CBN Half Year Economic Report for 2007
ECONOMIC REPORT
Fig. 18
Growth in Money Supply(Per cent)
-10

Per cent
M1

M2


3.0
DEVELOPMENTS IN THE ECONOMY
3.1
Monetary and Credit Developments
Monetary management was driven largely by the liquidity condition and the operation of the new
framework for monetary policy implementation, which commenced in December 2006. Various policy actions
were taken in the review period to ensure that targets for monetary aggregates under the Policy Support
Instrument (PSI) were met. The two-way quote trading between the CBN and Money Market Dealers (MMDs)
and the pilot run for trading among MMDs commenced in June 2007.
Following the relative macroeconomic stability evidenced by the downward trend in inflation and the
viability of the external sector, the Monetary Policy Rate (MPR) was reviewed downwards by 200 basis points,
from 10.0 to 8.0 per cent in June. Similarly, the interest rate corridor was reduced from 600 to 500 basis points.
Consequently, the rates of the CBN deposit and lending facilities stood at 5.5 and 10.5 per cent, down from 7.0
and 13.0 per cent.
Available data indicated that broad money (M ) increased by 11.01 per cent to N4,079.4 billion in June

2007, compared with the 29.1 per cent in the corresponding period of 2006, respectively. On an annualized
basis, this represented a growth of 22.02 per cent, compared with the target of 19.0 per cent for fiscal 2007.
Narrow money supply (M ) rose modestly by 0.63 per cent to N1, 947.2 billion, compared with 20.4 per cent

growth in the corresponding period of 2006. The growth in money stock reflected the increase in foreign and
other assets (net) of the banking system.
3.1.1
Drivers of Growth in Monetary Aggregates
3.1.1.1 Net Foreign Assets (NFA)
The rise in the components of monetary liabilities was attributable largely to the increase in the Net
Foreign Assets of the banking system. The NFA increased by 23.2 per cent over its level at end-December 2006,
owing to the favourable crude oil prices in the international oil market. NFA, as a percentage of M2 stood at
187.8 per cent compared with 194.9 and 164.7 per cent at end-December 2006 and the corresponding period of
2006, respectively.

CBN Half Year Economic Report for 2007
3.1.1.2 Net Domestic Asset
3.1.1.3 Net Domestic Credit (NDC)
3.1.1.4 Credit to the Government (Cg)
3.1.1.5 Credit to the Private Sector (Cp)
The net domestic assets (NDA) of the banking system, at negative N3, 581.1 billion, had a moderating
effect on the growth of M2 as it showed a decline of 40.7 and 43.0 per cent below the levels at end-December
2006 and the corresponding end-June 2006. The decline in NDA was entirely due to the decline in net domestic
credit, which more than offset the increase in other assets (net) of the banking system.
Credit to the domestic economy fell by 187.2 per cent at end-June 2007 relative to the level at endDecember 2006. The development reflected wholly the decline in net credit to the government, following the
increase in Federal Government deposits with the banking system.
Net credit to the Government fell by 126.0 per cent, compared with 17.89 per cent at end-June 2006,
reflecting the significant increase in Federal Government deposits with the banking system, particularly with
the CBN. Thus, the Federal Government was a net creditor to the banking system during the period.
Credit to the private sector, including the State and Local Governments, non-financial public
enterprises and the core private sector, rose significantly by 34.4 per cent over the level at end-December 2006.
The effect of this development on the NDC was more than offset by the substantial decline in credit to the
Federal Government (net). The core private sector was the major beneficiary of the increase in credit to the
private sector.
Analysis of the banking system flow of credit to the private sector showed that at end- June, 2007, oil
and gas, communications and other sectors, attracted 39.4, 25.0 and 9.8 per cent respectively of the total credit to
the private sector. The priority sectors, namely agriculture, manufacturing, mining and quarrying and exports

CBN Half Year Economic Report for 2007
Fig. 21
Share of Private Sector
Credit to Other
Private Sector
99.0%
Credit to State &
Local
Governments
1.0%
had a share of 1.9, 12.6, 10.0 and 1.40 per cent, respectively. Relative to December 2006, credit to oil and gas,
communication and unclassified sectors grew by 52.1, 33.7 and 56.1 per cent respectively, while that to
agriculture, and mining and quarrying increased by 22.2 and 35.1 per cent, respectively. However, credit to the
manufacturing and exports sub- sectors, declined by 4.6 and 9.7 per cent, respectively, comp ared with the levels
at end- December, 2006.
3.1.2
Money Market Developments
Activities in the money market in the first half of 2007 indicated improved performance. Public offers
of government securities at the primary market were over-subscribed due to the short-supply of risk-free, long
tenored securities with more attractive yields. Foreign investors' patronage at the primary market was also
sustained indicating improved confidence in the economy.

CBN Half Year Economic Report for 2007
3.1.2.1 Money Market Assets Outstanding
3.1.2.2 Primary Market
3.1.2.3 Open Market Operations (OMO)
3.1.2.4 Interest Rates Developments
3.1.2.5 Money Market Rates
Available data indicated that the level of money market assets outstanding at end-June, 2007 stood at
N2,032.2 billion, showing an increase of 24.0 and 16.93 per cent over the levels at end-December and June
2006, respectively. The development reflected largely, the increase of 42.0, 22.4 and 41.9 per cent in
Commercial Papers (CPs), Bankers' Acceptances (BAs) and FGN Bonds, respectively.
The Debt Management Office (DMO) in collaboration with the CBN, issued 3- , 5- and 7-year tenored
FGN Bonds worth N270.00 billion in the first half of the year, compared with N175.9 billion issued in the
corresponding period of 2006. The bonds were partly for the settlement of debt owed to Federal Government
contractors and pension arrears. Total subscription and allotments were N611.26 billion and N281.7 billion,
respectively, compared with N335.5 billion and N174.5 billion in the first half of 2006. The significant increase
in subscription was attributable to the market players' continued preference for longer tenored securities with
more attractive yield. To further enhance activities in the bond market, the DMO appointed additional five (5)
primary market dealers, thus bringing the total number of dealers to twenty (20), comprising the five (5)
discount houses and fifteen (15) deposit money banks.
Treasury bills issued to replace maturing ones amounted to N783.31 billion, compared with N801.0
billion in the corresponding period of 2006. The development was attributable to the low volume of instruments
on offer during the period. However, the sustained patronage in the primary market was due to market players'
preference for risk-free assets.
Treasury bills holdings declined by 16.13 per cent from its level at end-June 2006. The decline was
attributable to the repayment of matured bills. Analysis of the holdings of outstanding TBs showed that the
deposit money banks and discount houses jointly increased their investments by 24.4 per cent to N647.7 billion.
However, holdings by the non-bank public fell by 56.1 per cent to N68.6 billion. The CBN's holding of treasury
bills outstanding amounted to N0.6 billion, compared with N40.5 billion in the corresponding period of 2006.
Open Market Operations (OMO) remained the major tool for liquidity management. In line with the
new framework for monetary policy implementation, the tenors at the auctions were structured to synchronise
the maturities with those in the primary auctions, thus ensuring that tradable maturities were available to the
market. To further enhance efficiency in the financial market, the two-way quote trading in securities
commenced in June 2007.
Total subscription and sales amounted to N411.8 billion and N1,051.0 billion, respectively, compared
with N1,207.0 billion and N895.6 billion in the corresponding period of 2006. The increased sale was
attributable to the commencement of the two-way quote trading in government securities, the attractive yields
and the dearth of the long-tenored instruments.
The Monetary Policy Rate (MPR) was reviewed downwards by 200 basis points, from 10.0 per cent to
8.0 per cent in June in line with the prevailing macroeconomic fundamentals. Similarly, the interest rate corridor
was reduced from 600 to 500 basis points.
Volatility of rates was subdued as inter-bank rates generally fell within the standing facility's interest
rate corridor, fluctuating around the MPR. The development reflected the salutary effect of the new CBN
monetary policy implementation framework. The inter-bank call rate was 8.46 per cent at end-June 2007,
compared with 8.16 per cent in the corresponding period of 2006. The average Open Buy-Back (OBB) rate

CBN Half Year Economic Report for 2007
Box 1: The CBN Standing Facility
Fig. 22
Nominal Interest Rates Movement percent per annum

Jun-92
Jun-93
Jun-94
Jun-95
Jun-96
Jun-97
Jun-98
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Prime Lending Rate
Maximum Lending Rate
Average Term Deposit Rate
stood at 7.75 per cent, down from 10.63 per cent in the first half of 2006.The weighted average of the Nigeria
Inter-bank Offered Rate (NIBOR) for the 7- and 30-day tenors were 7.87 and 10.82 per cent, respectively,
compared with 8.21 and 11.80 per cent in the first half of 2006.
The CBN Standing Facility is a component of the new framework for monetary policy implementation
which commenced on December 11, 2006. The corridor created by the spread between the lending facility
which is the upper band and the deposit facility which is the lower band of fluctuation, was designed to
achieve inter-bank rate stability by influencing the overnight short-term money market interest rates. It
provides the financial valves for absorbing surplus funds and injecting over night funds on a last resort
basis. Furthermore, the lending and deposit facilities provide the corridor within which market players
with suitable securities are expected to trade. Under the arrangement, DMBs with surplus funds deposited
them at 5.5 per cent (250 basis points below the MPR), while those that were short of funds borrowed at
10.50 per cent (250 basis points above the MPR). The operation of the scheme had a salutary effect in
moderating inter-bank rates in the first half of 2007.
3.1.2.6 Deposit Rates
3.1.2.7 Lending Rates
The rising trend observed in banks' deposit rates since 2006 persisted. The average savings deposit rate
rose by 0.21 percentage point over the end-December 2006 level to 3.46 per cent. Other rates on deposits of
various maturities also rose from a range of 5.21 10.25 per cent in December 2006 to 5.37 10.35 per cent at endJune, 2007, reflecting the increased competition in the banking system.
The declining trend that was observed in banks' average prime lending rate was reversed in 2007. The
average prime lending rate, rose from 17.15 per cent at-end December 2006 to 17.63 per cent at end-June 2007.
This development can be attributed to inflation expectation. The average maximum lending rate, however,
declined from 18.59 per cent at end-December 2006 to 17.68 per cent. Thus, the spread between banks' average
term deposit and maximum lending rates narrowed to 8.71 percentage points at end-June 2007 from 10.31
percentage points in the corresponding period of 2006. With the year-on-year inflation rate at 6.4 per cent in
June 2007, most of the term deposit rates were positive in real terms.

CBN Half Year Economic Report for 2007
3.1.3
Institutional Savings
3.1.4
Other Financial Institutions
3.1.4.1 Development Finance Institutions
3.1.4.2 Community / Micro Finance Banks
3.1.4.3 Discount Houses
Aggregate institutional savings as at end-June 2007, amounted to N2,345.4 billion, indicating an
increase of 2.6 per cent over the level in the corresponding period of 2006. The DMBs, buoyed by the deposit of
N650 billion under the Pension Fund Scheme, remained the dominant savings institution, accounting for 90.0
per cent of the total institutional savings at end-June 2007, compared with 90.9 and 94.0 per cent at end-June and
end-December 2006, respectively. Other institutions, including primary mortgage, life insurance funds, the
Nigerian Social Insurance Trust Fund, and community/microfinance banks held the balance of 10.0 per cent.
The ratio of institutional savings to GDP (2007) was 21.9 per cent compared with 19.5 per cent in the
corresponding period of 2006.
N
N
N
Total assets/liabilities of the five operating discount houses as at end-June 2007 rose by 33.6 per cent to
N223.6 billion, compared with the level in the corresponding period of 2006. The total funds sourced amounted
to N104.6 billion, compared with N91.9 billion at end-June 2006. The funds were sourced mainly from an
Five out of the six development finance institutions namely: Bank of Industry (BOI), Federal Mortgage
Bank of Nigeria (FMBN), Nigerian Export Import Bank (NEXIM), Nigerian Agricultural, Co-operative and
Rural Development Bank (NACRDB) and Urban Development Bank (UDB) had aggregate assets of 134.7
billion at end-June 2007. This was 55.1 billion or 62.2 per cent higher than the level in December 2006.
However, two DFIs, namely the Federal Mortgage Bank and the Urban Development Bank had negative
shareholders' funds as at end-June. The aggregate shareholders' funds of the DFIs increased by 2.1 per cent to
21.87 billion over the end-December 2006 level.
The total assets/ liabilities of the reporting Community Banks (CBs) increased by 1.8 per cent over the
end-December 2006 level to N56.08 billion in June 2007. The paid-up share capital and shareholders' fund
increased by 1.71 and 7.84 per cent to N8.44 billion and N13.74 billion, respectively. Loans and advances
granted by the reporting banks increased by 0.6 per cent to N16.50 billion.

CBN Half Year Economic Report for 2007
increase in “other amount owed to customers” (N53.9 billion) and “claims on banks” (N41.4 billion), among
others. The funds were utilized mainly in the purchase of Federal Government securities of less than 91-days
maturity (N57.0 billion), and settlements of claims (N19.4 billion). Discount houses' investments in Federal
Government securities of less than 91 days maturity amounted to N104.3 billion at end-June 2007, representing
46.7 per cent of their total deposit liabilities. This was 13.3 percentage points below the prescribed minimum of
60.0 per cent for fiscal 2007.
The total number of licensed finance companies (FCs) stood at 113, same as end-December 2006 due to
the suspension of the issuance of new licenses. Total capitalization of the FCs rose to N13.44 billion from
N11.37 billion at end-December 2006. The total assets/ liabilities of the FCs increased by 6.04 per cent to
N57.60 billion at end-June 2007. Loans and advances increased by 1.23 per cent to N24.14 billion in June 2007,
while placements with other FCs increased by 27.98 per cent to N11.89 billion. Total borrowing, however,
declined by 0.91 per cent to N34.33 billion in June 2007. Investible funds accruing to the sub-sector was N5.27
billion.
3.1.4.4 Finance Companies (FCs)
3.1.4.5 Primary Mortgage Institutions (PMIs)
3.1.4.6 Bureaux-de-Change (BDCs)
3.1.4.7 Pension Fund Administrators/Custodians
The total number of licensed PMIs remained at 91 as at end- December 2006. Three PMIs were,
however, given approval to restructure their capital base, bringing the total number of PMIs undergoing
restructuring to eight (8), while approval was given to Diamond Mortgages Limited to access the National
Housing Fund (NHF) warehoused at the Federal Mortgage Bank of Nigeria (FMBN). Total capitalization
increased by 0.4 per cent to N15.62 billion, while the total assets of the PMIs increased by 5.7 per cent to
N120.95 billion at end-June 2007. Investible funds available to the PMIs totaled N 28.86 billion.
One hundred and ten (110) fresh applications for BDC licences were received, out of which sixteen (16)
operating licences were approved and sixty-six (66) Approvals-In-Principle were granted, while twenty-eight
(28) others were at various stages of processing. Consequently, the number of BDCs in the country therefore
rose to 368 at end-June 2007, compared with 352 at end-December 2006.
As at end-May, 2O07, 23 Pension Fund Administrators (PFAs) had been licensed by the National Pension
Commission, each with a paid-up share capital of N150 million. Also four (4) Pension Funds Custodians were
licensed. The sum of N650 billion was collected from 2.4 million registered employees under the scheme as at
end-May 2007 out of the 18 million targeted Nigerian workers.

CBN Half Year Economic Report for 2007
Box 2: Pension Fund Reforms

Consistent with the key elements of the Federal Government's medium term reform and development
agenda, the National Economic Empowerment and Development Strategy (NEEDS), a pension reform Act
was initiated in 2004 in order to address the problems associated with the old pension schemes in the
country. Specifically, the reform was intended to
reduce fiscal cost of pension administration to the government, achieve fiscal reform through
measures designed to raise domestic savings and increase private investments, mobilize long-term
savings to finance the real sector to sustain high and broad based GDP growth, and promote the
development of an efficient capital market.
The new pension scheme requires pension funds to be privately managed by licensed Pension Fund
Administrators and Custodians. The Pension Fund Custodians (PFCs) are responsible for warehousing the
pension fund assets, while the PFAs are responsible for the day to day administration of the retirement
savings account of the employees but are not allowed to hold the pension funds assets. The employer sends
the contributions directly to the Custodians, who notify the PFA of the receipt of the contribution and the
PFA subsequently credits the retirement savings account of the employee.
The PFAs open retirement savings accounts for employees, manage the pension funds as the Commission
may from time to time prescribe, maintain books of accounts on all transactions relating to the pension
funds under their management, provide regular information to the employees or beneficiaries and pay
retirement benefits to employees in accordance with the provisions of the Pension Reform Act 2004.
Pension Funds Custodians were required to have a minimum net worth of N5 billion and a total balance
sheet of not below N125 billion.
The pension funds market has a projected annual growth rate of about 15 per cent and it is expected that the
development of the pensions sector will help create the market for long term securities such as bonds,
mortgages and asset-backed securities. It will also help in developing competencies in asset management
and custodianship.
3.1.5 Capital Market Developments
3.1.5.1 The Nigerian Stock Exchange
3.1.5.2 New Issues Market
The performance of the Nigerian Stock Exchange improved significantly as reflected in the increased activities
in both the primary and secondary segments of the market. Market capitalization of the 302 listed securities
increased by 154.3 per cent to close at
8.9 trillion, compared with
3.5 trillion at end-June 2006. When
compared with the end-December 2006 level of 5.12 trillion, this represented a rise of 74.5 per cent.
The new issues market remained active during the first half of the year with the approval of thirteen (13)
fresh offers, four (4) public offers, six (6) right issues, three (3) private placements, six (6) supplementary offers
and one debt to equity conversion. The volume and value of these issues amounted to 26.78 billion shares and
310.78 billion, respectively.
The first of the six series of the fourth FGN bonds, valued at 270.0 billion, were auctioned by the Debt
Management Office (DMO). The six series of the bond were substantially oversubscribed, reflecting public
confidence in the securities. Overall, the 4th FGN Bond and the special FGN bond for the first half of 2007 stood
N
N
N
N
N

CBN Half Year Economic Report for 2007
at 281.7 billion, while subscription and allotment were 622.90 billion and 281.7 billion, respectively.
Thus, the total new issues in the first six months of the year stood at 281.7 billion.
The total market turnover of the secondary segment of the market rose by 163.8 per cent to 64.1 billion
shares valued at 666.2 billion, compared with 24.3 billion shares valued at 312.7 billion in the corresponding
period of 2006. The development was attributable to the increased public awareness of the high returns on
investments in the market.
A sectoral analysis of developments in the market showed that the banking sub-sector remained the
most active on the Exchange, with a transaction volume of 52.5 billion shares valued at
407.4 billion,
representing 81.9 per cent of the total stocks traded. The insurance sub-sector came second following the
conclusion of the recapitalisation exercise in the sub-sector.
N
N
N
N
N
N
N
3.1.5.3 The Secondary Market

CBN Half Year Economic Report for 2007
3.1.5.4 Value Index of Equities
3.1.6
Monetary Outlook for the Rest of 2007
The all-share index of the Nigerian Stock Exchange rose by 96.2 per cent to 51,330.46 (1984=100)
at end-June 2007, compared with 26,161.15 (1984=100) recorded at end-June 2006. The high transactions
from blue chip stocks boosted the all share index. The index also rose by 54.7 per cent when compared the
level at end December 2006.
The growth of the major monetary aggregates which was modest in the first half of 2007 is projected to
rise in the second half of the year. This expectation is anchored on the seasonal increase in economic activities in
the third quarter of the year which would likely spur the growth of both M2 and reserve money above the targets
for the fiscal year. Consequently, excess liquidity will likely persist and remain a major challenge of monetary
management for the rest of the year. This will therefore, require proactive aggressive liquidity mop-up actions
by the CBN in order to meet the end-year targets.
Box 3: Recent Developments in the Nigerian Capital Market
In an effort to strengthen and reposition the operators in the Nigerian Capital Market in order to
cope with the expected challenges and global competition, the Federal Government approved a new
minimum capital base for all capital market operators in the country during the period under review.
Specifically, the policy was aimed at ensuring that only well capitalized and properly structured
organizations operate in the capital market. Under the new capital base, the minimum paid-up capital for
issuing houses was increased from 150 million to 2.0 billion; brokers/dealers, from 70.0 million to
1.0 billion; clearing and settlement agency, from 500.0 million to 1.0 billion; and Registrars, from
50.0 million to 500.0 million. Underwriters were required to raise their minimum capital base from
100 million to
2.0 billion; fund/portfolio managers, from
20.0 million to
500.0 million, while
corporate sub-brokers which had capital base of 5.0 million were to raise it to 50.0 million.
Operators not affected by the upward review included stock/commodities exchanges, capital trade
points, commodities brokers, venture capital managers and individual investment advisers. Others are
consultants (individual and corporate), rating agencies, corporate investment advisers and trustees. This
was aimed at encouraging a smooth take off of these relatively new areas of capital market operations in
Nigeria. Existing operators were given up to December 31, 2008 by the Securities and Exchange
Commission (SEC) to comply with the new capital requirements either through capital increases or
mergers/acquisitions, as no extension would be granted.
A 40 per cent reduction in all capital market fees for both primary and secondary market
transactions was approved during the period under review. The reduction in cost was the culmination of
industry-wide efforts at ensuring that the domestic capital market was made more competitive to attract
both local and foreign investments into the country. Consequently, average equities transaction cost in the
primary market was reduced from 6.92 to 4.32 per cent, while transaction cost on bonds dropped from 7.03
to 4.79 per cent. For the secondary market, equities transaction cost on the buy side was reduced from 4.07
to 2.36 per cent, while the sell side is now 2.65 per cent down, from 4.12. The new fee regime came into
effect on April 24, 2007.
Other approvals during the period included 80 per cent mandatory underwriting for public
offers; and a code of conduct for shareholders' associations in Nigeria. This was to reduce the incidence
of under-subscription and ensure that the issuing houses and stockbrokers have higher stakes in the
issues they bring to the
N
N
N
N
N
N
N
N
N
N
N
N
N
N
market.

CBN Half Year Economic Report for 2007
3.2
FISCAL OPERATIONS
3.2.1
FEDERATION ACCOUNT OPERATIONS
Total federally-collected revenue which stood at N2,344.9 billion during the first half of 2007 was 4.9
and 21.6 per cent lower than the proportional budget estimate and the actual revenue in the corresponding period
of 2006, respectively. The decline in revenue relative to the budget estimates was largely due to the restiveness
in the Niger Delta region which hampered crude oil production. This was however slightly moderated by the
improved receipts from non-oil sources. Further analysis indicated that oil-revenue accounted for 83.0 per cent,
while non-oil revenue accounted for the balance. At N1,945.4 billion, gross oil-revenue fell by 27.8 per cent
below the level in the corresponding period of 2006, while non-oil revenue rose by 35.2 per cent to N399.4
billion over the same period, owing to the appreciable increase in the receipts from custom and excise duties.
Of the federally-collected revenue, the sum of N1,587.7 billion or 67.7 per cent was transferred to the
Federation Account, while the balance went to Joint Venture Cash Call (11.8 per cent), Excess Crude
Oil/PPT/Royalty Account (19.9 per cent) and “Others” (0.6 per cent).

CBN Half Year Economic Report for 2007
Fig. 27
Distribution of Federally-Collected Revenue (percent)
JVC Cash calls
12%
Excess Crude
Proceeds
19%
Federation Account
Allocation
53%
Excess Crude PPT &
Royalty
1%
Others
1%
Fig. 28
Composition of Federal Government Retained Revenue
Fed. Acct.
59%
VAT Pool Acct.
2%
Reserve Acct.
16%
Ind. Rev.
2%
TBs/Bond Issues
11%
Others
10%
3.2.2
Federal Government Finances
3.2.2.1 Federal Government Retained Revenue
At N1,143.6 billion, the Federal Government retained revenue was 19.9 and 47.1 per cent higher than
the proportional budget estimate and the level in the corresponding period of 2006, respectively. This was as a
result of the receipts of N100.00 billion from the FGN Natural Resources Development Account, issuance of the
th
4 FGN Bonds and the sharing of N183.4 billion from the excess crude account during the period. Analysis of
the retained revenue revealed that the share from Federation Account was N672.7 billion, VAT Pool Account
N19.9 billion, Federal Government Independent Revenue N22.1 billion, TBs/Bond Issues N130.9 billion, share
of excess crude account N183.4 billion, with “others” accounted for the balance.

CBN Half Year Economic Report for 2007
3.2.2.2 Total Expenditure of the Federal Government
Aggregate expenditure of the Federal Government stood at N1,070.6 billion. This was 12.5 per cent
lower than the proportional budget estimate, but 42.4 per cent higher than the expenditurel in the corresponding
period of 2006. The lower total expenditure relative to the budget estimate resulted from a decline in interest
payments on domestic debt. A breakdown of total expenditure showed that recurrent and capital expenditure
accounted for 51.7 and 43.5 per cent of the total, respectively, while transfers accounted for the balance of 4.8
per cent.
Thus, the fiscal operations of the Federal Government resulted in an overall surplus of N73.0 billion as against
the proportional budget deficit estimate of N269.8 billion.

CBN Half Year Economic Report for 2007
3.2.3
STATE GOVERNMENT FINANCES
Total revenue of the State Governments from the Federation Account (including excess crude) and VAT
Pool Accounts amounted to N661.20 billion in the first half of 2007. This inducted an increase of 9.4 per cent
over the receipts in the corresponding period of 2006. Analysis of the revenue showed that allocations from the
Federation Account (including 13 per cent derivation fund and excess crude) amounted to N594.95 billion,
while revenue from the VAT Pool Account was N66.25 billion. The receipts from the Federation and VAT Pool
Accounts rose by 6.4 and 47.5 per cent, respectively, over the levels in the corresponding period of 2006.

Fig. 31
Trend in State Governments Revenue (Naira million)


Statutory Allocation
VAT
3.2.4
LOCAL GOVERNMENT FINANCES
Statutory allocation to the 774 Local Governments from the Federation Account (including excess
crude) and VAT Pool Accounts was N323.8 billion up by 2.4 per cent from the total receipts in the corresponding
period of 2006. The improved revenue was due to a significant increase in the allocation from the VAT Pool
Account. A breakdown of the receipts showed that the share of the Federation Account was N274.14 billion or
84.7 per cent as against the 91.7 per cent in the corresponding period of 2006, while that of VAT Pool Account
was N49.69 billion or 15.3 per cent as against 14.0 per cent in the preceding year. Analysis of the allocation on
state basis indicated that Kano, Lagos and Katsina topped with 5.7, 5.1 and 4.1 per cent of total, respectively,
while Gombe, Bayelsa and Abuja ranked least with 1.5, 1.2 and 1.0 per cent, respectively.

CBN Half Year Economic Report for 2007
Fig. 32
Statutory Allocation to Local Governments (First Half 2007)
Federation
Account
84.7%
VAT
15.3%

N'Billion
1st Half 2004
Ist Half 2005
1st Half 2006
1st Half 2007
Fig. 33
Local Government Statutory Allocation, 2004-2007
VAT
Federation Account
3.2.5 PUBLIC DEBT
3.2.5.1 Domestic Debt
The estimated Federal Government's securitized domestic debt outstanding increased by 30.5 per cent
th
over the level at end-June 2006 to N2,056.9 billion. The increase was due to the issuance of the 4 FGN Bonds
worth N281.7 billion in tranches beginning from January 2007 which was over-subscribed to the tune of N329.6
billion by the end of the first-half of the year. The banking system with an estimated 75.5 per cent remained the
dominant holder of the total debt, while the balance of 24.5 per cent was held by the non-bank public. Domestic
debt service payments estimated at N81.63 billion, was 38.4 and 1.6 per cent lower than the proportional budget
estimate and the level in the corresponding period of 2006.

CBN Half Year Economic Report for 2007
Fig. 34
Breakdown of External Debt Service Payments to Creditors
Multilateral
Institutions
25%
Promissory Notes
Holders
61%
Others
1%
London
Club/CitiBank
13%
3.2.5.2 External Debt
Provisional data from the Debt Management Office indicated that the Federal Government's stock of
external debt at end-June 2007 was US$3.49 billion. Multilateral Institutions accounted for US$2.82 billion or
84.2 per cent, while the balance of US$0.53 billion or 15.8 per cent was owed to the “Others” category of
creditors. The total external debt service payments amounted to US$0.78 billion. A breakdown of external debt
service payments showed that Promissory Notes accounted for 61.0 per cent, Multilateral Institutions 24.8 per
cent, London Club 13.1 per cent, while “Others” accounted for the balance of 1.1 per cent.
3.2.6
FISCAL OUTLOOK
The fiscal operations of the Federal Government is expected to result in an estimated moderate surplus
of about 0.5 per cent of the GDP by the end of the fiscal year in view of the expected sustained rise in the average
crude oil prices. The sustained industrial growth in China and India are expected to exert pressure on the
demand for crude oil and consequently pent-up the prices in the international oil market, while the protracted
crisis in Iraq, the restiveness in the Niger Delta and the recent hurricane “Dean” in the Gulf of Mexico would
likely constrain world oil output.
Furthermore, the continued sharing of the excess crude reserve to the three tiers of government may
exacerbate fiscal profligacy, particularly at the sub-national levels and exert pressure on monetary aggregates, if
such outlays are not on capital projects with positive linkages with the rest of the economy. Expenditure
associated with the actualization of the Federal Government's desire to address infrastructural decay,
particularly the power sector, may spur fiscal expansion that could seriously challenge liquidity management by
the monetary authority. In addition, the Federal Government's decision to meet the 15.0 per cent wage increase
from capital vote is likely to exert pressure on domestic prices.
Provisional data from the National Bureau of Statistics (NBS) indicated that the Gross Domestic
Product (GDP) at 1990 constant basic prices grew by 5.69 per cent in the first half of 2007 compared with 5.3 per
cent recorded in the corresponding period of 2006. The aggregate growth was largely driven by the non-oil
sector which rose by 9.2 per cent and contributed 76.8 per cent to the GDP while the oil sector output declined by
5.87 per cent and contributed the remaining 33.2 per cent of GDP. The main drivers of growth in the non-oil
sector were Services (15.1%), Agriculture (6.80%) and Industry (6.60%). Sectoral contributions to GDP were
3.3
REAL SECTOR DEVELOPMENTS

CBN Half Year Economic Report for 2007
Agriculture (39.89%), Services (34.56%) and Industry (25.55%). The increase in industrial production was
driven by the manufacturing sub-sector as mining output and electricity consumption declined.
Inflationary pressure moderated as the year-on-year inflation rate fluctuated between 8.5 per cent as at
end-December, 2006 to 6.4 per cent in June 2007. The twelve-month moving average rate also declined from
15.5 per cent in June 2006 to 5.9 per cent in June 2007.
The major policies introduced in 2006 were sustained in the first half of 2007. In line with the policy on
fertilizer procurement, the Federal Government approved the procurement of 528,000 metric tonnes of
fertilizer worth N33.0 billion for the use of farmers in the 2007 cropping season. It also initiated a public-private
partnership for cotton production in 24 cotton producing states of the federation by setting aside N20.0 billion
for the procurement of chemicals for farmers. The period of accessing the N50.0 billion agricultural loan
scheme was extended to the end of the year, while the distribution of the N550.0 million Millennium
Development Goals (MDGs) loans to farmers was flagged-off during the period.
At 194.8 (1990=100), the provisional aggregate index of agricultural production rose by 7.4 per cent,
compared with 6.2 per cent in the first half of 2006. The observed growth was broad based. The output of staples
increased by 10.7 per cent, compared with 9.8 per cent in the first half of the preceding year, while that of 'other
crops' rose by 6.2 per cent, compared with 8.1 per cent in 2006. The output of the livestock, fishery and forestry
sub-sectors rose by 4.0, 9.3 and 1.1 per cent, respectively.
Growth in the agricultural sector was driven by the positive impacts of the earlier intervention measures
of government, especially the presidential initiatives on various agricultural products, the National Fadama
Project (NFP) and the National Special Programme for Food Security (SPFS). Other contributory measures
were the zero tariffs on imported agro-chemicals, as well as stricter enforcement of the ban on importation of
some agricultural products, such as poultry products and rice. These were complemented by good weather
conditions. However, inadequate and untimely supply of farm inputs, especially fertilizers, persisted.
The domestic retail price of most food items declined, compared with the levels in the first half of 2006.
The decline in the prices of ten of the fourteen commodities monitored ranged from 3.4 per cent for groundnut to
90.7 per cent for yellow maize. The development was attributable to increased production of the commodities,
as farmers responded positively to the various government initiatives and the good weather conditions.
However, the price of some commodities, such as yam flour, vegetable oil, palm oil and eggs increased by 4.8,
8.6, 26.6 and 33.5 per cent, respectively. Despite the resurgence of the avian influenza (bird flu) in the poultry
sub-sector, poultry production and consumption were unaffected as measures were taken to curtail the spread of
the disease.
The prices of Nigeria's major agricultural export commodities, at the London Commodities Market,
increased in the first half of 2007. At 259.1 (1990=100), the dollar-based all commodities price index rose by
36.1 per cent over the level in the first half of 2006. Further analysis showed that of the six commodities
monitored, the price indices of four; cotton, copra, soya bean and palm oil, rose by 0.7, 26.8, 48.6 and 51.2 per
cent, respectively, while the price indices of coffee and cocoa declined by 5.5 and 49.2 per cent, respectively.
The increase in the price of most commodities was attributed mainly to increased demand and supply shortages
in the international market.
3.3.1
Agriculture
3.3.1.1 Agricultural Policies and Institutional Support
3.3.1.2 Agricultural Production and Prices

CBN Half Year Economic Report for 2007
In Naira terms, the all commodity price index at 3,183.7 (1990=100), rose by 36.3 per cent, relative to
the level in the first half of 2006. Further analysis showed that all the commodities monitored recorded price
increases ranging from 0.8 per cent for cotton to 50.6 per cent for palm oil.
The Industrial Policy, as contained in the 2007 Federal Government budget, was anchored on the
NEEDS. The overall objective was to achieve the following targets:
annual growth of the manufacturing sector by at least 7.0 per cent;
manufacturing capacity utilization of 70.0 per cent ;
private sector contribution to total investment in industries of 70.0 per cent ;
promotion of the private sector as the pivot in the industrialization process, through publicprivate partnership; and
support for the development of the small and medium enterprises sub-sector
In the effort to achieve the aforementioned objectives, the government continued to pursue the policy of
privatization of the state owned enterprises (SOEs) with the sale of the Port-Harcourt and Kaduna refineries in
the first half of 2007. The Bureau of Public Enterprises (BPE) also received bids from three international
companies to manage electricity transmission across the country. The Transmission Company of Nigeria was
set up after the dissolution of the National Electric Power Authority (NEPA). In the meantime, the distribution
of pre-paid meters to electricity consumers in the country continued with the aim of ensuring efficient
distribution, timely payment for electricity as well a full recovery of revenues from power supply.
Activities in the industrial sector increased during the first half of 2007, as the index of industrial production at
124.8 (1990=100) rose by 0.2 per cent above the level attained during the corresponding period of 2006. The
performance was reflected in the increase in manufacturing output as mining production and electricity
consumption declined.
At 94.6 (1990=100), the estimated index of manufacturing production rose by 2.6 per cent relative to the
corresponding period of 2006. The development was attributed largely to the increased surveillance activities
by regulatory agencies such as National Agency for Food, Drug Administration and Control (NAFDAC) and
the Standards Organisation of Nigeria (SON), import prohibition of some manufactured products as well as
increased access to bank credit following the banking sector consolidation.
This development was corroborated by an impressionistic survey carried out on some manufacturing
firms across the country by the CBN. The survey revealed that the capacity utilisation as at end-June 2007 was
46.1 per cent indicating an increase of 1.0 percentage point, compared with the corresponding period of 2006.
However, energy inadequacy remained the most binding constraint to the efficient performance of the
manufacturing sector as indicated by 54.3 per cent of the respondents. Other constraints by the respondents
included delays of imported raw materials at seaports and influx of cheap products, which competed unfairly
with locally produced goods.

3.3.2
Industry
3.3.2.1 Industrial Policy and Institutional Support
3.3.2.2 Industrial Production
3.3.2.3 Manufacturing