# **4.2 Nigeria’s Reforms since 2003**

Nigeria consistently improved its ratings for the economic management and structural policies clusters between 2003 and 2009. Nigeria’s debt policy rating rose by 2 points from 2003 to 2009. Similarly, its trade policy rating rose by 1.5 points as well. The average rating for its economic management cluster went up by more than a point, while the average rating for structural policies rose by a point as well. The social inclusion and public governance clusters, however, have not seen any significant ratings changes.

Nigeria came up with the NEEDS (the National Economic Empowerment and Development Strategy) in 2004. This included reforms such as passage of a fiscal responsibility bill. Also introduced was the idea of a reference oil price, which was to guide fiscal decisions. The IMF saw NEEDS as a major first step towards a credible agenda of growth and poverty reduction. In the 2005 report, the IMF and IDA staff saw implantation of the strategy in 2004-05 as "impressive". In the 2007 progress report, the IMF staff state that macroeconomic policies improved, while there was still worry regarding fiscal expansion and quality of budget spending.

On other fronts, the NEEDS strategy included reforms on financial sector, transport system, accountability and transparency. The passing of the bill on Commitment to Extractive Industries Transparency Initiative, and the start of civil society involvement through the "Publish what you Pay" initiative meant that oil revenue data would be collected and published. Further promises on health, education and poverty eradication were made as well. That said however, the CPIA ratings show that WB analysts did not believe significant progress in these sectors were made, unlike in economic management and structural policies cluster.

The financial sector reforms in 2004 also forced consolidation in the banking sector by raising the minimum capital requirements by a ten-fold. This led to significant banking mergers and consolidation. The government also replaced a pay-as-you-go system with a fully funded pension system. After these reforms, domestic credit to GDP ratios have risen from around 13% in 20022006 to above 25% in 2007 and later. This large rise in financial deepening is impressive.

# **4.3 Nigeria’s Growth Performance post-reforms**

Nigeria’s GDP per capita (PPP at constant prices) in 2004 was 1687, which rose by 15.7% to 2000.78 in five years. Generally, this would be attributed to the effect of oil. Worldwide oil prices, as measured weekly weighted spot price, have risen from 20 dollars per barrel in early 2003 to 71.75 dollars per barrel at the end of 2009. This has led to a sharp rise in Nigeria’s state expenditures and these expenditures have been distributed, albeit imperfectly to parts of the population, thus raising mean income. This narrative however does not tell Nigeria’s story completely. While oil prices surged between 2003 and 2009, Nigeria’s Real non-oil GDP actually rose by 13.2% in 2004, by 8.6% in 2005, and by an average of 9.3% during 2003-2007.

Whether the additional spending created by revenue windfall through oil spurred the rest of the economy is difficult to answer, but the data reveals that government expenditure to GDP ratio has gone down since 2001. In 2001, the ratio was 51%. As oil prices jumped in 2003 and kept on rising for the rest of the decade, the ratio declined to around 30% between 2003 and 2007. The fiscal rule has been applied well, as the excess crude account that houses excess oil revenue amounted to $18 billion in late 2008. Given that the majority of the oil revenue goes to the government and government expenditures have been tightened, it is hard to suggest that most of the economic growth indirectly from oil revenue.

If oil is not the only driver of growth, we need to investigate what is. Analysts believe that much of this growth came from accumulation rather than productivity increases. Interestingly, agriculture contributed around 40-45% of the growth during the 2003-2008 period. The impact of private remittances has been significant in the second half the decade. Remittances have jumped from $1.06 billion in 2003 to $9.98 billion in 2008, which amounts to around 12% of real 17