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