25 February 2016, Lagos – The Central Bank of Nigeria needs to devalue the naira by adjusting the official exchange rate of N199/dollar to a more market-determined exchange rate, the International Monetary Fund has said.
This position sharply differs from that of President Muhammadu Buhari, who insisted that Nigeria would not devalue the currency.
A former Secretary-General of the Commonwealth of Nations, Chief Emeka Anyaoku, has, however, warned that naira devaluation could trigger an economic disaster for the country, urging Buhari not to yield to pressure to devalue the currency.
But the Washington-based monetary fund said in a statement on Wednesday that Nigeria’s economy was suffering from the impact of a sharp decline in oil prices, which made naira devaluation a necessity.
The statement read, “Nigeria is facing the impact of a sharp decline in oil prices. Eliminating existing macroeconomic imbalances and achieving sustained private sector-led growth requires a renewed focus on ensuring the competitiveness of the economy.
“As part of a credible package of policies, the exchange rate should be allowed to reflect market forces more and restrictions on access to foreign exchange removed, while improving the functioning of the interbank foreign exchange market.
“It will be important for the regulatory and supervisory frameworks to ensure a strong and resilient financial sector that can support private sector investment across production segments (including the SMEs) at reasonable financing costs.”
The IMF statement was released after its 2016 Article IV Mission to Nigeria.
It noted that the team met with Vice President Yemi Osinbajo; the Minister of Finance, Mrs. Kemi Adeosun; the Minister of Budget and Planning, Senator Udo Udoma; and the Governor, CBN, Mr. Godwin Emefiele.
According to the fund, foreign exchange restrictions introduced by the CBN to protect reserves have impacted significantly on segments of the private sector that depend on adequate supply of foreign currencies.
“With oil prices expected to remain low for a long time, continuing risk aversion by international investors and downside risks in the global economy, the outlook remains challenging. The authorities’ policy response has focused on seeking to support growth, while preserving international reserves. The draft 2016 budget envisaged, appropriately, a significant shift in the composition of fiscal spending toward capital investment while increasing the allocation for a social safety net. At the same time, the CBN has eased monetary conditions.”
The IMF also noted that “in the light of the significant macroeconomic adjustment that is needed to address the permanent terms-of-trade shock, it will be important to put in place an integrated package of policies centred around: (i) fiscal discipline; (ii) reducing external imbalances; (iii) further improving efficiency of the banking sector; and (iv) fostering strong implementation of structural reforms that will enhance competitiveness and foster inclusive growth.”
Anyaoku said at the 40th and 7th anniversary symposium organised by the Ondo State Government on Wednesday in Akure that “those calling for official devaluation of the naira need to come up with a good answer to Nigeria’s current problematic situation with its currency.
“An incontrovertible fact is that with the current level of the country’s dependence on imported goods resulting in a monthly import bill that is about four times the value of its main export (crude oil) that is traded in the US dollars, official devaluation of the naira via-a-vis the dollar will inevitably produce a further rise in inflation to the detriment of all of us including the masses.
“Besides, in such circumstances, devaluation will lead to an unacceptable drain in the country’s external reserves that is already worryingly depleted.”