Business Maverick

Business Maverick

Nigeria Disagrees With Advice to Devalue Naira, IMF Says

A clerk at a currency exchange bureau counts Nigerian naira banknotes in Maiduguri, Nigeria, on Wednesday, May 1, 2019. External actors, such as NGOs, are providing an economic boost to Maiduguri as a tourism economy grows and livelihoods become dependent on them. (Photo: EPA-EFE / STR)

Nigeria’s government disagrees with the International Monetary Fund’s recommendations that it further marks down its currency that’s more than 18% overvalued to ease external imbalances, the Washington-based lender said.

Nigeria’s President Muhammadu Buhari’s administration sees currency pressures stemming from global outflows caused by the coronavirus pandemic and believes another depreciation would add to double-digit inflation, according to the IMF’s Article IV report for the country that was published Monday.

The disagreement underscores the policy challenges for the administration that has resisted growing calls from some businesses and state governors hurt by an artificially overvalued currency to liberalize the exchange rate. It also conflicts with market expectations for further devaluations after the central bank cut the value of the naira by nearly a quarter last year when oil prices collapsed during the pandemic.

Read more: Nigeria Central Bank Yields Rise May Signal Naira Devaluation

Authorities should immediately get rid of the premium paid on the parallel currency market and clear a dollar backlog that has hurt policy credibility, the IMF said. It also called for the unification of the various exchange rates and the removal of restrictions on access to hard currency for some imports.

The IMF’s recommendation is gradual but clear and multi-step exchange-rate reforms, “so that everybody knows where Nigeria’s going, which is often more important than what you do in terms of devaluation,” Jesmin Rahman, the lender’s mission chief to Nigeria, said in an interview before the release of the report.

Inflation in Nigeria reached a three-year high of 15.8% in December and while a 10% currency devaluation could push the rate up by as much as 2.5 percentage points, the impact would be less if the parallel exchange-market rate is already reflected in the prices of imported goods, the IMF said.

The central bank’s financing of the budget deficit must be phased to reduce inflation and higher interest rates may also be needed, the lender said. The central bank held its key rate for a second straight meeting in January.

Read more: Nigeria’s Addiction to Central Bank Money Seen Hard to Cure (1)

The IMF warned that slow economic growth coupled with high inflation could continue to fan social discontent, which spilled over last year with protests against a police unit accused of torture and assassinations.

A slow rollout of Covid-19 vaccinations in Africa’s most-populous nation could threaten the IMF’s projections for economic growth of 1.5% this year, from an estimated 3.2% contraction in 2020.

Click here to access the Bloomberg Vaccine Tracker

“Nigeria has a way to go before ensuring adequate vaccine doses for its population, which will be critical to economic recovery,” said Rahman. The IMF expects the economy to return to pre-pandemic levels only next year.

Gallery

Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted

X

This article is free to read.

Sign up for free or sign in to continue reading.

Unlike our competitors, we don’t force you to pay to read the news but we do need your email address to make your experience better.


Nearly there! Create a password to finish signing up with us:

Please enter your password or get a sign in link if you’ve forgotten

Open Sesame! Thanks for signing up.

We would like our readers to start paying for Daily Maverick...

…but we are not going to force you to. Over 10 million users come to us each month for the news. We have not put it behind a paywall because the truth should not be a luxury.

Instead we ask our readers who can afford to contribute, even a small amount each month, to do so.

If you appreciate it and want to see us keep going then please consider contributing whatever you can.

Support Daily Maverick→
Payment options

Daily Maverick Elections Toolbox

Feeling powerless in politics?

Equip yourself with the tools you need for an informed decision this election. Get the Elections Toolbox with shareable party manifesto guide.