The International Monetary Fund (IMF) has stressed the need to allow the naira/dollar exchange rate to be determined by market forces, if the economy must grow and enjoy some stability.
In its report chronicling the outcome of its Team visit, led by Gene Leon, to Nigeria from December 14-17,last year and January 10–25 this year, the IMF said: “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 (IFEM).
“ 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 SMEs) at reasonable financing costs,” the report added.
As opposed to the IMF position, the Federal Government has continued to insist on defending the naira with the nation’s foreign reserves, warding off suggestions to devalue the local currency.
The global financial body, however, agreed with the authority’s ongoing efforts to promote targeted and core infrastructure, especially in the power and integrated transport network and housing. It called for a reduction in the cost of doing business, “through greater transparency and accountability,” as well as promote employment of youth and the female populations.
The IMF called for what it termed, “steadfast implementation of structural reforms,” and as well adopt a sound Petroleum Industry Bill, including the application of the Anti-Money Laundering/Combating the Financing of Terrorism framework, which it pointed out, will help strengthen the regulatory framework for the oil sector.
Emphasis, the global body said, “should be sustained on doing ‘more with less’ to improve the efficiency of public sector service delivery and create an enabling environment to attract investment.”
The report attributed Nigeria’s present predicament to the sharp decline in oil prices, a situation made worse by its dependence on oil revenues. It said the general government deficit doubled to about 3.3 per cent of the Gross Domestic Product (GDP) in 2015, despite a sharp reduction in public investment.
According to the report, the nation’s exports dropped by about 40 per cent, pushing the current account deficit to an estimated 2.4 per cent of GDP, adding that with foreign portfolio flows slowing significantly, “reserves fell to $28.3 billion at end-2015.”
The IMF stated that foreign exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have impacted significantly segments of the private sector that depend on supply of foreign currencies. Coupled with fuel shortages in the first half of the year and lower investor confidence, growth is estimated to have slowed to 2.8 percent in 2015 (from 6.3 percent in 2014), weakening corporate balance sheets, lowering the resilience of the banking system, and likely reversing progress in reducing unemployment and poverty.
Source: The Nation
