RESTRICTED
WORLD TRADE WT/BOP/R/18
16October 1996
ORGANIZATION(96-4280)
Committee onBalance-of-Payments Restrictions
REPORT ONTHE CONSULTATIONS WITH NIGERIA
1. TheWTOCommitteeonBalance-of-PaymentsRestrictionsresumeditsconsultationswithNigeria,
suspended inFebruary 1996, on24and25September 1996. Theconsultation washeldunder the
Chairmanship ofMr.Peter Witt(Germany), inaccordance withtheCommittee 'sterms ofreference,
pursuant toArticle XVIII:12 (b)ofGATT 1994 andtheUnderstanding ontheBalance-of-Payments
Provisions oftheGATT 1994. TheInternational Monetary Fund wasinvited toparticipate inthe
consultation inaccordance withArticle XV:2 ofGATT 1994.
2. TheCommittee hadbefore itthefollowing documents:
Addendum toBasic Document supplied byNigeria WT/BOP/6/Rev.1/Add.1
Corrigendum totheBasic Document WT/BOP/6/Rev.1/Add.1/Corr.1
Background Paper bytheSecretariat WT/BOP/W/9
IMF Nigeria: Supplementary Background Material, 11September 1996
Opening Statement oftheRepresentative ofNigeria
3. Theopening statement oftherepresentative ofNigeria isattached asAnnex I.
Statement bytherepresentative oftheInternational Monetary Fund
4. Thestatement bytherepresentative oftheInternational Monetary Fundisattached asAnnex II.
Discussion intheCommittee
(i) Balance ofpayments position andprospects; alternative measures torestore equilibrium
5. Membersrecognizedthat,althoughsomeprogresshadbeenmadeinreducingtherateofinflation,
toanannualized rateof40percent,andthefiscal deficit hadimproved considerably, Nigeria 'sexternal
situation remained precarious. Reserves, valued atUS$2.3billion, covered just2.9months ofimports
andexternal payments arrears nowamounted toUS$12.1 billion. Measures introduced topromote
anddiversify exports could haveabeneficial effect ontheeconomy aswould acontinued tightfiscal
stance andcredible interest andexchange ratepolicies, specifically theunification ofthedualexchange
rate.Transparency andpublic trustwere alsoessential toreapthebenefits ofdisciplined economic
policies.WT/BOP/R/18
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(ii) System, method andeffects ofrestrictions
6. Membersreiteratedthattheimportprohibitionscurrentlyinplacewereinappropriatetoprotecting
thebalance ofpayments. Ashadbeenpointed outearlier intheyear,sectoral specificity wasinconsistent
withthebalance-of-payments provisions andNigeria hadstated thatitwould convert theserestrictions
toprice-based measures. Members asked questions regarding theadministrative review process, what
types ofconsultations werenecessary, whattherecommendations totheTariff Review Board consisted
ofandwhen theBoard would meettomake adecision.
(iii) Replies bytheRepresentative ofNigeria
7. Inresponse, therepresentative ofNigeria recognized thevalue ofsound macroeconomic policies
tocorrect balance-of-payments difficulties andconsidered thatrecourse toArticle XVIII:B wasonly
atemporary policy instrument. Withrespect totheinternal institutional process, heexplained thatafter
thestartoftheconsultations intheCommittee onBalance-of-Payments Restrictions inFebruary, an
Inter-ministerial Balance-of-Payments Committee hadbeenestablished andhadmetseveral times with
private sector groups. ThisCommittee hadthenforwarded itsrecommendations totheMinistry of
Finance forreview bytheTariff Technical Committee which inturnhadforwarded itsconclusions
totheTariff Review Board, chaired bytheMinister ofIndustry. Heclarified thattherecommendations
consistedofeliminatingthoseitemsjustifiedonbalance-of-paymentsgroundsfromtheimportprohibition
listandapplying thecurrent tariff (contained inthe1995to2001Schedule) totherelevant products.
These recommendations, ifapproved, would come intoeffect withthepromulgation ofthe1997Budget
which could beannounced asearly as1January 1997. TheNigerian Government would notify the
changes made totheCommittee assoonastheywere announced publicly.
Conclusions
8. Onthebasis ofthepreliminary conclusions reached inFebruary 1996 (WT/BOP/R/13), the
Committee tooknoteofcertain positive macroeconomic developments, suchasadecline ininflation,
animprovement inthecurrent account balance andanincrease ininternational reserves toaround
4months ofimports inJune1996. Ontheother hand, theexternal prospects remained precarious,
andNigeria wasstillconfronted withserious economic challenges, suchaslowgrowth ofGDP, weak
performance ofexports andveryhighlevels ofexternal debt.
9. TheCommittee supported theIMF'sanalysis thataboldandcredible programme ofeconomic
andtrade reforms wasessential toachieve lasting improvements inNigeria 'sbalance-of-payments
position.
10. TheCommittee considered thattheimport prohibitions currently inforce inNigeria could no
longer bejustified under Article XVIII:B andtheUnderstanding onBalance-of-Payments Provisions
ofGATT 1994. Itrecalled Nigeria 'scommitments tomake allrestrictive trade measures price-based
andtoeliminate them bydisinvoking Article XVIII:B.
11. TheCommittee tooknoteofthestatement byNigeria thattechnical andlegislative processes
hadbeeninitiated withaview toeliminating theimport prohibitions based onbalance-of-payments
grounds asof1January 1997, andthatpositive recommendations hadbeenmade tothisend,subject
tofinalGovernment approval. Itrequested Nigeria tonotify therelevant decisions totheCommittee
assoonastheyaretaken. Ifallmeasures wereremoved bythe1997Budget, there would benoneed
forfurther consultation; ifnot,theCommittee would resume itsconsultation with Nigeria in
February 1997.
12. Inthemeantime, Members reserved theirrights under GATT 1994.WT/BOP/R/18
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ANNEX I
Statement bytheRepresentative ofNigeria
Ithank youandmembers oftheCommittee forthekindandwarm welcome extended tomyself
andmembers oftheNigerian delegation. Wearepleased toreturn tothisresumed FullConsultation
withtheBOPCommittee. Alsoattheoutset, Iwishtoreassure members oftheCommittee thatNigeria
isnon-discriminatory initstrading relations withallmembers oftheWTO, andtothisend,willmaintain
allitsobligations withrespect tothefundamental principles ofthetrading system, particularly, m.f.n.,
National Treatment, aswellasitscontinuing commitment totrade liberalization. Itisnecessary to
mention thatourexternal efforts attrade liberalization correspond todomestic efforts bygovernment
ateconomic adjustment andstabilization which havebegun toyield desirable economic dividends.
Iamabletoinform theCommittee thatourdomestic efforts toensure stricter discipline inmonetary
andfiscal policies in1995and1996havestabilized exchange rate,reduced inflation, produced initial
fiscal surplus, andincreased foreign exchange reserves. Inaddition, Government hasdecided that
theCentral Bank ofNigeria (CBN) withdraws from allretail banking activities witheffect from
January 1997.
Against thisbackground, permit me,Mr.Chairman, toaddress twoissues ofsignificance that
haveabearing onthisresumed consultation namely, abriefmacroeconomic update andNigeria 'scourse
ofpolicy withregard toitsimport prohibitions.
Mr.Chairman, theoverall performance oftheNigerian economy hascontinued tobemixed
andfragile. Theinterest ratewhich waspegged at21percenthasfallen asthebanks 'average lending
ratestood between 18and19percentduring thefirsthalfof1996. Therateofinflation declined
from 72.8percentinDecember 1995 to55.3percentinJune1996. TheFederal Government
Consolidated Account alsorecorded asurplus ofN8.0 billion inJune1996, asagainst adeficit of
N6.8 billion inDecember 1995. TheNaira exchange ratehasremained relatively stable overthelast
18months while totalexternal reserves increased toUS$2.3 billion asatJune1996.
However, Nigeria 'sexternal debtsituation hasnotimproved. Total external debtamounted
toUS$32.6 billion attheendof1995, ofwhich unpaid arrears ofprincipal andinterest accounted for
34.7percent.Debtservicepaymentrequirementfor1996amountedtoUS$4.5billion,whilebudgetary
provision ofUS$2 billion wasmade fortheyear. Nigeria 'sexternal debtservice, therefore, remains
asignificantproblem.Theaccumulationofdebtservicearrearsisbeingcompoundedbypenaltycharges,
andthishasnotpermitted reduction indebtstock despite thefactthatgovernment hasbeenservicing
itsexternal debtwithUS$2 billion annually inthepastfiveyears. Theinterest rateelement attributable
totheloanisquitesubstantialandanyeffortorarrangementtowrite-offthisinterestandgivemoratorium
fortherepayment ofcapital, would putNigeria inabetter position torevitalize itseconomy.
Mr.Chairman, withrespect totheprincipal concern ofourtrading partners regarding the
16items which areonNigeria 'sImport Prohibition List, Ihavethedutytoreport thattheimport
prohibitions andtrade restrictions areatanadvanced stage ofactive consideration byGovernment.
Theprohibitions havebeenreviewed bytheTariff Technical Committee following thereport submitted
andappropriate recommendations made bymydelegation afterourFebruary Consultations. Thereport
oftheTariff Technical Committee hasbeensubmitted totheTariff Review Board. ThisBoard meets
onceayear, justbefore thebudget ofthefollowing year. Thereport oftheTariff Review Board which
contains recommendations toGovernment onthecurrent trade restrictions under Article XVIII (B)
ofGATT 1994 willthenbefurther considered forafinaldecision byGovernment.WT/BOP/R/18
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Tothisend,Iwould liketoinform andassure theCommittee thatthenecessary technical and
legislative processes have been initiated withaview toeliminating, andphasing-out theimport
prohibitions. Inthisconnection, positive recommendations, subject totheapproval byGovernment,
havebeenmade fortheelimination andphasing-out oftheimport prohibitions, beginning from1997.WT/BOP/R/18
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ANNEX II
Statement bytheIMFRepresentative
Theinformation provided inthestatement bytheIMFRepresentative fortheJanuary 1996
discussions oftheWTO Committee onBalance ofPayments Restrictions ofNigeria (EBD/95/153,
Revision 1)remains pertinent asbackground totheconsultation. Thisupdate reviews developments
subsequent totheissuance ofthatpaper.
1. Background
Economic conditions inNigeria have continued tobedifficult. RealGDP grew byonly
2.2percentin1995, andthereislittleindication thateconomic activity haspicked upthusfarin1996.
Capacity utilization intheindustrial sector wasoftheorder of30percentinthefirsthalfof1996.
Investor confidence appears tohaveremained weak, reflecting thecurrent circumstances.
Some progress has,however, beenmade inreducing macroeconomic imbalances. Inflation
declined toanannualized rateof40percentinthefirsthalfof1996, from52percentin1995 (end-
period). Theoverall deficit ofthefederal government wasreduced from8.8percentofGDP in1994
to0.4percentin1995. Although thefiscal deficit in1995partly reflected below-market interest rates
ongovernment securities, theimprovement could beattributed toanincrease inthedomestic price
ofpetrôleum products, which raised petrôleum-related revenue, aswellastoasharp cutincapital
expenditures.
Thebalance ofpayments hasalsoimproved; thecurrent account deficit narrowed from
2.9percentofGDP in1994 to1.4percentofGDP in1995, andafurther improvement isnow
projected for1996. Gross international reserves rosefrom US$0.9 billion (1.3months ofimports)
atend-1994 toUS$2.3 billion (2.9months ofimports) atend-June 1996, butexternal payments arrears
accumulated byanadditional US$3.1 billion toUS$12.1 billion overthesame period. Theexchange
rateintheautonomous market hasappreciated slightly toN81=US$1 from N82inlate1995.
2. Policy directions in1996
In1996theGovernment hasmaintained thepolicy thrust initiated in1995. Thepolicy statement
made bytheFinance Minister atthetimeofannouncing the1996 budget outlined theGovernment 's
objectives ofrestoring priceandexchange ratestability, further liberalizing theeconomy, andallowing
theprivate sector toplayalarger rôleintheeconomy. The1996budget aimed atfurther strengthening
thefiscal position andmonetary policy sought tolimitmonetary expansion to15percentwithaview
toreducing inflation to20-30 percentbytheendof1996. While maintaining ageneral policy of
government withdrawal fromproductive activities, theauthorities havenowdecided that,foranumber
ofpublic enterprises, theGovernment willseektoenter intoleases, management contracts, orjoint
venture agreements withforeign orlocalprivate sector partners.
Atthebeginning of1996, thelistofprohibited imports wasexpanded toinclude kaolin, while
hurricane lamps wereremoved from thelist.Scrap metal wasadded tothelistofprohibited exports
asofSeptember 16,1996. Witheffect fromJanuary 1,1996, payment ofhotelbillsbyforeign visitors,
airporttax,feesfortherenewalofresidencepermits,alliedservicesrenderedbytheImmigrationService,
andportandallied charges andinternational ticket fares, previously required inforeign exchange,
maybemade inlocalcurrency. Importers arerequired topaytheservice charge fortheComprehensiveWT/BOP/R/18
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Import Supervision Scheme atratesdetermined bytheFederal Ministry ofFinance, andallexports
from Nigeria aresubject topre-shipment inspection bygovernment-appointed inspection agents.
3. External prospects
Pending implementation ofacomprehensive adjustment program, Nigeria ’sexternal prospects
intheshort andmedium term remain precarious, owing toitsheavy debtservice burden, weak
performance ofthenon-oil export sector, anduncertainty regarding thefuture course ofoilprices.
Itwould beessential thataboldandcredible program ofmeasures beundertaken, including unifying
thedualexchange rates, accelerating privatization andpublic enterprise reforms, andliberalizing the
trade régime.
TheFund staffcontinues tobeoftheview thatthesteadfast implementation ofstrong
macroeconomic policies, rather thanresort totrade restrictions, isnecessary toachieve lasting
improvements. TheFund staffencourages theearlyunification oftheexchange ratesandtheadoption
ofaspecific timetable fortheelimination oftrade andexchange restrictions.