Memorandum on Economic and Financial Policies of the Federal
Government of Nigeria for 1999
I. Introduction
1. Nigeria has enormous economic potential. It has a vibrant private sector, highly motivated entrepreneurs, vast and fertile agricultural land, and a large domestic market. It is the seventh-largest oil exporter in the world (2 million barrels per day) and is richly endowed with other natural resources as well.
2. Yet Nigeria's economic and social development remains far below even the minimum expectations of the population. Per capita income amounted to only US$240 in 1997, substantially below the level at the time of independence in real terms. Equally disturbing, the country's social indicators have slipped to well below the average for developing countries: half the population lives in absolute poverty, life expectancy is only 52 years, and the infant mortality rate is as high as 84 per 1,000 live births. Mismanagement of our resources, overregulation of our economy, and, until recently, price and exchange rate distortions, have been at the root of Nigeria's economic malaise.
3. In recent years, some progress was made in stabilizing the economy, introducing greater competition, and strengthening the financial system. Inflation was brought down from 77 per cent in 19941 to 10 percent in 1997 and the exchange rate has remained stable. Exchange controls on current international transactions have been almost fully eliminated, interest rates have been deregulated, and restrictions on competition and private sector participation have been removed in most sectors of the economy. A number of measures have also been taken to address financial sector distress, including raising the minimum paid-up capital requirement, liquidating insolvent banks, improving loan recovery, and imposing sanctions for financial malpractice.
4. However, the fiscal adjustment that helped achieve macroeconomic stability did not pay adequate attention to the quality of public spending. While very large sums were spent on priority projects of doubtful viability, basic infrastructure—roads, water supply, sewerage, and electricity—was allowed to deteriorate to its current state of severe disrepair. State and local governments, which are responsible for the bulk of social services, also bore a disproportionate burden of the adjustment in spending. Moreover, economic activity continued to be hampered by poor performance of the large public enterprise sector, which led, in particular, to severe shortages of power and fuel, as well as inadequate telecommunications services. In addition, poor governance and abuses in the management of public resources have been severe obstacles to realizing the potential of the private sector, which would allow Nigeria to reduce its present heavy dependence on petroleum for foreign exchange earnings, government revenues, and economic growth.
5. Moreover, our external debt remains large. Over the last several years, the government serviced only part of its external debt. Interest not paid and interest accruing on unpaid debt service became new debt. Thus, despite the imposition in 1994 of an embargo on contracting new debt—as well as the low level of disbursements from existing commitments and ongoing debt conversions and buybacks—the outstanding stock of external debt has failed to decline. At the end of 1998, the stock of debt disbursed and outstanding stood at an estimated US$28.8 billion, and of this, some US$17.7 billion represented arrears, almost entirely to Paris Club creditors. The latter included some US$1.3 billion overdue payments on loans contracted after October 1, 1985, the cutoff date to be eligible for rescheduling that was established in the first of Nigeria's three past Paris Club reschedulings.
6. The sharp decline in world oil prices in 1998—and the ensuing one-third fall in oil receipts (US$5 billion)—has aggravated Nigeria's already difficult economic situation. In 1998, real GDP growth slowed to an estimated 2.3 percent, and real national income declined substantially owing to the fall in oil prices. Inflation rose from a low of 6 percent in the 12-month period ended March 1998 to an estimated 15 percent in December 1998.2 The balance of payments also weakened sharply, with the current account balance shifting from a surplus of US$1.9 billion (4.9 percent of GDP) in 1997 to a deficit of an estimated US$3.1 billion (9.1 percent) in 1998. Official foreign exchange reserves remained unchanged at about US$7.2 billion (equivalent to 6.8 months of imports) by end-1998, and a further US$3.1 billion in external arrears was accumulated during that year.
7. The reemergence of a large fiscal deficit, together with the worsening of fuel and power shortages, contributed to these inflationary and balance of payments pressures. In 1998, the crude oil revenue of the Federation declined by 123 billion (4 percent of GDP).3 Recurrent federal government expenditures increased by 48 billion—substantially more than budgeted—largely on account of the increase in public sector salaries that took effect on September 1, 1998 and higher overhead expenditure. Total federal government capital expenditures, which were broadly as originally budgeted, were 67 billion higher than in 1997.4 Importantly, expenditures of state and local governments (including the special funds) were also higher, by 45 billion. "AFEM" profits5 were for the first time distributed to these tiers of government, which was more than enough to compensate for the decline in Federation revenue and the associated fall in distributions to the state and local governments (including the special funds). Accordingly, the fiscal balance, on a consolidated basis6, deteriorated from an overall surplus of 35 billion (1.1 per cent of GDP) in 1997 to a deficit of 256 billion in 1998 (equivalent to 8.6 percent of GDP). Owing to a large drawdown of government deposits and an increase in bank credit to the government to finance the deficit, broad money increased by an estimated 25 percent, substantially more than expected.
II. The economic programme for 1999
8. Nigeria thus faces daunting challenges in its efforts to revive economic growth and to improve the living conditions of its people. Our strategy is to encourage private sector-led economic growth. Its main elements include
maintenance of stable and consistent macroeconomic policies;
reallocation of public spending toward health, education, and essential infrastructure, especially in the areas of transport and water supply;
elimination, over the medium term, of the commercial function of the public sector through deregulation and privatization, as well as through further trade and exchange liberalization; and
strengthening of government institutions, with a view to increasing transparency, reducing corruption, and building the capacity to implement sound and stable policies and to deliver efficiently basic services to the population at large.
9. In the context of this strategy, the government has developed a programme for 1999 and has begun to implement a number of strong measures, as discussed below. The first priority of the programme is to maintain macroeconomic stability and to lay the foundation for a sustained economic recovery. Inflation should not exceed 12 percent by the end of 1999, and growth in non-oil GDP of 3 percent is expected on the basis of the projected rise in agricultural production. (Given the projected 10 percent fall in crude oil production, a decline in overall real GDP is likely).
A. Fiscal Policy
10. A key element of the programme is fiscal adjustment, which aims to minimize the adverse effects of the oil price decline and the disruptions in our crude oil production. These factors together would reduce budgetary revenue in 1999 by an estimated US$2.4 billion, equivalent to 210 billion (6.8 percent of GDP), assuming—conservatively—an average world oil price of US$9 per barrel. We thus introduced the following bold measures in the context of the 1999 Budget:
Deregulation of domestic petroleum prices, which allowed the removal of the implicit subsidy on domestic consumption of petroleum products and introduction of a consumption tax on petroleum products, effective December 21, 1998. These measures should yield a 78 billion increase (2.5 percent of GDP) in revenue.
Broadening of the coverage of the value-added tax (VAT) and enhancement of its compliance. The number of collection offices will be increased by at least 30 before end-May 1999; a number of exemptions from the VAT have been removed (e.g., airplanes, commercial vehicles, locomotives, ships, spare parts, newspaper and magazines, and water treatment chemicals), with effect from January 1, 1999; and eight zonal VAT tribunals will be established in the first quarter of 1999. These measures are expected to yield a 12 billion increase in tax revenue.
Reintroduction of an excise duty on tobacco, cigarettes, and spirits at a rate of 40 percent, effective January 1, 1999. This should result in about 8 billion in additional revenue.7
Improvement in customs administration. The Automated System of Customs Data (ASYCUDA) will be rolled out; duty exemptions will be reduced; and smuggling at key border crossings will be addressed with increased vigilance. These measures should generate an additional 6 billion in tax revenue.
Cutback in federal government capital outlays (including the joint venture cash calls, the priority projects, and the PSTF expenditure) by some 234 billion (7.6 percent of GDP).8
Containment of the wage bill in 1999 to a doubling from the 1998 level (an increase of 44 billion). The quadrupling of wages announced in September 1998 has been partially rolled back.
11. These measures are estimated to yield net savings of 291 billion (equivalent to 9.4 percent of GDP), more than offsetting the loss in oil revenue. On this basis, the 1999 Budget envisages an overall deficit of 290 billion (9.3 percent of GDP), compared with the 371 billion deficit (12.4 percent of GDP) which would have resulted in 1998 if all foreign exchange-denominated budgetary transactions had been valued at 86=US$1.
12. Since the preparation of the 1999 Budget, world oil prices have improved somewhat. Should the oil price turn out to be higher than the budget assumption of US$9 per barrel, the government will deposit the excess proceeds in a special Federation reserve account at the Central Bank of Nigeria (CBN). After the exact amount of the excess proceeds is established each quarter, a portion will be allocated to external debt service (a first charge deduction), and the remainder will be distributed to federal, state, and local governments according to the statutory Federation revenue sharing formula. Most of the excess proceeds distributed to the Federal Government will be devoted to essential social spending and to development of the oil-producing areas, with the remainder to be used to reduce the deficit. Given the volatility in world oil prices, we will be able to determine the specific allocations of such proceeds only after the exact amounts are established each quarter. If the oil price averages US$11 per barrel, as currently projected, an additional 97 billion in revenues would accrue. We would then expect to allocate some 69 billion to the priority areas mentioned above, and to reduce the overall deficit by 28 billion. The deficit would thus be contained at 262 billion (8.4 percent of GDP).
13. In addition to containing the deficit, the government will enforce strict discipline in budgetary management. Specifically, ministries and agencies are being obliged to discontinue the practice of entering into contracts with local suppliers and contractors without budgetary allocation. In the past, large extrabudgetary commitments were incurred through this practice, and substantial arrears have accumulated to local contractors. We are allocating 1 billion in 1999 to pay for part of the domestic arrears that have already been verified by the National Economic Intelligence Committee. We will undertake an extensive review of domestic arrears and, at the conclusion of the review, determine the appropriate modalities for settling outstanding arrears.
B. Social Expenditure and Poverty Alleviation
14. Another key objective of the programme will be to safeguard health, education, water supply, and other essential services, the bulk of which are provided by the state and local governments. In view of the fall in the Federation revenue in 1999, such services would be seriously at risk unless concerted efforts were made to increase resources available to state and local governments. We have thus announced in the 1999 Budget that (a) the National Priority Projects will no longer be deducted from Federation revenue as a first charge (this resulted in 26 billion in added revenues to state and local governments), and (b) the state and local governments' share of the VAT was raised from 75 percent to 85 percent (this, along with the projected increase in VAT revenues, will provide them with an additional 15 billion). In addition, as noted above, a major portion of any excess oil proceeds will be distributed to the state and local governments in accordance with the Federation revenue-sharing formula. Altogether, these measures will generate significant additional revenues that should assist the state and local governments in their efforts to extend social services
15. In addition, we will (a) continue to direct resources into the PSTF to resuscitate key social infrastructure throughout the country, such as roads, water, health, and education; (b) streamline our targeted antipoverty programme, the Family Economic Advancement Programme (FEAP), which channels resources for the benefit of the rural population; (c) provide adequate funds in the 1999 Capital Budget for the enhancement of vocational skills development and the Rural Employment Promotion Programme, so as to provide self-employment in the rural areas; (d) reconstitute the Oil Mineral Producing Areas Development Commission (OMPADEC), with a view to addressing the development needs of the oil-producing areas of the country; and (e) allocate a portion of the excess proceeds to these areas in the form of a federal government budgetary subvention above and beyond their share of any proceeds distributed in accordance with the Federation revenue-sharing formula. In cooperation with international agencies, we shall by April 1999 commence a review of key measures that we can implement to strengthen our capacity to extend the social safety net, which is limited at present.
C. Monetary and Exchange Rate Policy
16. While the increased allocation for social expenditure described above will help mitigate the hardships being borne, particularly by the poorer segments of our population, sustained and substantial reduction of poverty will ultimately require a rapid and broad-based development of the economy, led by a rapid expansion of agriculture, manufacturing, and solid minerals. This will require, in turn, the maintenance of low inflation and a competitive exchange rate over the medium term. There has been some loss of our competitiveness over recent months as a result of the acceleration in inflation, the increases in the minimum wage, and the major depreciation of the currencies of Asian and other countries with which our agriculture and manufacturing sectors compete. The relatively unfavorable prospects for world oil prices over the next several years heighten the need to develop non-oil exports quickly, and, hence, to ensure a competitive exchange rate. We expect to achieve a substantial reduction in the costs of doing business in Nigeria by improving our customs administration, reducing inefficiency in our ports, rehabilitating key infrastructure, curbing corruption, and strengthening the judicial process; taken together, these actions would help offset the loss of price competitiveness mentioned above. This matter would be carefully reviewed periodically.
17. In the near term, the priority will be to maintain macroeconomic stability while allowing the interest and exchange rates to reflect market forces. A tight monetary policy will have to be pursued in order to achieve the targeted reduction in inflation and contain pressures in the foreign exchange market. This policy will likely result in higher interest rates for some time.
18. In order to absorb the excess liquidity that had built up as a result of monetary expansion during the second half of last year, we recently raised the marginal nominal interest rate for treasury bills from 13 percent to 14.5 percent and increased the minimum rediscount rate from 13.5 percent to 14.75 percent. Consequently, short-term interest rates have firmed up appreciably.
19. The government will maintain this tight monetary stance for the remainder of the year. Specifically, the CBN will limit the extension of credit to the Federal Government or the drawing down of its deposits to finance the deficit to 112 billion (US$1.3 billion), and it will refrain from extending any credit to banks or other private institutions. In addition, the CBN will carry out open market operations (primarily, sales of its holding of treasury bills), which should largely offset any increase in CBN credit that may arise from movements in other asset items. Taking these items together, the increase in the net domestic assets of the CBN9 in 1999 will be limited to 120 billion, or 55 percent of reserve money (the specific quarterly targets are found in Appendix I). The injection of domestic liquidity arising from such credit expansion will be almost fully absorbed by sales of foreign exchange by the CBN, as its net foreign assets will be allowed to decline up to US$1.3 billion.10 All these actions combined, we expect to limit the growth of reserve money to 8 billion, or about 4 percent, in 1999.
20. On the basis of this modest growth of reserve money, and some increase in the money multiplier, the CBN estimates that the growth of broad money will be limited to about 10 percent, consistent with the objective of reducing inflation to no more than 12 percent in 1999. This should allow the banking system to increase its credit to the private sector by 19 billion, or 5.9 per cent, after accommodating 95 billion (or 84 percent of the increase of total bank credit to the economy in 1999) for financing of the deficit of the Federal Government. Private demand for foreign exchange should then not rise appreciably in 1999, assuming that the exchange rate would remain broadly stable. Consistent with this projection, the CBN plans to maintain its supply of foreign exchange to the market at about the same level as last year. To this end, the government will meet the expected decline in the CBN's foreign exchange receipts in 1999 (US$1.5 billion), and increases in payments of external debt service resulting largely from a carryover of payments that had been scheduled for December 1998 (US$0.8 billion) and payments of cash calls under joint venture agreements in the oil sector (US$0.5 billion), by reducing the foreign exchange requirement of the Federation (by US$0.6 billion), drawing down foreign exchange reserves (by US$1.3 billion), and seeking external loans on highly concessional terms.
21. Should strong pressures for depreciation of the naira emerge despite the implementation of the above monetary programme, the CBN will tighten domestic liquidity further by selling government securities and reducing reserve money correspondingly, while pacing its sales of foreign exchange so that foreign exchange reserves do not decline by more than US$1.3 billion, as currently targeted. If such pressures persist in 1999 even after substantial monetary tightening, the CBN will consult as appropriate. If, on the other hand, pressures for appreciation of the exchange rate arise, the CBN will reduce sales of foreign exchange and allow a corresponding expansion of reserve money. In the event, both broad money and credit to the private sector will increase more than currently projected.
22. Our efforts to maintain economic stability will be underpinned by actions to ensure that the financial sector remains healthy. We will maintain our policy of no bailouts, revoke the licenses of the remaining distressed banks that failed to meet the recapitalization requirement as at end-December 1998, and enhance banking supervision and enforcement of prudential regulations by strengthening off-site surveillance and on-site inspections. We will continue to rigorously implement the Failed Banks Decree, which has resulted in the recovery of substantial amounts of money owed to both sound and distressed banks and has enhanced confidence in the banking system. We have recently brought all financial institutions under the supervisory purview of the CBN, with a view to ensuring more regular and harmonized examination/supervision of community banks, finance companies, primary mortgage institutions, and other specialized banks that continue to be at risk. Finally, we intend to carry out a review of the bank and nonbank financial system and to design an action plan to address the remaining problem institutions by December 1999. Meanwhile, a deadline of June 30, 1999 was set for Year 2000 compliance by banks in their mission-critical computer applications. Last but not least, it should be noted that the government restored in December 1998 the independence of the CBN in its conduct of monetary and exchange rate policies, as well as in the supervision of financial institutions. This substantially enhanced the CBN's capacity to implement the programmed policies.
D. Domestic Deregulation and Privatization
23. While economic activity may be constrained by tight monetary policy, the impetus for economic growth will come from freeing the energy of the private sector through deregulation and privatization. As regards the former, we recently enacted 11 laws that amended or repealed legislation that inhibited competition or conferred monopolies on public enterprises in the petroleum, telecommunications, power, and minerals sectors. We have also licensed a few private telecommunications companies and are discussing with a major oil company the possible development of an independent power-generating plant. To further consolidate this policy, we will review other legislation that constrains competition and amend it as needed, by March 1999, to eliminate the remaining constraints. We will also enact the legislation necessary to enable the establishment of an independent regulatory institution for the power sector and the further strengthening of the institutional capacity of the regulatory arms of the Department of Petroleum Resources and the National Communications Commission (NCC) by May 1999.
24. In addition, with respect to petroleum products, the government
liberalized the importation of petroleum products (effective December 21, 1998);
deregulated the domestic market (also effective December 21, 1998), allowing distributors and marketers to freely set prices in line with their costs and market forces, subject to maxima negotiated trilaterally during a transition period; and
will strengthen the regulatory framework for the petroleum market to ensure fair competition, and to enforce quality control and safety and environmental standards by end-May 1999.
The above measures, together with the rehabilitation of the refineries, should improve the supply of petroleum products and soon eliminate the shortages that have impeded economic activity.
25. Furthermore, with the aim of making competitive enterprise the moving force in the national economy, the government has assigned privatization and related institutional reforms a high priority. Our programme encompasses the privatization or commercialization of all public enterprises engaged in activities of a commercial nature; once this programme has been completed in three- to four-years' time, no activity of a strictly commercial nature should be carried out by the federal government. Our strategic objective over the next few months is to make the privatization process difficult to reverse, while observing the sound practices and full transparency needed to ensure sustained public support. To help guide the privatization process and establish the necessary legal and regulatory structures, advice will be sought from the World Bank. Furthermore, the government will seek specific assistance from the International Finance Corporation (IFC) on the sale of selected enterprises.
26. Our privatization programme was launched in October 1998 by inviting from potential strategic investors expressions of interest in the acquisition through joint-venture arrangements of a 40 percent share in 19 major public enterprises slated for partial privatization. The intent was to sell at least a 40 percent share to strategic investors initially and then 20 percent to local investors, with the remainder to be retained by the government. At the same time, we sought applicants to serve as our financial and technical advisors in this process, and several international merchant bankers have already been selected. The government will shortly be signing contracts with those advisors selected for enterprises slated for early action, and it is expected that they will begin their due diligence work in Nigeria by mid-February.
27. The companies slated for early action include the following:
NAFCON (fertilizer). We will bring this key manufacturer of fertilizer to the point of sale (i.e., commencement of negotiations with the selected strategic investor) by end-May 1999.
Nigerian Airways. With IFC as advisor, we expect to bring Nigerian Airways to the point of sale by end-May 1999.
Refineries. The rehabilitation of the Kaduna refinery is now near completion. We expect that it can be brought to the point of sale by end-May 1999. The partial privatization of the other three refineries will follow during the second half of 1999.
NITEL (telecommunications). We will ensure that the selected advisor completes due diligence, taking into account alternative sector structures, by end-May 1999, with a view to bringing NITEL to the point of sale by end-September 1999. Necessary revisions of the legal framework and NCC's mandate will be enacted by end-May 1999.
NEPA (power). We will ensure that the selected technical advisor initiates by the end of March 1999 a study on the restructuring of NEPA into various component entities (generation, transmission, distribution, and/or regional); a decision on its breakup and initiation of the privatization of the various entities will follow by September 1999. The supporting regulatory mechanism will, as stated above, have been enacted by end-May.
Other firms. We will sell off the remaining government and parastatal shares in five banks and in most of the cement and oil marketing companies already listed on the Lagos stock exchange by end-May 1999.
28. The government will, in consultation with the World Bank, establish by February 12, 1999 an institutional arrangement that should enable it to achieve the privatization objectives described above. In addition, we anticipate that by the end of 1999 several of the remaining enterprises in the programme will have been brought to the point of sale, and that the others will have moved to the valuation, bidding, or negotiation stages. It is also expected that the government's remaining shareholdings in the major enterprises discussed above (NAFCON, NITEL, NEPA, the refineries, etc.) will be partly or fully divested in the future.
E. Trade and Exchange Liberalization
29. The momentum of domestic deregulation will extend to external trade and payments. Following on the removal of some long-standing import prohibitions during 1996-98, bans on two more items (vegetable oils and plastic housewares) were removed in January 1999, and bans on an additional two (maize and barytes and bentonites) will be eliminated in the year 2000. We are also considering a proposal to abolish the remaining import prohibitions (on sorghum, millet, wheat flour, gypsum, and kaolin) that were introduced under the economic safeguard provisions of the GATT. Only three would remain, for safety (i.e., retreaded and used tyres and mosquito repellant coils) and moral (i.e., gaming equipment) reasons. Furthermore, prohibitions on the export of three crops (beans, yams, and rice) were abolished in January 1999, and those on the remaining four11 will be removed by the end of 2001.
30. In addition, as a step toward rationalizing the tariff structure, we are initiating a thorough study aimed at the simplification and considerable overall reduction of import duties, for consideration by the incoming government for adoption in the 2000 budget. The tariff increases made in the 1999 budget were meant to provide temporary relief to domestic producers affected by sharp declines in competitor countries' prices resulting from recent financial turmoil. We are establishing an Antidumping Committee in the Ministry of Commerce and Tourism to handle cases and complaints relating to dumping, issues of subsidies, and countervailing measures to protect Nigeria against unfair trade practices, consistent with our WTO obligations.
31. Nigeria continues to be a strong advocate of regional trade liberalization. Its non-oil exports benefit from the protocol on the Trade Liberalization Scheme of the Economic Community of West African States (ECOWAS), which provides for the elimination of trade barriers, including taxes and levies, in the ECOWAS subregion. This scheme not only will enable Nigerian enterprises to source raw materials and intermediate inputs at a zero duty rate from other countries in the subregion, but also provides new export markets for Nigerian manufacturers. Also, the tariff study mentioned above will consider ways to harmonize Nigeria's tariff structure with that of the West African Economic and Monetary Union.
32. As regards exchange controls, the programme envisages the elimination of the few remaining restrictions Nigeria maintains on payments of current international transactions, as well as of a residual multiple exchange rate practice. First, effective January 1, 1999, we abolished the official exchange rate of 22 per US$1. Second, during the course of 1999, the CBN will gradually shift its intervention from weekly AFEM allocations to an exclusive reliance on continuous buying and selling in the interbank market; in so doing, the possibility of divergent rates in the two markets will be eliminated by December 1999. Third, the debt conversion programme has been overhauled; waiting periods for remittances of dividends, interest, or other income have been significantly reduced and will be phased out. Fourth, with regard to the foreign exchange embargoes applied to exporters failing to repatriate export proceeds and to importers failing to substantiate actual imports, the CBN will work to find, by end-June 1999, an acceptable and practicable alternative means of enforcing compliance without giving rise to exchange restrictions. With these steps, it is anticipated that the naira will become convertible for current international transactions, and we will be able to accept the obligations of Article VIII, Sections 2, 3, and 4 of the IMF's Articles of Agreement.
F. Governance and Institution Building
33. Since taking office in June 1998, the Head of State has repeatedly stressed the government's determination to combat the pervasive corruption and the lack of respect for the rule of law. Important steps have already been taken in this area. The abolition, on January 1, 1999, of the official exchange rate removed a long-standing opportunity for personal gain at the expense of the public purse. The investigation of the alleged withdrawal under the previous administration of some US$2.3 billion of public funds from the CBN has already led to the recovery of a substantial amount; these efforts will continue and will be followed by appropriate legal action where necessary.
34. Further steps will be taken to enhance transparency in the management of all public resources. First, we will by June 1999 conduct a review of existing budgetary procedures to assess whether these are adequate and to determine what changes are needed to bring all National Priority Projects and extrabudgetary spending under budgetary controls. Second, expenditure management will be strengthened as reputable independent audit firms will certify on a quarterly basis that the budgetary warrants issued to spending ministries have been spent in accordance with the budget. Third, the legal requirement that all contracts in the public sector be subject to advertising, open competitive tendering, and public opening of tenders is now being rigorously enforced. Fourth, all public sector imports, including those relating to capital spending, will be subject to destination inspection to establish a proper valuation. Fifth, the government will not grant duty waivers unless these are explicitly provided for under the law. Sixth, audited accounts of the Nigerian National Petroleum Corporation (NNPC) for the years 1993-95 have been submitted to the Ministry of Finance; externally audited accounts for 1996, 1997, and 1998 will be completed and submitted to the Office of the Auditor General of the Federation (OAuGF) by July 1999 and published shortly thereafter. Seventh, a full accounting of the NNPC's upstream and downstream operations in 1998, including all oil revenues and related spending, will be published.
35. We recognize that greater transparency needs to be accompanied by a strengthening of institutions to foster accountability and enforce the rule of law. To this end, we intend to conduct a thorough review of the laws establishing the main principles12 and institutions13 in this area. This review, to be completed by May 1999, will allow the incoming government to consider whether the existing arrangements should be strengthened or revamped to provide for a single, more effective, and independent institution. We will also develop an action plan to strengthen the Office of the Accountant General (OAGF) and the OAuGF. In preparation for the transition to civilian rule, the Public Accounts Committee and the Public Accounts Implementation Tribunal will be revived in order to serve as the appropriate bodies for review and oversight of the audited public accounts, including the accounts of public enterprises and all public procurement activities.
36. The recent abolition of the official exchange rate and the reinstatement of the autonomy of the central bank are critical steps toward increasing the transparency and accountability of the central bank. Based on the recommendations of its international external auditors, the CBN is putting in place improved accounting procedures, including the move to real-time computerized recording and posting of all transactions. As well as strengthening financial controls, this system will greatly reduce reporting lags and expedite reconciliation of accounts among the branches. To further this process, the CBN has requested its international external auditor to supplement its annual statutory audit with a management audit in relation to (a) the verification of foreign exchange reserves as at end-1998, and (b) the reconciliation of these end-period stocks with the underlying flow of transactions during 1998, with a view to ensuring the timeliness and accuracy of the reporting of external transactions. In addition, information fully accounting for foreign exchange inflows to, and outflows from, the CBN (with large transactions separately identified) will be provided to the IMF staff each month during 1999.
37. Moreover, the government will no longer tolerate acts of indiscipline in the administration and management of our ports, and it will henceforth be mandatory for cargo inspections to be conducted at the appointed time by the recognized agencies. Efforts will continue to be made to limit the delay in clearance at ports to 48 hours; this will be facilitated by the installation of the ASYCUDA system at the Lagos and other ports, and by a reduction in the number of agencies authorized to operate at the ports. In addition, we have abolished the system of preshipment inspection of imports and exports, effective April 1, 1999, and replaced it with a system of destination inspection for imports; the performance of the preshipment inspection has been mixed at best, and its abolition has been requested by the representatives of the Organized Private Sector. Assistance from international experts will be considered to help ensure effective destination inspection, as is currently being discussed with experts in this area. Furthermore, in cooperation with international agencies, we will study the possibility of privatizing customs clearance at the major ports and of redeploying customs agents to the border posts throughout the country, with a view to increasing efficiency and reducing cross-border smuggling. This is to be achieved by end-March 1999.
38. More generally, we recognize that a sustained effort is needed to strengthen the civil service and improve its capacity for efficient administration and the delivery of essential services. We have begun dispensing with the services of all civil servants who have committed serious offenses; eliminating "ghost workers" who fail to register every six months for their paychecks; reinstating automatic retirement after 35 years of service or age 60, whichever comes later; and redeploying redundant or underemployed civil servants to areas where they can be more productive. We have begun the computerization of the civil service rolls and are seeking assistance from international agencies to study how best to implement, update, and monitor a centralized pay system. We have recently completed an assessment of certain tasks that we intend to transfer to private vendors during the course of 1999. We also intend to commence systematic manpower studies in 1999 and will initiate a comprehensive assessment of the appropriate functions and associated staffing levels of the civil service in June 1999.
39. Finally, numerous problems prevent the compilation of the