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HomeBusiness NewsIMF asks Nigeria to dump multiple exchange rates, lift forex restrictions

IMF asks Nigeria to dump multiple exchange rates, lift forex restrictions

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The International Monetary Fund urged Nigeria on Thursday to lift its remaining foreign exchange restrictions and scrap its system of multiple exchange rates in order to revive its economy, which is in its first recession in 25 years.
The recommendation came in the Washington-based Fund’s regular assessment of the country’s economy. A staff report, an accompanying document seen by Reuters and addressed to the IMF’s executive board, outlined a raft of failings in Nigeria’s handling of its economy.

President Muhammadu Buhari in AGH

Nigeria fell into recession last year largely due to the impact of low oil prices and militant attacks on energy facilities in the Niger Delta oil hub. Crude sales account for more than 90 percent of foreign exchange earnings and two-thirds of government revenue.
President Muhammadu Buhari has rejected a devaluation of the naira currency and backed restrictions imposed by the central bank that force firms to buy dollars needed for imports for a premium on the black market, where the currency trades around 30 percent weaker than the official exchange rate.
The fund said its directors “urged the authorities to remove the remaining restrictions and multiple currency practices, thus unifying the foreign exchange market and helping regain investor confidence”.
Nigeria, Africa’s most populous country, has at least five exchange rates which include the official one, a rate for Muslim pilgrims travelling to Saudi Arabia, one for school fees abroad and a retail rate set by licensed exchange bureaux.
The IMF’s verdict comes weeks after the budget ministry published its Economic Recovery and Growth Plan for 2017 to 2020 which called for a market-determined exchange rate. However, the plan offers few concrete steps.
Nigeria has not asked the Fund for fiscal support but its recommendations may influence institutional lenders ahead of the annual spring meetings with the World Bank.
The World Bank has been in talks with Nigeria for more than a year over an application for a loan of at least $1 billion and the African Development Bank has $400 million on offer. But talks have stalled over economic reforms.
Nigeria’s economy contracted 1.5 percent last year.
“Under unchanged policies, the outlook remains challenging,” the report said, adding that growth would “pick up only slightly” to 0.8 percent this year, mostly reflecting some recovery in oil production.
The Fund said the country’s fiscal deficit increased to 4.7 percent of GDP in 2016, up from 3.5 percent in 2015, due to revenue shocks.
And it made recommendations regarding the country’s banking sector, which has seen lenders who fuelled an oil sector credit boom being hammered by the impact of low oil prices which spawned foreign exchange shortages and the naira’s plunging value.
The Fund said it encouraged “quickly increasing the capital of undercapitalized banks and putting a time limit on regulatory forbearance”.
However, it also said it welcomed efforts to strengthen the resilience of the banking sector.
“In light of the persisting internal and external challenges, they emphasised that stronger macroeconomic policies are urgently needed to rebuild confidence and foster an economic recovery,” the statement said of the board’s assessment.
© Reuters News

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