CONFIDENTIAL
xxii
|will account for almost a quarter of public expenditure. With GDP growth likely to
be the strongest this year since 1985, inflation and the PSBR will now certainly
overshoot their budget targets.
SUB-SAHARAN AFRICA
Nigeria
74
The IMF Staff and Nigeria have reached agreement on the terms of a 15 month SBA
- but only after promises of substantial concessional finance to which the UK will
contribute $100 mn in 1989 conditional on the programme being approved and
substantial sums (up to $400 mn) being provided by other donors. (Preliminary
reactions from the US, France and others have been sympathetic without producing
definite commitments.) The Nigerians will not be making a drawing on the Fund.
GDP.
75 The programme is designed to strengthen recent efforts to control public
spending (on and off budget) and bring about a major reduction in domestic
imbalances. Consequently, the fiscal deficit for 1989 is now targeted at 8.4% of
Domestic financing of the deficit will be reduced to 1.3% of GDP. Net
domestic credit is programmed to rise by slightly over 9% in 1989 (against expected
growth of 27% in 1988). Broad money growth is projected to be just under 11% in
1989 (against 33% in 1988). As regards exchange rate policy, the Nigerian
authorities intend to unify the auction and interbank exchange rates and to manage
the single rate through the interbank market.
76
A major effort on the part of creditors will be required to fill the financing
gap (now estimated at $9.8 bn for 1989 on the basis of an average oil price of
$14.50 pb). An IMF agreement will open the way for the disbursement of some
$900 mn of gross new balance of payments loans from the World Bank, AfDB and Japan
in 1989. The bulk of the rest of the financing will need to come from the Paris
Club given that the commercial banks have adamantly refused to provide any new money
as part of their rescheduling agreement. In its financing gap projections, the IMF
is assuming that Paris Club creditors will reschedule 100% of original maturities,
amortisation on previously rescheduled debt, and moratorium interest. This would
provide debt relief of $4.5 bn in 1989. If non-Paris Club official creditors also
reschedule on similar terms, the total debt relief resulting from rescheduling
(commercial bank and official sector) in 1989 could amount to $8.6 bn. Allowing
for all these sources of finance leaves a residual gap of $300 mn to be closed by
the aid package.