-payments problem wasgenuine, theCommittee
considered thatthetraderestrictions inplace werenottheappropriate response tothisproblem. The
Committee stressed thatanymeasures maintained forbalance-of-payments purposes should bein
conformity withthebalance-of-payments provisions andurged Nigeria toremove thecurrent restrictions
immediately.
17. Therepresentative ofNigeria reconfirmed thathisGovernment 'sfirmobjective wastomake
allrestrictive trademeasures price-based, andalsotoeliminate thembydisinvoking Article XVIII:12(b).
Conclusions
18. TheCommittee recognized thatNigeria 'smacroeconomic situation remained precarious. It
noted thattheexternal position hadweakened further in1994, partly asaresult ofexternal constraints,
particularly declining oilexport revenues, butmainly because ofinadequate monetary andfiscal
disciplines. Overall, thecurrent account deficit hadwidened, while thecapital account showed alarge
imbalance. Outstanding debtobligations remained high. Thelevelofexternal reserves stood atless
than1.5months ofimports ofgoods andservices. TheCommittee noted Nigeria 'sefforts toensure
stricter discipline inmonetary andfiscal policies during 1995andtooknoteofvarious corrective actions
thattheNigerian authorities hadrecently taken, aimed alsoatreforming thetrade régime includingWT/BOP/R/13
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anewtariff structure fortheperiod 1995-2001. TheCommittee was,however, notinaposition to
judge theoverall impact oftheNigerian Government 'sefforts duetoalackofadequate data.
19. TheCommitteesupportedtheIMF'sassessmentthatadurablesolutionofthebalance-of-payments
problem required firmstabilization policies, including atightfiscal stance andappropriate monetary
andexchange ratepolicies.
20. TheCommittee considered thattheimport prohibitions currently inforce inNigeria werenot
appropriate toaddress therootcauses ofthebalance-of-payments deficit. Notwithstanding any
justification ofsuitable measures forbalance-of-payments purposes, theCommittee emphasized that
prohibitions imposed onaselected listofimports were notconsistent withtherequirements inthe
Understanding onBalance-of-Payments Provisions oftheGATT 1994 regarding theapplication of
restrictions onthegeneral levelofimports andapreference forprice-based measures. Several Members
requested Nigeria toremove therestrictions without further delay.
21. TheCommittee welcomed Nigeria 'scommitment tomake allrestrictive trademeasures price-
based andalsotoeliminate them bydisinvoking Article XVIII:12(b). Itencouraged Nigeria totake
theappropriate steps.
22. TheCommittee requested Nigeria toprovide updated information onitsmacroeconomic
developments andonconcrete steps tobring itstrade régime intolinewithitsbalance-of-payments
obligations.
23. Onthebasis oftheabove considerations, theCommittee agreed toresume theconsultation
bySeptember 1996.WT/BOP/R/13
Page5
ANNEX I
Statement bytheRepresentative ofNigeria
Mr.Chairman, Iwishtothank youforthewarm welcome extended tomeandmembers of
theNigerian delegation. Members ofourdelegation aredrawn fromappropriate Nigerian Ministries
andAgencies, including theFederal Ministry ofCommerce andTourism, andtheCentral Bank of
Nigeria. Letmepreface mycomments byreaffirming thecommitment oftheFederal Republic of
Nigeria totheprinciples oftheglobal trading system. Mydelegation wishes toassure thisCommittee
thatweattach thegreatest importance tothedisciplines oftheglobal trading order.
During theperiod covered bythisreview (1992-1995), theNigerian economy hascontinued
towitness severe macroeconomic imbalances characterised byslow- down ineconomic activity, low
capacityutilisation,fiscaldeficits,risingunemployment,heavydebtserviceburden,deterioratingexternal
payments position andhighrateofinflation. Exchange ratesin1995 were relatively stable while
interest ratesremained fixed. However, thegeneral weakness ininternational oilprices coupled with
thepolitical strikes embarked uponbythelabour unions in1993/94 affected oilproduction andexports,
hence afurther worsening ofthebalance-of payments (BOP) situation. Nonetheless, government has
continued totakeanumber ofpolicy measures aimed atensuring macroeconomic stability aswellas
resuscitating theeconomy andplacing itonthepathofsustained anddurable growth.
Against thisbackground, thepressures onNigeria 'sbalance-of payments since thelast
consultation withthisCommittee in1993persisted, totheextent thattheoverall BOPposition continued
todeteriorate. Bothcurrent andcapital accounts remained weak astheyrecorded substantial deficits.
Inorder tofinance thehugeoverall BOPdeficit, outstanding external debtobligations weredeferred,
inaddition todrawdown onthenation 'sexternal reserves. However, inaccordance withgovernment
policy ofbuilding upreserves torestore confidence intheeconomy, Nigeria 'sexternal reserves
progressively increased fromUS$712.6 million in1992toUS$1,658.8 million in1994, butthistrend
remains fragile.
Thefiscal operations oftheFederal Government havecontinued toresult inanexpanding deficit,
alarge proportion ofwhich wasfinanced bycredit fromtheCentral Bank. In1992, 1993 and1994,
thedeficits amounted toN39.5 billion, N107.2 billion andN70.8 billion, respectively. Toredress
thisperennial problem offiscal excesses, government witheffect from1995, decided topursue apolicy
offiscal transparency, comprehensiveness andcompleteness initsoperations. While theoperation
ofDedicated Accounts hasbeenabolished, other fiscal measures havealsobeenintroduced toexpand
therevenue baseofthegovernment, andcurtail wasteful expenditure andextra-budgetary spending.
AsattheendofJune, 1995, totalFederal deficit stood atN16billion asagainst N27.8 billion inthe
corresponding period of1994.
Thevalue ofpublic debtalsoincreased dramatically between 1992 and1994,thus reducing
theresources available tomeetother obligations. Nigeria 'sinability tosecure debtrelief fromexternal
obligations contributed tothisdevelopment. Onexternal debt, thetotaloutstanding asatDecember
1994totalledUS$29.43billion,comprisingdebtsowedtomultilateralinstitutions,ParisClubandLondon
Club. About US$3.2 billion andUS$1.4 billion ofthetotaldebtconsist mostly ofPromissory Notes
anddebtowed tonon-Paris Club, respectively. Discussions havecontinued withtheIMFandWorld
BankonaMedium.-Term Economic Adjustment Programme (MTP). Asuccessful outcome isexpected
topavethewayforNigeria toenjoy concessional debtrelief andinflow ofconcessional resources from
multilateral andbilateral sources.
Onthedomestic debt, thetotalamount asatendof1994 stood atN341,813.7 million. This
highfigure hasadversely affected theeconomy andhasbeenamajor cause ofmacroeconomic instability.WT/BOP/R/13
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Government intends toaddress thisproblem through thejudicious useofresources andbyborrowing
inthefinancial market atcompetitive interest rates. Theuseof"Ways andMeans" advances tofinance
thedeficit gapwill,therefore, beseverely curtailed oreliminated.
Inspiteoftheexchange policy measures adopted in1992and1993, theaverage Naira exchange
rateintheForeignExchangeMarket(FEM)continuedtoexperiencepersistentdepreciation.Theparallel
market premium alsowidened significantly from17.5percentin1991 to53.8percentattheendof
1993.Theunstableeconomicandpoliticalenvironment,whichincreasedspeculativedemandforforeign
exchange ataperiod ofconstrained supply, waslargely responsible forthewidening premium. In
order tostabilise theNaira exchange rateandhalttheinflationary spiral associated withthepersistent
depreciation oftheNaira, government decided toadopt afixedexchange ratepolicy in1994. However,
themixed results thatemerged from theimplementation ofafixed exchange ratepolicy ledtothe
adoption ofguided deregulation oftheFEM in1995 withtheultimate objective ofbuilding upand
strengthening external reserves. Therefore, effective from January 1995, government introduced a
number ofmeasures tostrengthen theNaira andpavethewayforitsultimate convertibility. Alist
ofthemeasures isonpage 6oftheBasic Document supplied byNigeria forthisconsultation
(WT/BOP/6/REV.1).
Furthermore, inorder toensure greater transparency inforeign exchange transactions, the
Exchange Control Actof1962wasrepealed andreplaced byForeign Currencies andCapital Investment
Monitoring Decree of1995. Thenewlawhassubstantially liberated Nigeria 'sforeign exchange
regulations andcontains provisions aimed ateliminating money laundering. Anyviolation ofthe
provisions ofthisDecree willleadtotheindividuals concerned being charged under theprovisions
ofNational Drug LawEnforcement Decree of1995. Overall, thenewlawontheuseandrepatriation
offoreign exchange hassubstantially taken intoconsideration theconcerns offoreign investors. For
instance, anyforeign investor maynowinvest inNigeria without reference totheMinistry ofFinance
forapproved status orapproval inprinciple. Dividends mayalsofreely berepatriated inrespect of
foreign exchange without reference totheMinistry ofFinance.
Inlinewiththeprogressive deregulation oftheNigerian economy within theframework of
theStructural Adjustment Programme, government alsodecided witheffect fromJanuary 1995torepeal
orrelaxlaws, regulations andruleswhich hinder thefree-flow ofinvestment andfunds intothecountry.
Accordingly, theNigerian Enterprises Promotion Decree 1989 hasbeenrepealed. Initsplace, the
Nigerian Investment Promotion Commission Decree 16,1995 hasbeenpromulgated. Thenewlaw
authorises anyforeign enterprise oranyforeign entrepreneur tobuyshares ofanyexisting Nigerian
company orenterprise andthisshallbecompleted through direct ownership orthrough theNigerian
Stock Exchange. Approval-in principle fromtheMinistry ofFinance isnolonger required. TheDecree
alsoguarantees allforeign investments against nationalisation orexpropriation bygovernment.
Government isfurther willing toenter intoBilateral Investment Protection Agreements withforeign
countries toensure thattheinvestments oftheirnationals aresecure.
Aspartofthenewguidelines onforeign investment, foreign companies cannowfloatshares
toraiseinvestment finance ontheNigerian capital market -thenation 'swindow forlong-term funds.
Under thenewregulation, therequirement thataforeign company wishing toenter thecapital market
must firstobtain approval from theMinistry ofFinance hasbeenremoved. Anissuer offoreign
securities, which maybeedenominated inNaira orinanyconvertible foreign currency, isonlyrequired
tofileanapplication forregistration ofsuchsecurities withtheSecurities andExchange Commission.
However, foreign capital market operators wishing toestablish securities business inNigeria haveto
register withtheCorporate Affairs Commission before theycould operate inthecapital market. In
thealternative, portfolio investors mayappoint anyregistered operator ofthecapital market tohandle
transactions ontheirbehalf.WT/BOP/R/13
Page7
Theprocess offurther trade liberalisation wasalsopursued. Inaddition totheoffers made
byNigeria inthecontext oftheUruguay Round, anewtariff structure fortheperiod 1995-2001 has
beenputinplace. Amongst themain elements ofthetariff regime arethefollowing:
- anarrower range ofcustoms dutyrates;
- alower average rate;and
- fewer import prohibitions.
Fornow, theUruguay Round concessions willformthebasisofaseparate legislation bygovernment.
Government hasalsocontinued toreview theImport Prohibition List.In1995,the following
products which were removed from thelistwould attract thenewdutyratesasindicated:
(a) Dayoldchicks andparent stock -5%
(b) Sparkling wines andchampagne -100%
(c) Fruit, fresh orpreserved, fruitjuices
andvegetables -45%
(d) Jutebags -45%
(e) Rice -100%.
Finally, Mr.Chairman, theNigerian economy continues torelyheavily onoilasamajor source
offoreign exchange. Theoverall performance oftheeconomy, inparticular theexport sector, has
notbeenencouraging. Annual average growth ratesofexports of-10.3, -3.1and6.8percentwere
recorded for1990/91, 19912/92, and1992/93, respectively. Itis,therefore, Nigeria 'sexpectation
thattheconclusionofthisconsultation,underyourdistinguishedchairmanship,willsupportourdomestic
economic adjustment andcontribute towards improving thecountry 'sbalance-of- payments situation.
NigeriawillstrivetomeetitscommitmentsundertheFinalActoftheUruguayRound.Measuresadopted
forbalance ofpayments reasons would becomprehensively reviewed during theperiod ofthenew
Tariff Structure 1995-2001. Inthisconnection, itisthefirmobjective oftheNigerian Government
tomake allrestrictive trade measures price-based, andalsotoeliminate them byandsubsequently
disinvoking Article XVIII: 12(b). Needless toaddthatourability topursue thiscourse ofaction will
largely depend onthebalance-of-payments situation aswellasother favourable developments inthe
global economy.WT/BOP/R/13
Page8
ANNEX II
Statement bytheIMFRepresentative
Following aperiod ofrobust growth, moderating inflation, andimproving external conditions
inthelate1980s, Nigeria 'seconomic performance hasdeteriorated markedly since 1990. The
deterioration canbetraced inlargeparttoexcessively expansionary fiscal andmonetary policies, which
were exacerbated byaweakening intheterms oftrade.
1. Background
During 1990-93, Nigeria 'sexternal tradesurplus wasmorethanhalved, andtheexternal current
account balance shifted fromasurplus ofalmost 10percent ofGDP toadeficit of3percent. Atthe
same time, gross reserves fellfromtheequivalent offivemonths ofimports toabout onemonth, and
external payments arrears increased tosome US$6 billion. Undoubtedly, thesharp decline inoilprices
contributed totheweakening inthecurrent account position. Oilaccounts formore than90percent
ofexport earnings, andtheprice ofNigerian crude declined byalmost 30percent during 1990-93.
However, expansionary financial policies andtheinappropriate management oftheexchange ratehave
beenatthecoreofthecountry 'smacroeconomic imbalances, which haveresulted instagnating growth
andaccelerating inflation. There wasasixfold increase intheFederal Government 'soverall fiscal
deficit during 1990-93, andthespread between theofficial andparallel market exchange ratesincreased
tomore than100percent bytheendof1993.
Trade reform wasuneven overthisperiod. Ontheonehand, certain import duties, mostly
oninputs forthemanufacturing sector, werelowered tolendsupport todomestic industries. Onthe
other hand, thereweresubstantial dutyincreases, some inexcess of200percent, onimports offinished
products. Thelistofexport banswasalsoextended.
Inaneffort tostemthedeterioration ineconomic performance, theGovernment decided in
early 1994 toeliminate thefreemarket forforeign exchange, pegthecurrency attheovervalued rate
of=N22perU.S.dollar, impose controls oninterest ratesatlevels significantly negative inrealterms,
andreinforce themandatory allocation ofcredit topriority sectors. Predictably, these policies proved
tobeineffective instabilizing themacroeconomic situation, andtheeconomy slidfurther in1994.
RealGDPgrowthfelltolessthan1½percent,fromalmost2½percentinthepreviousyear;year-on-year
inflation increased from 61percent in1993 to77percent in1994; fiscal policy continued onan
expansionary course andfellshort ofpolicy intentions; financial distress inthebanking sector spread;
andpressures intheforeign exchange market mounted, resulting inawidening ofthespread between
theofficial andtheparallel market exchange ratestoabout 300percent byyear-end.
Theexternal position weakened further in1994. Oilexports declined owing tolower production
andprices, while non-oil exports stagnated because oftheerosion ofexternal competitiveness. Imports
fellbynearly 20percent, constrained byreduced availability offoreign exchange anddepressed activity
inmanufacturing. Overall, theexternal current account deficit widened somewhat, while thecapital
account continued toshowalargeimbalance, despite higher disbursements onforeign loansandadecline
inamortizationobligations.Thebalanceofpaymentsdeficitwasfinancedbyanaccumulationofexternal
paymentsarrearsofUS$2.7billion,whichbroughtthestockofexternaldebttoUS$31billion,equivalent
to91percent ofGDP atend-1994.
Steps were taken in1994 toliberalize thetrade regime. Thebanonimportation ofafew
commodities waslifted earlyinthatyear. Furthermore, theexport bansonderivatives ofyams, maize,WT/BOP/R/13
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rice,andcassava werelifted, butanexport banonwet-blue leather wasimposed tosupport thedomestic
industry. Import dutyrateswere reduced forcertain industrial inputs, butincreased forarange of
finalproducts.
2. Policy reorientation in1995
Faced withgrowing evidence thatthepolicies pursued in1994didnotbring about theneeded
improvement ineconomic conditions, theGovernment changed course inearly 1995. TheFederal
Government 'sbudget for1995called foreconomic liberalization, "guided deregulation", andprivate
sector-led growth. Itaimed atachieving realGDP growth ofabout 4percent, reducing year-on-year
inflation tosome 20percent, andstrengthening theofficial reserve position. Toattain theseobjectives,
theauthorities announced asubstantial tightening offiscal andmonetary policies, theliberalization
oftheforeign exchange regime withtheopening ofanautonomous market forforeign exchange for
alltransactions except those oftheFederal Government, andinitiatives topromote foreign investment.
Preliminary information forthefirsthalfof1995 indicates thatfinancial policies havebeen
tighter thanforeseen, withtheFederal Government 'sfiscal position moving intoasurplus, equivalent
toabout 1percent ofGDP atanannual rate,compared withabudgeted deficit of2.5percent ofGDP
fortheyear. Theaccompanying tightening ofmonetary conditions, reflecting importantly the
Government 'sgreatly diminished recourse todomestic bankborrowing, reduced thegrowth ofbroad
money toabout 4½percent inthefirsthalfof1995, compared with8percent inthesame period last
year. Nonetheless, inflation hasnotabated sofar.At83percent fortheyearended July1995, the
highrateofprice increases appears toreflect themonetary overhang atend-1994, falling demand for
money balances because ofcontinued heavily negative realinterest rates, andtheprice corrections
associated withtheintroduction oftheautonomous foreign exchange market inFebruary 1995. Monthly
price increases, however, havefallen steadily fromapeakof9percent inApril to3percent inJuly.
Theauthorities have initiated aprocess ofstructural policy reform inthecontext ofthe
preparation ofamedium-term adjustment strategy, which isinapreliminary stage. Thereform agenda
would focus interaliaontherationalization ofthestaffing andstructure offederal ministries, the
revamping ofpublic utility pricing andsubsidy programs, andpublic enterprise reform.
3. External sector prospects
Adualexchange ratesystem wasintroduced inearly 1995, comprising theofficial exchange
rate,at=N22perU.S.dollar, andafreely floating rate,which isdetermined bymarket forces. The
roleoftheforeign exchange bureaus wasalsorestored. Theautonomous market ratehasremained
fairly stable during thefirstninemonths oftheyear, at=N78-84 perU.S.dollar. Toimprove the
environment fortrade andforeign investment, theGovernment repealed theExchange Control Act
of1962 andtheEnterprise Promotion Decree of1989, which required official approval forforeign
exchange transactions andmajority Nigerian ownership offoreign enterprises operating inthecountry,
respectively.
Anewtariffstructure, withanarrower andlower range ofcustoms dutyrates, wasintroduced
inMarch 1995, which reduced thedispersion inimport dutyratesfrom arange of0-300 percent to
5-100 percent. Most oftheratesclustered intherange of10-40 percent, compared withtheprevious
structure of25-75 percent. InAugust 1995, theauthorities temporarily reduced tariffs further, by
onethird, inorder todampen theimpact oftheshifttocustoms dutyvaluations attheautonomous
market exchange rate.Nonetheless, tradereform isnotyetwell-rooted, andthetradesystem continues
tofeature import prohibitions (on16items, including poultry, wheat flour, andusedtires), export
bans(on9items, including maize andunprocessed rubber), andrelatively highimport taxesfordomestic
protection purposes.WT/BOP/R/13
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Nigeria 'sexternal outlook intheshortandmedium termisexpected toremain veryprecarious,
owing tothenarrow export base, unfavourable prospects forsignificant gains intheterms oftrade,
andtheheavy external debtservice burden. For1995, thecurrent account deficit isprojected tonarrow,
toabout 1.5percent ofGDP, asaresult ofmodest increases inthevolume andprice ofoilandof
arecovery innon-oil exports inresponse totheliberalization oftheforeign exchange market. Imports
arealsolikely torecover somewhat fromtheverylowlevels of1994. However, thecapital account
position isexpected todeteriorate slightly, reflecting mainly higher amortization obligations. Asa
result, theoverall deficit would narrow onlymarginally. External reserves areprojected toincrease
slightly toUS$1.1 billion, equivalent to1.4months ofimports ofgoods andnonfactor services. The
balance ofpayments outlook hinges importantly onoilprice developments. However, evenifthe
authorities implement strong adjustment policies, theexternal position isexpected toremain fragile
andofficial reserves relatively lowoverthenextseveral years. Thisisduetotheheavy external debt
service burden, which isprojected toaverage 38percent ofexports ofgoods andservices in1995-2000.
Given thestock ofNigeria 'sexternal arrears andtheprojected debtservice profile, itisclear
thatexternal sector imbalances areofmajor proportions. Itisthusimperative thatboldcorrective
actions betaken. Anabsolute priority forNigeria 'seconomic policymakers should bethestabilization
oftheeconomy through atightfiscal stance, anappropriate interest ratepolicy, andacredible exchange
ratepolicy. Such policies areessential inseeking adurable solution thatwould helpdiversify and
strengthen theexport base,address theheavy external debtservice burden, andleadtotheregularization
ofNigeria 'srelations withcreditors. Therestoration offiscal discipline willhavetoplayapivotal
roleinachieving macroeconomic stability.
Nigeria 'sexternal position remains under pressure andthesteadfast implementation ofstrong
macroeconomic policies, rather thanresort totrade restrictions, isnecessary toachieve lasting
improvements. TheFund staffencourages theearlyunification oftheexchange rates, andtheadoption
ofaspecific timetable fortheelimination ofexchange andtrade restrictions.